Jan 30, 2012

What Does Deficit Reduction Have To Do With Higher Taxes?

[caption id="attachment_393" align="alignright" width="283" caption="Deficit reduction and higher taxes"]

[/caption] Nothing! The U.S. economy and its citizens have one major problem: it’s called their “elected officials in federal government.” These “elected officials” operating in a capacity as a fiduciary spend more money than the U.S. taxpayers (tax revenue base) bring in. Any smart consumer or small-business owner, when faced with this reality, would immediately and dramatically reduce his expenses to match his cash intake. Government officials refuse to accept the realities of the world and continue to spend taxpayer money and are afraid to make cuts, but more importantly, they cannot stop the concept of trying to buy special interests’ favor or votes. In order to avoid creating any discomfort for voters or special interest groups, they are turning to alternative methods. Method 1: Raise taxes in an attempt to increase revenues, which produces an uncertain outcome. Method 2: Borrow more money to avoid cutting expenses and unsustainable government programs. The federal government, based upon factual data supplied by the Congressional Budget Office, Congress, and the president, is fully aware that the on balance sheet expenses are grossly outstripping the current tax receipts and projections for the U.S. economy. The president and some senators and congressmen are suggesting raising taxes to reduce a portion of the deficit. There is no guarantee that raising tax rates will actually increase revenues. Increasing tax rates and reducing tax credits have at times in this country’s history proven to not increase total tax receipts. If the problem is an excessive expenditure issue, deal with it: Cut the expenses and balance the budget. Method 2, which is borrowing more money, works up to a certain point where the market no longer believes that you are on a sustainable path to be able to repay the principal and interest. This country currently borrows at historically low levels of interest rates and currently has historically high levels of leverage on a percentage comparison to GDP. This amount of leverage does not even include the off balance sheet higher levels of expenditure, which would be caused by increasing rates of interest for U.S. debt to clear the markets, and the forever increasing costs of Medicare and Medicaid in an aging population. Small-business owners across the U.S. are not hiring, making capital expenditures, or growing their businesses in any other way because of the fear that the government will confiscate their wealth through taxation. Small-business owners recognize that someone will have to foot this bill and class-warfare suggestions from politicians target them. Stop increasing tax rates on employers, savers, innovators, and entrepreneurs so that these successful U.S. wealth providers, who carry the burden of paying for the U.S. government, can continue to do so at a reasonable rate instead of being placed in a state of bankruptcy and discouraged from growing the pie for the benefit of all. This article originally appeared on Forbes.com.