The jumping off point for expanding SSS to business-related topics is a post I recently wrote for Forbes on why we’ve got to undo the Bush-era tax cuts. My position is pretty self-explanatory, and, I would like to think, pretty obvious: It’s not sustainable to spend 24% of GDP on 15% in tax revenues.
Not that you’d know that from the magical thinking of today’s politics. Whether it’s the mantra of “have the rich pay their fair share” or the supply-side nuttiness that cutting tax rates will boost revenues, there’s precious little engagement with the hard work of crafting policies that will get us spending something closer to what we take in. And yes, that will require both more tax revenue AND spending cuts.
One point that deserves additional attention, however, is the pernicious effect of interest rates and a stagnating economy on businesses. Whether you run a small bike shop or a Fortune 500 company, it’s really hard to operate in such an environment. Capital dries or or gets expensive and inventory is hard to move. The door stops swinging as often.
Any business owner will tell you that they would take higher tax rates and a growing economy over the inverse, any day of the week.
Of course, it would be even better if that was combined with tax code simplification as well. But if rationality on the need for addressing the deficit is in short supply, imagine how hard it would be to get some sanity on that front.
Lower taxes are working wonders for us in Canada. Over the past 6 years, income, sales, and business taxes have steadily been reduced, which has directly resulted in a significant increase in total government income. Lower taxes have meant more spending, more building, more foreign investment, more hiring. A smaller percentage of a much larger pie is still more money.
Correlation isn’t causation, and any credible economist will tell you that simply cutting tax rates across the board won’t cause the economy to expand. Much of the reason Canada’s economy has outperformed over the recession is because it’s got a rock-solid banking systems and is a net energy exporter.
However, cutting corporate tax rates – as Canada has done – likely DOES have the desired effect, as it removes the incentive to keep investment offshore. The US should follow Canada’s lead and drop the corporate rate to 28%.
Josh, I apologize in advance, I don’t mean to get into a political argument on a bike blog. I just can’t let your reply stand without a further response.
It is causation if it’s by design, which it was. Our Prime Minister is an economist, and when he stated his intentions those “credible economists” said it wouldn’t work, but it did. The rest of the world took the “credible economists” advice and it got them in much worse shape. Now the much of the world is looking to Canada to see how they did it.
We have had rock solid banking and have been a net energy exporter for a very long time. Previous governments followed the advice of “credible economists”, and every time the US had a recession, things got much worse here. The old cliche was “when the US gets a cold, we get pneumonia”. This is the first time we have really gone against conventional advice, and the first time that our economy actually got better during the same time that yours got worse. Our opposition parties here thought it was crazy too. Almost every prediction they made turned out to be false.
28% is still incredibly high, that won’t solve the problem. Ours is 15%. We didn’t see the real tide turn until we got it under 18%.
Again, sorry for the rant. Now go ride a bike… even a fixie if you must!