The nation is $20 trillion in debt. What is the best way to cut the deficit, while funding necessary government programs?
Bernie Sanders wants to raise taxes on the rich and on wealthy corporations. Jack Kennedy espoused cutting personal and corporate income taxes across the board.
(Note: This op-ed assumes existing tax rates.)
Assume a corporation has net income of $100,000, and pays taxes at the rate of 25 percent. If you increase it to 30 percent, you will seemingly increase government tax revenues. That's Sanders' idea. In that example, he would leave the corporation with $70,000 after-tax income as opposed to $75,000. But every dollar of net income taken for taxes is $1 less available to the corporation for expansion, hiring employees or paying dividends.
Sanders is demanding the wealthy and large corporations pay their fair share (i.e., more) in taxes. But he would reduce corporate net incomes by increasing the federal minimum wage to $15. He would further reduce net income by requiring employers to provide at least 12 weeks paid family and medical leave, two weeks paid vacation, and seven paid sick days.
Additionally, he promises to invest $1 trillion to put 13 million people back to work. And another $5.5 billion to provide jobs for disadvantaged youth. He would spend unspecified billions, providing Medicare as a right of citizenship. He'd provide free universal health care, prekindergarten programs and college tuition.
Jack Kennedy, believed lower tax rates would create substantial increases in corporate net income. The government would take in substantially greater tax revenues because it would be taxing on substantially larger net incomes. Expanding businesses hire more workers who pay income tax. If you hire 40 of the 96 million unemployed, and if they each pay $1,000 in income taxes, that results in increased government revenues, and decreased welfare payments.
President Kennedy, speaking to the Economic Club of New York (Dec. '62), said:
"There are a number of ways by which the federal government can [encourage] ... economic growth.
"The most direct and significant ... is to make possible an increase in private consumption and investment demand.
"The ... best means of strengthening demand among consumers and business, is ... an across-the-board, top-to-bottom cut in personal and corporate income taxes ...
"Our present tax system ... siphons out of the private economy too large a share of personal and business purchasing power ... It reduces the financial incentives for personal effort, investment, and risk-taking.
"To increase demand -- lift the economy, the federal government's most useful role is not to [increase] in public expenditures, but to expand the incentives and opportunities for private expenditures.
"Consumers are spending between 92 and 94 percent of their after-tax income ... After-tax income could and should be greater .... When consumers purchase more goods, plants use more ... capacity, men are hired instead of laid-off, investment increases, and profits are high."
President Kennedy concluded:
"The lesson of the last decade is that budget deficits are ... caused by ... slow economic growth and periodic recessions ... (and not by lower tax rates).
"Our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy, or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and [ultimately] achieve ... a budget surplus.
Mr. Sanders blithely promises everything to everybody, seemingly unaware there is no free lunch, oblivious to the fact that reduced corporate net income" equal reduced federal tax revenues -- the very revenues he needs to play Santa Claus.
Every dollar siphoned off for taxes or new benefits is one less dollar the corporation can expend on hiring, plant expansion, modernization or dividends. Dollars paid to new employees, expansion laborers and dividends, all increase income tax revenues.
Moreover, if corporate taxes are raised too high, plants close, workers are laid off, no dividends are paid, there is no net income to tax, and government revenues decline.
It is an undeniable truth that "the power to tax, is the power to destroy." If man earns $1, and the government takes that $1 in taxes, the man has nothing left. So why would the sane man work to earn a second dollar?
Want plant closures and more unemployment? Vote for Bernie. Want a thriving economy, vote for the next Jack Kennedy.
Posted: March 10, 2016. QCOnline.com
Copyright 2016, John Donald O'Shea
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