Why Do Low Taxes Help Stimulate the Economy?

To raise taxes or not to raise taxes; that’s been the question. While many have been pushing for higher tax rates — particularly against high-income individuals and corporations — there are some compelling reasons to lower taxes further instead.

Here’s why low taxes rates ultimately help stimulate the economy, and it has nothing to do with “trickle down economics.”

The Government is Notoriously Wasteful With Funds

What exactly are taxes? Taxes are money paid to the government to provide specific services, such as welfare services, road maintenance, and public school systems. When people talk about raising taxes, what they’re really talking about is giving the government more money to complete these public welfare projects.

And these public projects are important. But the problem is that the government tends to complete these products with a significant amount of waste. More funding often just means more waste. That helps no one except for the government employees and government contractors.

Consider government grants. A government grant may be given to a school every year for technology, with that grant being $20,000. The school will spend all of that $20,000 grant even if it only needs $15,000, because otherwise it will only get $15,000 the following year. This is only one example of government waste, there are many more.

Smaller, Local Communities Are More Likely to Enact the Change They Need

Smaller communities are more likely to know what they need and care about implementing them. With lower taxes, consumers and small business owners both have more funds to pump into their communities. It’s more likely that private citizens are going to take care of their neighborhoods than large, unwieldy governments. Lower taxes help this.

Essentially, what lower taxes do is put more money into the hands of the individual, with the ability for them to allocate it into the way that best suits their own lives. If they need to fix roads, they will naturally fix them; if they need to create welfare projects for those within their community, they will naturally do them. This is the theory behind lower taxes: individuals no longer need to rely upon the government to give them back the money they had to pay in taxes.

Lower taxes cuts out government waste by cutting out the middle man. But the reason the government is against cutting taxes is because the government is actually one of the largest “industries” in the country.

The United States is in Competition With the Rest of the World

The US is currently in economic competition with China, India, and many other growing nations. In order to remain a global power in the world of commerce and technology, it needs to be able to advance. It cannot advance unless it has the funds to do so.

Lowering taxes means that there’s more money in the pocket of not only large enterprises, but also startups and small, innovative businesses. It allows US companies to remain competitive long-term. And it is a long-term solution.

In the short-term, raising taxes would fill government coffers. However, if US companies continue to fall behind other countries, the economy will start to collapse regardless. There will be less money to give the government.

In the long-term, infusing corporations with cash makes it possible for the United States to remain competitive against these global threats. This creates a healthier economic environment for everyone involved.

Why We Are STILL Debating This

It should be said that there are good arguments on both sides. Many argue that an accumulation of wealth in large companies and billionaires does nothing to further the country’s goals, or the average person’s happiness. And, indeed, some companies do hoard wealth, and some billionaires contribute to growing inequity.

However, when it comes to taxes, the question really isn’t whether money should be “with the average person” or “billionaires.” The question is whether money should be “with the government” or “billionaires.” Proponents for lower taxes want lower taxes for both the average person and large businesses.

In recent years, it can be argued that billionaires have done more for many people than governments. With billionaires funding the space race, environmental clean ups, and charitable organizations, they have shown the value of leaving money in the hands of individuals rather than public organizations. On a practical level, the average person can probably point to more charitable local spending and entrepreneurial spending than they can point to government services.

An argument for smaller government is really a universal one, with most people acknowledging that the government has become unwieldy and wasteful. This directly relates to tax dollars; an argument for less taxes isn’t an argument for fewer social services, but rather an argument towards putting money where it can be used best.

Regards,

Ethan Warrick
Editor
Wealth Authority

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