It’s Common Sense – Tax Relief Will Expand The Economy, Create Jobs – Even Increase Tax Revenue

Tax Relief – it’s the single most important policy issue of the day.  If Congress and the President get it right, it will improve the lives of everyone and even make it easier to fix healthcare.

Yet, there are many in Washington who still don’t understand why tax relief works.  Principally, tax relief should leave more money in the pockets of Americans and their businesses. More money in the private sector results in more spending power, more jobs, better wages, economic expansion and even higher government revenues.

Here are some common sense reasons why it works.

Common Sense Point #1. The more money or assets you ACTUALLY have, the more you are likely to spend or invest. Think about it. Once you have enough for your basic needs, the more discretionary income you have, the more you will buy, including slightly higher priced shoes, cars and homes. That’s why the affluent spend more than others.

Common Sense Point #2. Conversely, the less money or assets you ACTUALLY have, the less you are likely to spend or invest.

Common Sense Point #3. The more money you THINK you are going to have (tax relief), the more you are likely to spend or invest. That may be obvious, but it is a very important point. Even if someone does not have a lot of money, if that person gets a new job with a higher salary, the average person will be more willing to spend money or buy on credit, i.e. a new car loan or a loan for a bigger home.

Common Sense Point #4. Conversely, the less money you THINK you are going to have (tax increase), the less you are likely to spend or take on debt. Again, that may be obvious – but it is a very key point. If you think you are going to have less or make less in the future – you are more likely to decide not to take on debt or spend – so much so that you are more likely to save what you have left for a rainy day.

Common Sense Point #5. People change their behavior. Think about it.  When a store has a sale, people wait for the sale and then make their purchase.  They delay their activity to save money and/or buy more products then they otherwise would have.  The same holds true for tax reform.  When people know their tax bill will be less, they will take more risk and spend more than if their was no tax reform at all.

Tax relief works because people will have more money in the short run.  If the tax relief includes long-term tax rate reductions, then people will THINK they are going to have more money in the future.  All of that boosts and expands the private sector short and long term.  As the private sector expands, more jobs are created and the number of business transactions increase.  The more jobs that are created, the less people are dependent on government and more people that are paying income taxes.  The same holds true for increased business activity. It also results in greater revenues for government – that’s why the tax reforms of the 1920’s resulted in higher revenues of 61%, the 1960’s higher revenues of 62%, 1980’s higher revenue of 98% and higher revenues after the 2003-2005 reforms.

In short, tax relief will expand the economy and that is good for everyone.

Please read my original article on the subject from 2009 by clicking here.