The American people are still suffering from the recession. Unemployment remains high, the average credit rating of Americans is down and the interest accruing on our savings is dangerously low.
The federal government proposes wasteful programs and laws that aim to recover the economy. With a deficit of more than $14 trillion, the government has proven to be inept.
As frustration over our economic standing rises, we hear one of the most common economic fallacies being suggested as a solution: "Tax the rich!" However you phrase it, this turns the source of the problem into a revenue issue. Like many other economic fallacies, the understanding required to reason this statement is superficial.
In 2010, the federal government collected $2.16 trillion in taxes, yet the White House recently released a $3.8 trillion budget for 2013. This should come as no surprise considering how much the government does. From regulating how much water your toilet holds to what is broadcasted on television to maintaining hundreds of military bases across the globe, the government is involved in almost every aspect of American life.
Unlike a regular household, the government does not have an interest or incentive to cut spending. In most cases, when a government program or law fails, instead of getting rid of it, they pump more money into it or make new laws.
By voting for more spending programs, the government creates a base of support with the upper crest, or the people who profit from taxing others. Because the government is not contingent on balancing a budget — at least in the sense that if the government “falls on hard times,” it won’t be out on the street — there is no market signal or incentive to make them cut down on wasteful spending.
Individuals who preach the benefits of jobs programs, government stimulus and government intervention choose to only see one set of consequences. While through taxation, government has money to create programs and give jobs to people that create new income. What is not seen are the jobs and benefits that the money could have provided if it had stayed in the pockets of taxpayers the whole time. In order to create an environment where the middle class expands, taxpayers need to keep as much of their money as possible.
Wealth is only created by production and innovation. If we choose to increase taxes on the rich, we add to the cost of creating new businesses and hiring people to run these businesses. Everyone benefits if everyone keeps as much of their income as possible. The problem originates in how much the government does. Because it is involved in almost every industry, the government needs excessive spending.
The key to economic growth is less taxation. Under a constitutional system, Americans would keep as much fruits of their labor as possible. While we need a national system to provide a justice system and military, it is completely wasteful and unnecessary for the federal government to tax for any other purpose.
Reach the columnist at calfaro2@asu.edu
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