Basic Economics?
So a couple of posts back, I made a short comment about taxes, economics, and the stupidity of "people" (as a collective). This was done shortly after Oregon had two proposed tax increase measures pass in a special election. I think I've calmed down enough to expand on my short comment.
Let's star with a layman's "definition" of what a "good economy" is: simply put, when the private sector (that is, "you and I", NOT governments) is spending money, you have a "good economy".
Now, before you all blow a gasket, I realize this is NOT a technical definition, nor is it necessarily a complete definition. But let's think about it for a minute. If "everyday people" are buying things, then demand for items go up, which in turn causes the companies making these things to hire more people to increase the supply. Does this not "create jobs"? I assert that it does. Conversely, if "everyday people" stop buying things, then demand for things go down, which in turn causes companies to lay-off workers.
An oversimplification? Yes. But a foundation for discussion. It is not my intention to write a dissertation on economic theory here (nor do I feel that I would be qualified to do so), but there are some "common sense" things we can look at (and possibly even agree on).
Unfortunately, governments (be they federal, state, or local) don't use "common sense" (for the most part; as with everything, there are exceptions). When the economy goes "bad" (i.e. unemployment goes up), all they tend to see is that their tax revenue is shrinking. So the obvious answer is to increase taxes, right?
WRONG! Completely, totally, and 100% wrong.
The tax revenue is shrinking because the tax BASE is shrinking (meaning there are fewer people in the work force). By raising taxes in a "bad" economy, all you do is make the situation worse, because it leads to MORE unemployment, which further reduces the tax base, which further reduces tax revenue. But if you CUT taxes, you put more money into the private sector, which in turn causes more private sector money to be spent (boosting the economy), increasing jobs and the tax base, and thereby increasing tax revenue.
Makes sense, right? To me and many people, absolutely it does. AND it has been shown many times (if not all the time) that this DOES work. However, you'll find as many economists who disagree as those who do agree. Actually, I'm not sure that that is a true statement or not; perhaps it's more accurate to say that the media will find as many economists who disagree as those who do agree.
But it is my belief that instead of raising taxes in a "bad" economy, what governments should be doing is something to increase the size of the tax base (i.e. cutting taxes).
Actually, what they should do is make actual, real-world CUTS in the pork projects that they have. But do they? No. Research it: when was the last time a government made an actual cut to any non-critical program? Oh sure - they will make actual cuts to schools, police, fire, and other critical departments, but not to their "pet" projects. Why? So they can then go and propose tax increases and spend literally millions of dollars on a campaign and say "If you don't pass these tax increases, we'll have to cut schools, police, and fire budgets."
Which is EXACTLY what the governments in the State of Oregon did. And it's not the first time they've used this same rhetoric - they use it EVERY SINGLE TIME they want to increase taxes, or to avoid tax cuts. This is not an exaggeration; this is history. (Ok, ok - maybe "technically" it wasn't the "state" that did it; it was the public employee unions, teacher unions, other unions, the various PACs, etc. After all, it would be "illegal" for the "state" to actually do that - "wink", "wink", "nudge", "nudge".) All you have to do us go back and watch the political ads that were run. Those for tax increase measures, what did they say? "It's only a tax on 'the rich'." "If these measures fail, schools, police, and fire will suffer more cuts." "It's time we made corporations and 'the rich' pay 'their fair share'." And those against tax cut measures will still say "If these measures pass, schools, police, and fire will suffer more cuts."
I've come to the sad conclusion that (in general) government agencies do not care about the private sector; they only care about getting more and more taxes so they can spend more and more of OUR money on projects and programs that are a complete waste of time and money. So in "good" economic times, they'll suggest raising taxes to fund various wasteful programs "for the good of everyone". And in "bad" economic times, they'll suggest raising taxes because otherwise they'll have a revenue shortfall. And they won't change as long as they can convince the voters that they are right.
