WASHINGTON, DC, January 9, 2013 ― The state of Texas is socking billions of dollars into its economic stabilization fund, aka the “Rainy Day Fund.” More and more people are moving into Texas every day, with immigrants from California alone averaging about 225,000 per year. With more business-friendly state regulations and no state income tax, who can blame them?
California, in a seemingly perpetual state of near-default, has one of the highest state income tax rates in the country, with a whopping 9.3 percent on incomes as low as $46 thousand. They have been ranked dead last (for the eighth year in a row) in a recent “best/worst states for business” survey of 650 CEOs, with Texas being number one for the eighth consecutive year.
So how does a state with no income tax generate more revenue than one with exorbitant tax rates? It is actually pretty simple. The less money you confiscate from your citizens, the more money they have to spend. They shop more, they go out to eat more, they do a lot of stuff with money they would not otherwise have, generating more employment, which in turn generates more sales-tax revenue. As do the immigrants.
Another key is that citizens are empowered to vote with their dollars which businesses succeed and which do not. This creates a very attractive environment for businesses, as evidenced by many surveys, in addition to budget surpluses.
While this model of taxation has been extensively studied for implementation on a national level in the form of the Fair Tax, fears of transitional instability have always shot it down in Washington. One big advantage of this type of taxation is that it cannot be avoided. There are no loopholes in a sales-tax-only model. That alone is another reason why it will never happen; those loopholes have been bought and paid for.
So what about the national level?
There have been several significant federal income tax rate changes that have created very clear results in regards to tax receipts as a percentage of GDP.
The most significant drop in our history was under President Reagan, who took the top rate from 50 percent in 1982 to 28 percent in 1988. The move that had liberals certain that our country was doomed financially did not have that impact.
Under president Clinton, the top rate moved upward, from 28 percent to 39.6 percent. Revenue from income tax dropped by .3 percent of GDP.
The tax cuts enacted under president Bush, lowering the top rate to 35 percent, took the revenue from 7.2 percent to 8, dipping down to 7 percent during the financial crisis of 2008, but working its way back to 7.5 percent by the end of 2012.
History has shown us that the more money you confiscate, the less money people spend on things like investing in a business, supporting existing businesses or buying a house. While it may sound simple, taking a percentage over what you currently are will yield a specific number of dollars to the bottom line.
If raising taxes helps improve the federal budget sheet this time, we would be making history.
But of course, the Democratic Socialists of America endorsed Barack Obama, who said it best: “It is not about revenue, it’s for the purpose of fairness”.
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