Hey, Mr. Horn.
Reading you latest creation, I'd like to post an answer.
But before you read on, I assure you that I don't post in defense of one or another political system.
Allowing you to keep your own money has become "spending." Letting people control where their Social Security taxes are invested, in their own individual accounts, has also become "spending."
You are right in that there are different attitudes toward taxation and returning the proceeds to the people.
One might say, tax cuts stimulate spending / or investing and thus lower interest rates (and) grow aggregated demand.
True, especially in times where the economy is far from their capacity constraints...
But on the other hand, like a company, a state has to obey long term targets as well. If for example, like in the U.S. low or even no public debt is a long term target, then go for it.
Don't underestimate the effects on future generations. ...would you like to see it when your grand-children complain about the effects of public debt because the "former generations" did nothing but spending money and at the same time have not reduced public debt?
Ultimately, lower public demand for money (in terms of draining from the capital markets) should reverse the "crowding out" and alleviate private access to capital at then lower interest rates ... in the long term.
Look the the opposite case....countries in the third world which have little long term financing means.... because of a mounting public debt ...face weak currencies, double or triple digit interest rates, inflation.
Basically because the government did not watch the development of public debt but "printed money" like mad...and crowded out the private sector because the capital markets can not provide more long term financing at acceptable rates...
I'll give you an example...similar to yours
I live in a central European country.
The people's average (gross) income is about USD 22,000. For this income the average tax rate would be about 14%.
Around 40% of the people earn more than this average income. Around 10% earn north of an equivalent of USD 38.000 and they face an average tax rate of 23.5%.
The distribution of tax payment amongst income classes is, interestingly nearly the same as in the U.S. except that the absolute values are lower (sigh).
Currently, the politicians are discussing how to increase tax revenue and how to get the budget back in line - they discuss for example a hike in the marginal tax rate from 50 to 53% which applies for an annualized gross income over USD 70.000. About 3.5 percent of the people achieve such an income.
There are no means to avoid federal tax because they employers are due to calculate and withhold the taxes...
Where's the difference?
While the U.S is able to repay the federal debt within 12 to 15 years if it keeps up the current pace,...
the European country, while achieving a primary budget surplus (like a positive cash EBIT) increases its debt year over year because the interest on the 60% debt load (of the national gross income) - as approved by the EC eats the EBIT and a bit more....
The 60% debt translates into about 3% of the gross national product (or 9.5% of the average personal gross income) going to debt service without repaying a penny.
Now that's what I call stealing money from the public... |
