published Friday, August 12th, 2011

Taxes and economic growth

It's strange to hear those who want higher taxes argue that tax relief doesn't stimulate economic activity.

From a commonsense standpoint, it's clear that when people can keep more of their earnings, they have more to spend on goods and services, or to invest in ways that produce economic growth. In fact, we had a clear example just last weekend of tax breaks generating economic activity.

In preparation for students returning to school, Tennessee had a three-day sales tax holiday. Clothing up to $100 per item, school supplies up to $100 per item and computers up to $1,500 were exempted from the usual sales taxes.

The result was eye-opening. Customers jammed stores in Chattanooga and all around the state to take advantage of the tax break. Many shoppers came up from North Georgia, which is not having a back-to-school sales tax holiday this year.

News accounts said the same was true on Georgia's border with South Carolina. South Carolina had a sales tax holiday, and Georgians along the border flooded into that state to seek bargains, too.

It's hard to think of a better way to demonstrate that lower taxes can and do stimulate economic activity.

Some inaccurately point to the Bush tax cuts and say that tax relief is to blame for the current economic crisis. But that crisis was brought about largely by the housing market collapse, as the federal government pressured lenders to give too-large mortgages at adjustable interest rates to people with shaky credit. The interest rates eventually started rising, and many borrowers became incapable of making their payments, forcing millions into foreclosure.

We cannot see how higher tax rates would have headed off the housing market collapse, but higher taxes would have made it even harder for small businesses to invest and would have deepened the economic crisis.

Still, some are pushing for tax increases, based on the assumption that Washington can "invest" your money more productively than you can -- despite evidence to the contrary, such as the failed $862 billion federal "stimulus."

Others say it is wrong to have tax relief while Congress continues its deficit spending. But that simply means Congress should cut spending, not raise taxes!

Whatever the weaknesses of our economy, income tax relief isn't one of them.

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dfclapp said...

It is amusing to read editorials from city papers arguing against the value of taxes. Who do the writers think provided the streets, schools, sewers, fresh water, etc. that made the city a desirable place to work and live? Where was our editorial writer when our local governments used their revenue to help develop our city over the past generation (Enterprise South, the river front, downtown revitalization)? Did the trucking industry build the highways? Did the airlines build the airports?

Over 100 years ago, when the disparity between rich and poor was nearly as great as it is now, did it unify our country or did the broken mutual-benefit contract between the rich and the poor lead to violent labor disputes similar to what is happening in Europe now? It is as ridiculous to set up a straw man argument that taxes solve every problem as it is to say that cutting spending solves every problem. Just as with any city that hopes to entice businesses and residents, a necessary investment in infrastructure funded through taxes is an important part of any balanced approach.

August 12, 2011 at 5:43 a.m.
hambone said...

The people you see at the WalMart on tax free weekend are not the "Job Creaters" they are the "DEMAND Creaters".

Spending money on foriegn made goods will not create many jobs here, unless your a cashier or a part time greeter!

Government investing in infrastruture will create a better kind of DEMAND!

August 12, 2011 at 6:24 a.m.
EaTn said...

The right-wingers are in favor of the benefit of taxes; someone else's taxes that is. If the last ten years tax cuts stimulate the economy then we would be at full employment right now. Yes, irresponsible govt spending is a problem but so is lack of revenue. Govt spending is at 25% gdp and revenue is 15% gdp.

August 12, 2011 at 6:30 a.m.
moon4kat said...

Show us evidence that Bush tax cuts for the wealthy have helped the economy. Our economy is in the gutter while corporations and the ultra rich are getting a sweet ride with low or no taxes. Those tax cuts have been in effect for 10 years. Meanwhile, the middle class is squeezed and shrinking, unemployment is high, and wages are low for those who can find jobs. So, how do you conclude that tax cuts rich stimulate the economy?

August 12, 2011 at 8:29 a.m.
Rickaroo said...

If the stores had advertised a sale of 10% on those electronics and back-to-school items, which is basically the amount consumers saved during the tax-free holiday, most of them would have thought the "sale" negligible and probably wouldn't have bothered to turn out. But tax-free sounds so much juicier and enticing than a 10% sale, so they turned out like flies drawn to cow dung and, sure enough, created a surge in economic activity. So now, the main beneficiaries of this uptick in sales, Walmart and the other patriotic jobs-creating retailers, will no doubt take that increased revenue and create new living-wage jobs and give pay raises to their current low-wage employees, right? Yeah, right.

August 12, 2011 at 3:46 p.m.
Diskatopia said...

This is the classic strawman falsehood way of arguing, throwing out something almost no one is arguing for as if it is something else that many are pushing for. Almost no one is currently arguing for raising the taxes of the poor or middleclasses (well, no one except Perry, Cain, Bachmann, Paul, and Huntsman, according to tax plans they have proposed or statements they have made).

Most who understand economics are pushing for the rates on the wealthy and very wealthy (those making say $250,000 a year and up) to be raised to at least Clinton era rates, and preferably 1960s rates. There is a serious imbalance in tax rates in this nation when TRUE small businessmen (those making say $60,000- $200,000 a year)-- many dentists, doctors, lawyers, plumbers and electricians, and many other middle class to slightly wealthy people-- pay a higher average federal tax rate than the Forbes Top400 in income do. The best answer to save our economy and in the long run our nation is to get the rates on the wealthy back up high enough to encourage job creation (deductible cost) and deductible business investments before it is too late.

September 6, 2011 at 5:17 p.m.
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