Budgets, Taxes & the Free Market

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Status: Finished  |  Genre: Non-Fiction  |  House: Booksie Classic
A layman's explanation for the relationship between budgets, taxes & the free market.

Submitted: March 08, 2011

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Submitted: March 08, 2011

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How will tax cuts balance the budget? Why is the free market necessary?
I'm no economist, but this is how I understand it.

Tax cuts leave more capital to the markets.

When you tax a business, you essentially steal a nice chunk of their liquidity and just give it to another entity. Within the business, this liquidity could have funded expansion through the purchase and/or creation of channels for the capture of wealth.

With that liquidity removed through taxes, that business' expansion does not happen. With the tax, the business loses that amount of money. Now, not only does the business not hold the asset of the would-be expansion, it loses out on all of the would-be revenue from that expansion as well.

The tax denies that continuing source of income to the business, and it doesn't get that money back. That is, unless the entity to whom the government redistributed that liquidity happens to purchase good/services from said business, but even at that, the business is selling its goods to get its own liquidity back, which is of course taxed again as income!

if we can now agree that tax cuts are good for the economy, then it will grow more quickly when tax rates are cut. As the markets grow, gross taxable income within the state grows. So, even though the state is taxing at a lower rate, it is generating more revenue as a result of the economic growth from the lower tax rate result.

And that is how tax cuts will balance the budget.

There's obviously more to that as well. If lower tax rates cause exponential market growth, the corollary here is that higher tax rates cause exponential market shrinkage, which happens even more rapidly when you drive the tax rates so high that it actually drives businesses to another market entirely. This is why entitlements and costly yet unnecessary restrictions to the free market, like cap & trade, are so dangerous.

It's a lot easier to drive business out than it is to attract it, especially when the expenses within the state's budget have not decreased while revenue approaches $0. When the businesses evacuate and the state can no longer afford to even offer incentives to attract new businesses, the market stagnates. The market will experience little-to-no economic growth for a very prolonged period of time, which could have been avoided completely with a lower tax rate and eye for the future.

The market works and grows only when goods & services are exchanged for other goods & services--and not stolen. When I say 'stolen,' I refer to it only economically. That is, goods and services are simply removed from the market, and the market gains nothing in return; the market loses momentum.

We see the law of diminishing returns with respect to the increases in revenue seen from higher tax rates, and pushing the limit can be catastrophic. This is why freer markets with limited government works best.

© 2011, J. Devin Hintze


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