Christian Debt Recovery

National Debt Under Bush 2007

June 25th, 2007 |

Author: Gavin

Income Taxes: A Major Issue?

By Erin Kent Magee

1st Republican Presidential Candidate from the State of Florida

Due to the Budget Deficit, taxation will be presented as a major issue in the upcoming election.

According to the Washington Post, tax revenues are at a 50 year low of less than 15% of our Gross Domestic Product.

We’re told that, to balance our budget and get out of debt, we could be forced to default on our loan from theSocial Security trust fund. As a result, we could wind up with no Social Security!

To balance the Budget, we can cut costs, or increase tax revenues. Further cuts could prove disastrous for many American families.

What can we do to increase tax revenues? Our President says this can only be done by taxing the rich at higher rates, but history shows this is not the case.

In the 1920s, tax rates were slashed from over 70 percent to less than 25 percent. What happened? Revenues rose from $719 million in 1921 to $1,164 million in 1928, an increase of more than 61 percent!

In the 1960s, President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from 90 percent to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62%.

President Reagan proposed sweeping tax rate reductions in the 1980s. What happened? Total tax revenues climbed by 99.4%.

As you can see, tax revenues tend to increase when tax rates are slashed, not when they are raised.

Here’s why: As tax rates rise, the wealthy tend to hide their assets. Bloomberg reports that, in 2007, Warren Buffett, who was then the world’s richest man, took a $100,000 salary for his 27th consecutive year. Most of his assets are being held in 5 different foundations.

As tax rates fall, more money is brought back into circulation. More is invested, which leads to jobs and even more taxable income.

However, cuts enacted under George W. Bush, which took effect between 2001 and 2003, appear to be an exception to the rule. According to the Congressional Research Service:

The U.S. economy entered into a recession in December 2007. Between the fourth quarter of 2007 and the second quarter of 2009, the economy shrank with real gross domestic product (GDP) falling by 4.1%. The unemployment rate increased from 4.9% in December 2007 to 10.1% by October 2009, and is currently still over 9%. As a result of reduced economic activity and government efforts to stimulate the economy, the federal budget deficit increased from 1.2% of GDP in FY2007 to 9.9% of GDP in FY2009. Most economic forecasts suggest the economic outlook over the next few months is not bright and will likely be characterized by high unemployment and sluggish economic growth. The long-term fiscal situation is unsustainable.

However, for tax cuts to have a positive impact on economic growth, they must be given as an incentive; a word which, recently, has fallen into disuse.

An “incentive” is a reason for doing something. If we want someone to invest in a project, we have to give him a reason for doing so.

Statistically, 85% of our nations wealth is controlled by 20% of our population. Thus, it stands to reason that the money to fund the infrastructures we need to achieve real growth will be provided by those who are among the 20%. The incentive we have to offer them is lower tax rates.

To be effective, a tax incentive must be offered in exchange for something; in this case, in exchange for investing in targeted infrastructures, such as renewable energy. Since such an investment will lower fuel costs and give taxpayers more spendable income, it will certainly spur the economy.

It makes no sense to offer a real tax incentive without a commitment on the part of prospective investors. This is “putting the cart before the horse”. This is why the “Bush Cuts” failed. They were offered across the board, without qualification. There were no stipulations on what prospective investors should do to qualify for reduced tax rates.

Tax cuts are not a magic bullet. If given in exchange for capital investment, history shows they can spur the economy. Thus, any extension of the “Bush Cuts” should be aimed at aimed at prospective investors and conditioned on real commitments.

Before granting cuts “across the board”, we must also remember that income taxes are not the only source of tax revenue.

Foreign Trade is another great potential source of revenue. However, we are now buying more than we sell, and this has created a deficit. From 2007 to 2010, our trade deficit with China, alone, was 1.26 trillion dollars, almost enough to pay off our national debt!

We must also assess our resources and determine where the money goes.

Based on recent news reports, many people have come to feel our economy is in a state of almost total collapse. This couldn’t be further from the truth!

The ongoing flow of federal tax revenue since the Treasury declared it had hit the debt limit on May 16th has been more than sufficient to cover the combined costs of federal spending on interest payments, federal wages, Medicare, Medicaid, Social Security and all other entitlement programs. (Source: Daily Reports, Department of the Treasury)

The problem is: from May 16th to July 7th, we paid out 56.7 billion dollars to Defense Vendors, which put us 30.7 billion dollars in the red.

Why weren’t we able to cover the cost of those payments? Where does the money go? In a word, it is going overseas. To avoid paying taxes, our multinational corporations have set up shop in foreign countries. The 10 companies that have the most untaxed foreign income – which include GE, Exxon Mobil and Microsoft – produced total income of almost 409 billion dollars. If taxed at the normal corporate rate of 12%, there would have been revenues of 49 billion dollars – more than enough to cover the shortfall in our budget for defense.

In terms of Gross Domestic Product, we are still the world’s leading economy. Our GDP is valued at 14.7 trillion dollars. China is our closest rival, with a GDP of less than half that amount.

If rated in terms of private wealth, we are still the world’s richest country. We have four hundred and twelve (412) Billionaires. Our closest rival is again, China, with 115.

We can indeed expand our economy. We have the resources. We have the technology.

We can put this country back on the right track. We can pledge allegiance to our flag, believing there will, in fact, be liberty and justice for all. We can make our government one that is based on the will of the people. Let us begin.

About the Author

Erin Kent Magee is a veteran with 10 years of prior federal service. He has worked for the Department of Defense and Department of the Treasury.

On April 5th, 2011, he filed his Statement of Candidacy with the Federal Election Commission as the 1st Republican Presidential Candidate from the State of Florida.

He believes our government can balance the budget and increase tax revenues without sacrificing entitlement programs or raising income tax rates.