What is so difficult to understand about the concept of keeping money in the private sector to help our economy grow? When people have more money they spend more money. It is not really any more complicated than that. Increasing government revenues by increasing taxes is the intuitive approach, but history has proven it ineffective. Given a little thought it is not hard to see how when faced with a higher government burden both individuals and business’ will spend more time trying to hide their revenues than spending it on new equipment, employees, or in the case of the individual, the host of nonessential purchases that makes our economy work. When businesses and individuals are allowed to keep more of what they earn there is more money circulating in the private sector where wealth is created.
Those at the highest levels of our government in the Democratic Party, including our president, believe it is the job of the government to ensure equal distribution of the nation’s wealth through taxes and entitlement programs. Anybody who doubts the president’s philosophy on this simply wasn’t paying attention during the ’08 elections. Despite the presidents recent attempt at compromise many liberals fail to see the larger impact of these programs on the economy as a whole. The government can’t simply tax the successful and redistribute money through government programs. The approach fails on two levels. First when it comes to wealth the government is a Black Hole. The money doesn’t simply pass from one hand to another, but disappears into bloated government bureaucracies never to be seen again. Second faced with a higher tax burden the private sector doesn’t just stop growing, but contracts. As productions and revenues drop so does the amount of money flowing into the government’s black hole. In the end you end up with a downward economic spiral. This economic approach is simply not sustainable. Anybody who doubts this need look no further than the failing European States, or the many unfunded government liabilities that exist within the Federal and State Governments. It is truly ironic that as some in the United States wish to move us more towards the European Model, much of Europe is trying to escape the crushing reality of their system.
The only way to effectively “redistribute wealth” in our society is a strong private economy that provides jobs for our citizens. In this system the rich do get richer, but so do the middle class and the poor. As the wealthy accumulate resources they reinvest in their or others business’ to keep their assets growing. Money continues to circulate through investments and wages. For those willing to work hard wealth naturally redistributes itself. With the security of a strong economy entrepreneurs are willing to take chances on their ideas because the consequences of failure are less severe, the chances for success are higher, and investors are easier to find. If an idea fails you can always integrate back into the work force. In a weak economy when jobs are hard to come by failure could be catastrophic, and people, both entrepreneurs and investors, are much less willing to take chances.
In a healthy economy the pressure from citizens for the government to provide entitlements drops at the same time that money flowing into the treasury increases. With strong private sector businesses tax revenues increase even with lower rates. The concept is simple. A low percentage of a very large number is greater than a high percentage of a small or negative number. When business and personal income is high even a small percentage of income flowing to the government amounts to a lot of money. When the economy is shrinking you can raise tax rates all you want, but a high rate applied to small or nonexistent private sector revenues will not produce a lot of income for the government.