Tax Day

Since the stock market was pretty boring today, I thought I’d dedicate my blog post to taxes.  Don’t close your browser just yet.  It won’t be that boring.

There has been a ton of debate about what to do regarding the struggling economy and getting it back on track.  Some believe we should be spending our way out of this.  On the other hand, some believe we need to cut spending.  Some believe we need to cut taxes.  I’m actually a proponent of all of them depending on when and where and how much.  One thing I’m not in favor though is raising taxes.  Not only am I not in favor of raising taxes most of the time, but certainly not when we have one of the weakest economies in decades.  Yet, that’s seems to be what Washington thinks the solution is to help the weak economy.  Tax you to help someone without a job.  Can you say “redistribution”?  Taking from someone productive and giving it to someone that’s not productive is not what great economies are made of.  My definition of a great economy is moderate growth, some inflation, low taxes, controlled spending, and plenty of incentives.

There should definitely be some spending to help the economy get going.  It worked in 2003 when the war started.  Is it productive to drop bombs from planes?  No.  But, it does help with the multiplier effect.  A defense company gets a contract, hires more employees, who in turn buy more goods, which helps a retailer, which hires more employees, etc.  You get the idea.  I believe President Bush’s mistake was the spending was out of control.  I am happy about every penny spent on protecting us.  But, there was too much spending in other areas.  So, there has to be a control on spending.  The new administration is not heading in a direction of reduced spending.  If they have their way, they will make the spending by Bush look like pennies by the time they get done.  That’s not what we need.  The economy needs a shot in the arm but not uncontrolled spending.  That will someday lead to runaway inflation.  Let’s be clear though that we are facing deflation right now so all of the spending and stimulus isn’t having an impact on current inflation.  It’s the future that concerns me.  There has been a lot of discussion about a recent study that shows that for every dollar in government spending, the government brings in $1.04 in revenue but for ever dollar in tax cuts, the government brings in over $3.00 in revenue.   

With regards to taxation by the government, it sounds logical that if the government taxes more, then the government gets more revenue.  Technically that is correct.  The government does get more revenue but what if it could get even more revenue doing something else, like lowering taxes?  Sounds counter intuitive but the study above shows the impact.  

Now, let’s look at some facts about capital gains rates.  I’ve been pushing for more incentive based plans by the government.  How about tax cuts or credits for buying up empty homes by investors?  How about no capital gains on any stocks or investment properties for anything purchased over the next 12-24 months?  Look at the chart below.  You’ll see the result of lowering capital gains rates and the effect it has on realized capital gains as a percentage of GDP since 1978.  As I’ve said before, give people a reason to risk their capital and you’ll see the economy turn around.


Happy Tax Day!

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