I’ve written a lot about the financial situation in Washington. This is a continuation of that theme. Let’s say you are a middle income family of four. You need a new microwave oven. If you look around you can find one for about $50. When you open your first paycheck for the new year, you find it’s a few hundred dollars short of what it was last year due to the tax increases. Because you have all the regular bills of life to pay, you decide to postpone buying the new microwave. That’s O.K because you’ll maybe buy it next month. Now multiply that by several thousand people. The stores that sell microwaves find their sales are down. The people who provide shipping for microwaves have less items to ship so their business is down. The microwaves have steel parts in them so there is less steel being needed. Same goes for plastics and glass. All of these industries cut back on employees because of less demand for their products. With all these people losing their jobs, they don’t go out to dinner or buy as many products themselves.
Because everyone is getting smaller paychecks, this multiplies across the country, less microwaves being sold but also less autos, less TV’s, less everything being sold. The companies that make and sell these products are all forced to cut back. And guess what happens? All the corporate profits go down meaning they are all paying less taxes to the U. S Treasury. That makes the deficit go higher which means the government will want to raise taxes again. And the cycle continues with ever higher taxes. That’s how a dynamic economy works.
Now let’s look at it in reverse. Taxes are cut. People have higher paychecks which enables them to go out to dinner, buy that microwave, go to the movies, etc. Everyone is selling more products. They order more from the manufacturers. The manufacturers hire more people to keep up with the increased demand. More people are working, meaning more microwaves will be sold. And guess what? All the people will pay taxes. The businesses are all making bigger profits. Everyone is making more profits so everyone is paying more in taxes. With individuals and businesses all paying more in taxes, the deficit goes down. All the economists understand this. Why doesn’t the Federal Government?
Obama is surrounded by people who never worked in the private sector. They have never balances a budget, or even created a budget to begin with. That’s why everything is so frustrating to all of us that worked in the real world.
Back in the 80’s, the government wanted to punish the rich by creating an excise tax on expensive autos, yachts, and private airplanes. Sure the wealthy were forced to get by without these new toys, but many of the people who made them lost their employment.
The Kennedy and Reagan tax cuts raised more people out of poverty and into the middle class than at any time in the history of our nation.We have an Administration in Washington that doesn’t understand how the economy works. Worse, we now have members of Congress who have made government their careers; they don’t understand the economy either. That’s why this is so frustrating.
I don’t see this situation being corrected. As more and more people leave the ranks of the employed and move into government assistance programs, the more likely it becomes that they will continue to elect people who will give them more benefits. As I write this, I am watching the destroying of America from within.