Taxes, Income, and GDP

Taxes, Income and GDP

Lower Taxes Hurting The GDP?

In many cases, I hear people discussing our taxes as if they are too high, and our government as if it is too large. But when I study the data, our taxes are actually some of the lowest in the world compared to the Gross Domestic Product (GDP). Our government is anemic as well; too small to function with the population we have. For instance, our “Business income tax rate” is 35% (which yes, is higher) but that is only *part* of the taxes a business has to deal with. Other countries also pay Tariffs, the VAT, sales taxes, etc. – the US lacks those for businesses. Other countries, however, do have those taxes. This can result in taxes over 50% of a companies income for many countries. If this is the case, why do our companies flee there? Because these nations do not tax foreign-owned companies. Since the U.S. doesn’t tax foreign-earned income, these companies become a shell game, hiding their income to avoid taxes.

The truth is, our debt and deficit is an issue of the fact that our tax policy has become distorted. We bought a lie, that we could have our cake and eat it too. That we could have the government we needed without paying for it. Our society is too large to operate without a tax base equal to it. But we as of right now have a tax base lower than any point since 1950, and as a result it is creating a drag on our nations GDP.

Growth Stagnates Without Investment.

I’m not talking income taxes, mind you, but all government income. We have nothing to cut; even if we eliminated all discretionary spending, we’d still be in debt and we’d crush our GDP in the process, hurting our tax base even more. Our rush to privatize has deprived the system of the income it needs to operate. We socialize risk, but privatize profits, and wonder why we have no money for the programs needed to keep our highways open, to prevent our schools from degrading into mediocrity, and that our ability to borrow determines our value to society.

If we’d kept pace with the growth of the 1950’s, our GDP per capita once adjusted for inflation would be at over $90k. Instead, it’s at $58k. The entire slowdown has happened since the 1970’s. Until we can honestly say that the median income in the US is at $90k, we’re all suffering. And this is the per-capita, the median income in this country has dropped, and now sits at just under $40k. This difference is due to the continuing funneling of wealth from average Americans to the super-wealthy.

The Corporate Shell Game.

As for hiding income, we need to simply apply the same rules to corporations which apply to everyone else, if you send money overseas, you get taxed on it as if it were profit or earned income, at the highest rate without any options for deductions. Then we need tariffs, not high tariffs, but a small bump to slow things down. Lastly, we need to fix the capital gains system; it is broken beyond all means, with huge profits gaining no taxes at all despite being a huge drain of government resources. And these profits are kept in shells, hidden away, hurting this nations GDP in the process. Instead of being used to drive our economy and boosting our GDP, they become a drag, hindering growth for the nation.

Until we address the real issue, that our consumer driven economy is being dismantled through a poor tax program, we will never get back on our feet.

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Cross-posted with permission from Intelligent Leftist.