Since money is such an important part of our lives, I thought I'd periodically check in with you and ask how your money attitude is. From time to time, we get involved in some thought-provoking conversations. I was recently engaged in such a conversation. A few days ago, we were sitting around the kitchen table and when our visitor found out what my career background was, he posed some rather timely and interesting questions. His questions included: who caused the economic crisis? Which is better for the economy, tax cuts or spending? And where was regulation during the banking crisis?
For me, who caused the economic crisis is an easy one to answer. I believe everybody has contributed to the economic morass we find ourselves in. It's systemic. It has no class distinction; it has no ethnic bias; and it has no gender preference. We all seem to have one systematic desire and that is to get more money.
But the question that jumps out at me is "Which is better for the economy, tax cuts or increased spending?" For purposes of this writing, I want to deal with taxes and look at spending at another time. You might ask, "What do taxes have to do with me, a person who is blind or visually impaired?" Well, in this society, you're either a tax payer or a tax taker. You work to pay money into the system so that when you retire or, if you have a debilitating disability, you take money out of the system. In this economy, paying taxes of some sort is unavoidable.
But back to our main question: How do tax cuts affect the economy? Studies show that tax cuts do stimulate the economy in the short term. The thought is that if you put more money in a consumer's pocket, that consumer will spend more, thus giving the economy a much needed jump start. However, studies also show that a prolonged period of low tax rates shrinks the government's ability to collect revenue. That results in a problem at all levels of government because low tax revenue means fewer public services. In your local communities, how do you feel when roads and highways don't get repaired; there's no money for sidewalks and curb cuts; water and sewer projects get delayed; funds for parks and recreation get cut; and garbage collection days get strung out? At the state level, witness what's happening in California where state workers are being asked to take days off; many state projects are being put on hold; and even teachers are being laid off. And now, our federal government wants to dip into the Social Security Trust Fund to make up for other revenue shortfalls.
I guess the reason people scream so loudly about their taxes is because, according to my research, the consumer bears the brunt of the tax burden in America. Individuals account for roughly 70 percent of taxes collected in the U.S., while corporations contribute 13 percent. The remainder is comprised of various and sundry taxes.
So, this raises several other questions for me. What is the most desirable tax rate for consumers? What is the optimal corporate tax rate? Is our tax structure fair?
It seems as though the consumer has a lot of responsibility for the economy resting on his shoulders. First, he must keep the economy going by spending, but then he is the biggest contributor funding the government. The tax code has been changed, reworked, tweaked or reformed a number of times over the last several years. Wouldn't it be simpler if the rule was: if you make more, you pay more? What if some of the loopholes were closed for both individuals and corporations? How about making it less attractive for corporations to shift production of products offshore but bring them back and charge exorbitant prices? I've been studying income statements for over 30 years and rarely, if ever, have I seen the corporate tax rate exceed the individual tax rate. It seems to me that our economy could flow much more smoothly if consumers had more money in their pockets to spend rather than paying the bulk of the tax bill. But that can only happen if corporations take up the slack.
I know I've just touched the surface here. And I know this is a subject ripe for debate. But, no matter how you look at it, it's your money too! Your attitude about what you spend, what you save and what you pay in taxes is important to the economy.
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