Sunday, July 17, 2011

Has President Obama Finally Agreed to Reduce Taxes?

On July 14, President Obama changed his language on the debt limit negotiations: He said that his proposal of a "balanced approach" - one that includes revenue increases as well as spending cuts - is what the American people want.
From the above "switch in language" you must understand that now president Obama must be on the side of the people. If you, dear informed reader, do not follow me on this, then we are still a long way from protecting America from excessive government.
Why do I say that he is speaking our language? Because with the current taxation level and the current government size, asking for a (government) revenue increase is equivalent to advocating for tax cuts and government downsizing.
He may not know it, as he does not know much about the economy. His staff and teleprompter may not know it either, but you must understand this concept very clearly and share it as much as you can.
We must make sure that this concept becomes clear for the masses, or America risks fighting the battle against government inflation over and over again in the future.
Let me explain:
The Laffer curve, publicized by economist Arthur Laffer in the 80's, shows the relation between taxes and government revenue. When taxes are below a reasonable amount, an increase in taxes produces – as it is intuitive – an increase in government revenue.
However, the Laffer curve shows that when taxes are above that same reasonable amount, an increase in taxes produces a decrease in government revenue.
As it was then demonstrated by Margaret Thatcher and Ronald Reagan, when taxes are too high, a tax reduction will produce a higher private sector activity and a higher government revenue.

But there is more. The current tea party is mostly about government reduction. People intuitively understand the negative effects of nationalization, centralization and ever expanding governments.
The STING curve, as explained in my book "Understanding Economic Optimalism", shows the relation between government size and economic activity. More people working in government implies less people producing wealth. Vice versa, a leaner government allows for more economic activity and wealth creation in the private sector, higher government revenue and more government services.
The STING curve shows that when government size is above an optimum level, a decrease in government size produces an increase in government revenues and services (our "return on Investment" in government).

One final point:
Why did we allow incompetents and economic ignoramus to also take the moral ground? Is it not preposterous to see people religiously praising (and voting for) those very same people who have generated so many crises, so much joblessness and so much poverty? Why are we allowing people like Rangel and Reid to stand on the pulpit and preach morality to the rest of us who produce wealth instead of consuming it?
Let's use the above economic facts to the best of our ability to show that those advocating small governments, not big governments, are on the side of the poor.
Thank you, president Obama, for starting a process that can bring both sides together: towards a reasonable level of taxation and an optimum size of government.
Thank you, dear informed reader, for pointing out to our confused friends that lower taxes and a smaller government are exactly what we need for raising their standard of living and for increased government revenues and services.

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