The US economy seems to be finally coming out of the doldrums. As the confidence of consumers and producers begins to grow, it is time to take into stock the role of various measures that helped it survive the storm. It is also time to evaluate the role of tax lowering in bringing back the normalcy.
The great thing about economics is that those who do not understand it well, never realize how easily they can be fooled by slogans, simplistic assertions of politicians and rhetoric. So voters uninitiated in the arts of deciphering an economic statements, become easy target forpoliticians who themselves may know or understand little, but who are intelligent enough to know what the voters of their constituency can be fooled with. They also know that common sense is so uncommon that they can promise to bring the Moon during daytime, and they would still be believed. Getting Moon is impossible, as is improving government services with less resources, yet they won't blink twice while promising that they will spend more on public welfare without collecting the taxes collected by earlier governments.
Once the promise is made, they had to do something, or at least do something that will give the impression that they are trying to do something. So, there comes the talk about cutting taxes. But after nearly a quarter of century of tax cuts, many of them highly publicized, and not restricted to US alone but actually undertaken in most of developed countries, we find that there is not a single country in the world where the tax collection has gone down even for a single year. Often the cuts in one area are more than compensated elsewhere.
If we analyze the paradox of lower rates and higher taxcollections, we find that most often the cuts are in those categories and brackets which do not really affect the common taxpayer like you and me. Further, the taxes are imposed in every economy in so many ways that if you cut one of them the other automatically gets increased. Lastly, there is the phenomenon of inflation which makes each one of us pay a higher amount every year than before, even though the real value of our income may have been the same. The world of taxes has been made so complex that nobody actually knows what is making him or her pay more or less.
Given the fact that tax collections are rising, you can be sure that you are certainly not paying less, but what you need to know is that both the government and the private consumer is spending much more than their capacity, resulting in huge budgetary and trade deficits, that threaten to wreck the economy. Actually the illusion of economic prosperity is beginning to get discovered now by everybody. Statistically speaking, every US citizen owns a debt of approximately US $ 30,000 to countries in the Middle East and China. Think of the time when you will actually have to empty your pockets, and then think again, have you really been that prosperous all this while?
To a large extent, the feeling of well-being is generated by cheap imports that provide you with a lot of goods to consume, and perhaps waste, while mortgaging your future to some other country and its government. Today there are just fears. Tomorrow, it may be much worse.