Why Raising Taxes On Any American, Rich Or Poor, Is Still A Stupid Idea - Part 2

Yesterday we reviewed three detailed economic studies that all came to the same conclusion, based on empirical data and analyses: raising taxes to solve a nation's out of control debt almost never works, leaving that nation with higher taxes and the same, high national debt problem. These studies found it was far wiser to reduce government spending, which appears to be the historically best, and only way, to significantly make a dent in sovereign debt.

Of course, we knew that fact before reviewing the studies yesterday. Many times in this post we have identified TRILLIONS of Federal government spending cuts that could be taken that would have minimal affect on most Americans, especially the poor and needy. However, countless times the political class in Washington has forsaken these cuts and allowed the Federal national debt to grow to over $15 TRILLION, about $130,000 for every American household.

Today we will look at one other set of analyses and conclusions that support strategy of reducing government spending to reduce debt vs. raising taxes. This set of conclusions comes from a recently published study by the economists of the European Central bank and reviewed in a Forbes article written by Daniel Mitchell and entitled: "European Central Bank Research Shows That Government Spending Undermines Economic Performance."

Without going into the nitty gritty of their technical and detailed research and analysis, the following two paragraphs sum up the bottom line quite nicely and were taken directly from the Forbes article:

So it’s especially noteworthy that economists at the European Central Bank have just produced a study showing that government spending is unambiguously harmful to economic performance. Here is a brief description of the key findings:

…we analyse(d) a wide set of 108 countries composed of both developed and emerging and developing countries, using a long time span running from 1970-2008, and employing different proxies for government size… Our results show a significant negative effect of the size of government on growth. …Interestingly, government consumption is consistently detrimental to output growth irrespective of the country sample considered (OECD, emerging and developing countries).


Again, bottom line: the more government spending there is, the worst overall economic growth becomes, at least according to the European Central Bank. Worst economic results means worsening national debt. Results were consistent across all types of countries and where they were in the economic cycle, i.e. expanded government spending hurts economic growth in both highly developed economies, developing economies, and undeveloped economies.

Another finding of the study was that the problem of excessive government debt, and the best solution, is the same whether or not the excessive national debt came from high tax rates or excessive borrowing of the central government.

And finally, the article concludes that the optimal solution to the problem is not one of enforcing a balanced budget solution since politicians can always raise taxes to balance the budget, another way that politicians reduce economic growth. The better solution is to require government spending to be a function of a nation's GDP. In that way, if economic growth goes up (and GDP goes up), government spending can still go up but still be restricted to a certain percentage of GDP that is not onerous on taxpayers.

 If economic growth goes down along with GDP, then government spending is automatically forced down. Under this scenario, the decision on spending is taken out of the control of the political class, a set of people who have never showed any constraint in spending and wasting taxpayer wealth. The European Central Bank found that countries that used this approach to get government spending under control were the most effective.

However it is done, we need to get this country's Federal government under control before it is truly too late. We now know that simple common sense and reviews of our government's excessive and wasteful spending cries out for less government spending, the economic analyses reviewed yesterday by reputable and nonpartisan researchers found out that reducing government spending is a better approach to curing excessive debt than raising taxes, and we found out today that the European Central Bank has also concluded that escalating government growth and budgets results in worsening economic conditions.

Seems like the only people that do not understand this reality is those that reside in our political class in Washington. Even though our politicians do not understand this reality, it is still stupid to raise the taxes on any American, rich or poor, ignorance is no excuse for confiscating more of our wealth for no reason. Stupid and ignorant, why do these words keep coming up when discussing the political class?






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