AP United States History, pd. 5
8 June, 2011
Reforming America’s Tax Policy
The United States of America was a nation built on the foundation that all men are to be created equal and be given an equal opportunity towards economic advancement. The founding father’s revolted against a mere tea tax when today, we pay the government nearly a third of what we own. Essentially, the United States government is mooching off of its own people. As debates rage on Capitol Hill, the question remains: should the United States increase taxes or decrease taxes? The United States should in fact lower taxes whenever possible, as an economy is far stronger when stimulated by its consumers rather than by the government.
The principle of this argument lies in a libertarian perspective on economics of the likes of Milton Friedman, Thomas Sowell, and Walter Williams. If a person cannot understand this theory, they will not understand this argument. This principle is the idea that the markets should be stimulated by the people rather than by the government and that when the people invest their own money rather than the government investing money, businesses grow and can increase their profits which increases its efficiency which then in turn, helps the economy boom. This theory is reinforced by history. During the Reagan administration, there were tax cuts made in 1981-1982, and then again in 1986. This seems like a bad idea, considering how much money was spent on defense during his administration. However, Reagan’s presidency showed that a decrease in taxes brought about an economic boom. One might say that the failures in the policy were seen in George W. Bush’s term after Reagan. However, we see a discontinuation of the Reagan policies during Bush’s presidency. This is what, in my opinion, accounts for the collapse of the economy. And after all, as the economy booms, the amount of money that the government receives increases as well. The Soviet Union did the exact opposite of the United States. They rose taxes, rose spending, and it was not until the enacting of Perestroika did the Soviet Union see a rebound in its abysmal economy. Often times, socialists claim that the best economic system would be one comparable to the systems in Europe. However, countries in Europe are far worse off with their higher taxes. These high taxes keep the people from buying products and thus, the economy is unable to be stimulated. Everyone in France may have the same standard of living, but the standard of living does not meet the American standard at all. By decreasing the amount of money that the government has to begin with, we can decrease wasteful spending. Thus, cutting taxes would result in a booming economy and a decrease in wasteful spending. There are a couple ways congress can go about doing this.
The first way to reform taxes would be through a flat tax. A flat tax would be a flat 10, or 15, or 20% tax. This is a constant tax rate. Many believe that the flat tax is the best way to reform taxes, as it is simple, generates revenue, and is evenly distributed. However, there are cons that outweigh the pros. First off, a flat tax would increase the burden of the economy on the poor. One may say that this is fair, and in reality, it is. However, in a nation where such a low number of the population pays taxes to being with, it would seem like this would be redundant. Why implement a flat tax when you could just lower taxes all together. The second and more important point is how the flat tax affects the housing markets. A flat tax would destroy real estate because money is taken away from the realtor and the seller, thus not enabling the economy to increase its new homes sales, a cornerstone of a functioning economy. Though a flat tax is a good idea, it cannot stand alone.
Often times, people believe that the best way to make more money is by increasing taxes on the rich. True, this makes sense from a simplistic viewpoint, but this is not the case. The rich are the business owners in America. By restricting the wealth of the rich, we restrict the growth of business, and thus, restrict the growth of the market. In other words, by increasing taxes on the rich, we merely take money away from businesses. This leads to searching for capital through the state as the Soviet Union did. The state does not have the means to produce capital when only 50% of its population pays taxes. The raising of taxes on the rich is thus, ineffective. You cannot help the poor by eliminating the rich.
The alternative to this raising of taxes on the rich would be a completely opposite approach. By combining a flat tax with the idea of taxflation and a constant reduction of taxes when possible, a truly booming economy can be achieved. First, let’s look at what taxflation is. Taxflation is based off of a bracket creep. By lowering taxes, people make more money, they can move up in the tax bracket, more money is made, and more money is invested. When taxflation is combined with a flat tax, the middle class and lower class are able to be economically mobile while the upper-class continues to provide the capital necessary for an economy to function.
The principle I am trying to get at here is that taxes are necessary, but should be as low as possible. We are in the mess we are in due to high spending due to a high budget that was allowed because of high taxes. By the government cutting taxes, people are able to invest more money into the economy and the economy can boom. By cutting taxes, the government has less money to spend and thus, the United States can avoid future debt.