Cut Spending and Lower Taxes

Ok so since I haven't posted in FOR-EV-ER I am posting a paper I wrote for government. You can read it, critique it (it has some grammar and spelling problems), tell me what you think, and yell at me for not posting for the past decade or so. So yeah, if you want to read it, it is probably ridiculously long and boring to you all, but I felt really bad about not posting so here it is. Also, the format is messed up because it doesn't carry over from my Word document so that will make the long boring paper even harder to read, so sorry about that. Thanks for reading.



With the economy the way it is and with government solutions proving over and over that they are inadequate there are just two things the government can do to get us out of this recession: cut spending and lower taxes. Cutting spending would obviously save the country money because the government wouldn’t be spending it. Lowering taxes would increase federal revenue, so we would be making more money.
Cutting spending is the first thing the government needs to do. Last year our government spent hundreds of billions of dollars on health care, TARP, and the federal stimulus all while our national debt was over 12 Trillion dollars. It doesn’t take a genius to know that that is not fiscally responsible. Our debt is growing every day, our dollar is losing its value, our economy is still in a recession, and yet our politicians keep spending. A little common sense would tell you that when you are in debt and when you are struggling financially you don’t keep spending; you cut down your spending. That is what our politicians need to realize and then they need to stop the irresponsible spending trends that have developed in Washington.
Cutting spending is something that comes with a price though. It would be ignorant to think that cutting spending wouldn’t mean cut backs on certain things that we as Americans have gotten used to. It would mean cutting certain government programs to save money and stabilize our dollar, but the important thing to realize is that if we continue with this reckless spending, our dollar is going to become worthless and our economy is headed for collapse. If that happens then we will lose those government programs that we were going to cut anyway. So cutting spending is not going to be an easy thing to do, but it is the only thing that is going to stop us from spending ourselves into oblivion.
We need our politicians to start being honest with us and to start making decisions based on what the people want and not on their own personal interests. President Obama’s spending freeze was something that appeared to be a good thing. At first it seemed like “yes, freeze the spending”, but “freeze” doesn’t mean “cut”. The thing that many people didn’t understand was that freeze didn’t mean cut and, that the part of the budget they were freezing was only a tiny piece of the whole budget. What that means is that they aren’t cutting spending. Freezing spending is just the government saying “we won’t spend more than we spent last year”. They aren’t stopping spending; they are just not going to go over what they spent last year. So really there is no reason to be overjoyed with the spending freeze Obama enacted. It is only going to reduce the federal budget by “less than one percent” (Spending Freeze).
The total amount of savings this spending freeze is supposed to bring is 250 Billion over the next ten years. The thing is the freeze only lasts for 3 years so I would not be expecting those kinds of savings. Fox News’ Major Garrett said this in an article he wrote about Obama’s Spending freeze: “Next year, a "non-security" spending freeze would save between $10 billion to $15 billion -- a fraction of the current $3.5 trillion budget” (Spending Freeze). So we are saving 10 to 15 Billion dollars when our budget is 3.5 Trillion. Not exactly what I would call fiscally responsible, but it sounds good and that’s really all that matters to most of our politicians.
The worst part about all of this spending that is going on in our government is that our politicians are still pushing for more. Even after the stimulus’ glaring failure to do anything except add to our debt Congress is trying to pass a second stimulus pack that is even bigger saying that the first one didn’t work because we didn’t spend enough. It is total madness and it is crippling our economy.
Then there is always Obama’s baby: healthcare. Obama’s healthcare plan will cost our government one Trillion dollars that they don’t have to give the American people something that more than half of them don’t want. Now if our politicians were making decisions based on what the people wanted and what they truly thought was good for our country is there any way they would even consider passing such a thing? No! Absolutely not, because it is unsustainable and it will plunge our economy even further into recession.
This is the kind of spending that must be stopped. It is the only way that we will ever really pull out of this recession.