Which, unfortunately, happens way too often. Which brings me back to one of my other statements: "people" (as a collective) are stupid.
And that's what "they" are counting on.
Let's star with a layman's "definition" of what a "good economy" is: simply put, when the private sector (that is, "you and I", NOT governments) is spending money, you have a "good economy".
Now, before you all blow a gasket, I realize this is NOT a technical definition, nor is it necessarily a complete definition. But let's think about it for a minute. If "everyday people" are buying things, then demand for items go up, which in turn causes the companies making these things to hire more people to increase the supply. Does this not "create jobs"? I assert that it does. Conversely, if "everyday people" stop buying things, then demand for things go down, which in turn causes companies to lay-off workers.
An oversimplification? Yes. But a foundation for discussion. It is not my intention to write a dissertation on economic theory here (nor do I feel that I would be qualified to do so), but there are some "common sense" things we can look at (and possibly even agree on).
Unfortunately, governments (be they federal, state, or local) don't use "common sense" (for the most part; as with everything, there are exceptions). When the economy goes "bad" (i.e. unemployment goes up), all they tend to see is that their tax revenue is shrinking. So the obvious answer is to increase taxes, right?
WRONG! Completely, totally, and 100% wrong.
The tax revenue is shrinking because the tax BASE is shrinking (meaning there are fewer people in the work force). By raising taxes in a "bad" economy, all you do is make the situation worse, because it leads to MORE unemployment, which further reduces the tax base, which further reduces tax revenue. But if you CUT taxes, you put more money into the private sector, which in turn causes more private sector money to be spent (boosting the economy), increasing jobs and the tax base, and thereby increasing tax revenue.
Makes sense, right? To me and many people, absolutely it does. AND it has been shown many times (if not all the time) that this DOES work. However, you'll find as many economists who disagree as those who do agree. Actually, I'm not sure that that is a true statement or not; perhaps it's more accurate to say that the media will find as many economists who disagree as those who do agree.
But it is my belief that instead of raising taxes in a "bad" economy, what governments should be doing is something to increase the size of the tax base (i.e. cutting taxes).
Actually, what they should do is make actual, real-world CUTS in the pork projects that they have. But do they? No. Research it: when was the last time a government made an actual cut to any non-critical program? Oh sure - they will make actual cuts to schools, police, fire, and other critical departments, but not to their "pet" projects. Why? So they can then go and propose tax increases and spend literally millions of dollars on a campaign and say "If you don't pass these tax increases, we'll have to cut schools, police, and fire budgets."
Which is EXACTLY what the governments in the State of Oregon did. And it's not the first time they've used this same rhetoric - they use it EVERY SINGLE TIME they want to increase taxes, or to avoid tax cuts. This is not an exaggeration; this is history. (Ok, ok - maybe "technically" it wasn't the "state" that did it; it was the public employee unions, teacher unions, other unions, the various PACs, etc. After all, it would be "illegal" for the "state" to actually do that - "wink", "wink", "nudge", "nudge".) All you have to do us go back and watch the political ads that were run. Those for tax increase measures, what did they say? "It's only a tax on 'the rich'." "If these measures fail, schools, police, and fire will suffer more cuts." "It's time we made corporations and 'the rich' pay 'their fair share'." And those against tax cut measures will still say "If these measures pass, schools, police, and fire will suffer more cuts."
I've come to the sad conclusion that (in general) government agencies do not care about the private sector; they only care about getting more and more taxes so they can spend more and more of OUR money on projects and programs that are a complete waste of time and money. So in "good" economic times, they'll suggest raising taxes to fund various wasteful programs "for the good of everyone". And in "bad" economic times, they'll suggest raising taxes because otherwise they'll have a revenue shortfall. And they won't change as long as they can convince the voters that they are right.
Which, unfortunately, happens way too often. Which brings me back to one of my other statements: "people" (as a collective) are stupid.
And that's what "they" are counting on.
posted by TubaMeister at
12:36
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