The other thing that needs to happen is tax reduction. Just one look at the U.S. tax code is enough to convince anyone that our tax system needs to be seriously rethought. And not just rethought in terms of lowering or raising taxes. We need to be thinking of reforming our current system and implementing a flat, consumption based tax. Using a flat, consumption based tax would increase federal tax revenue, help small business, allow the free market system to really work, and it would be fair to all.
The Fair Tax is the one that is being pushed the most right now and it is a flat, consumption based tax. The Fair Tax:
• Enables workers to keep their entire paychecks
• Enables retirees to keep their entire pensions
• Refunds in advance the tax on purchases of basic necessities
• Allows American products to compete fairly
• Brings transparency and accountability to tax policy
• Ensures Social Security and Medicare funding
• Closes all loopholes and brings fairness to taxation
• Abolishes the IRS (Fairtax.org)
This tax would ensure all these things without the IRS and with only one simple tax. It would simplify our tax system dramatically and create a fair, high revenue tax system. As the Fair Tax website puts it: “The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system” (Fairtax.org).
Many people have criticized the Fair Tax saying that the use of it is not realistic and there have been many very good issues that people have brought up against it, but there has been a provision for every one of the arguments I have seen so far and that is what has led me to believe so strongly in this tax. To see some of the arguments and challenges to the Fair Tax you can go to: http://www.fairtax.org/site/PageServer?pagename=about_main and read the Fair Tax’s defenses on many of the issues brought up against it.
One of the biggest arguments against the Fair Tax is that its rate is not high enough to generate enough federal revenue. This is a very interesting argument because of a concept that very few people know or understand. The concept is that by lowering taxes you actually increase federal revenue. Now that may seem impossible, but if you look at history it is very clearly seen that increasing taxes does not necessarily lead to higher federal revenue.
Art Laffer, a former member of President Ronald Reagan’s Administration and very well known economist, came up with what is now called the “Laffer Curve”. It is a graph used to show the relationship between tax rates and federal revenue. When explaining the “Laffer Curve” Art Laffer said this:
The basic idea behind the relationship between tax rates and tax revenues is that changes in tax rates have two effects on revenues: the arithmetic effect and the economic effect. The arithmetic effect is simply that if tax rates are lowered, tax revenues (per dollar of tax base) will be lowered by the amount of the decrease in the rate. The reverse is true for an increase in tax rates. The economic effect, however, recognizes the positive impact that lower tax rates have on work, output, and employment--and thereby the tax base--by providing incentives to increase these activities. Raising tax rates has the opposite economic effect by penalizing participation in the taxed activities (The Laffer Curve paragraph 6).
Basically what he is saying is that even though lowering taxes may cause an initial drop in federal revenue the long term effects will have a positive impact on things like “work, output and employment” which will lead to increased federal revenue. To help my point a little bit I have included a picture of the “Laffer Curve” below.

As you can see there is a point of optimum tax revenue, but it is not at 100% tax or at 0% obviously. It is somewhere in between 0% and 100% and here is the thinking behind this: If there are no taxes then obviously there will be no revenue, but if there is a 100% tax then there will also be no revenue because people will not work for an after-tax wage of zero dollars (The Laffer Curve Paragraph 6). So there is a point of maximum revenue, a happy medium if you will, in between 0% and 100% and that is what the Fair Tax is trying to attain.
When taxes are raised taxpayers are not able to keep as much of what they are earning and many ordinary citizens who are tax payers are also small business owners. So when taxes go up it handicaps small businesses by not being able to keep as much of the money as they used to. As a result small businesses are not able to expand because they don’t have the money to pay more employees. Since they are not able to expand their business, they are not able to produce efficiently, which leads to smaller revenue for the business, which then leads to smaller tax revenue for the federal government.
This is why lowering taxes is so important to helping small businesses function and grow. Our economy is based on a free market system that runs on small businesses. So when we impair small businesses with high taxes we impair our entire economic system.
If we ever want to truly pull out of this recession and get our economy back on its feet then I think it’s time our government starts cutting spending and lowering taxes.