A book and the comming recession or depression

I am a pretty upbeat guy so a lot of my friends ask why I am so sure that our economy is in the toilet. The answer is pretty damn simple! We are as a nation in debt way over our heads just at the consumer level, our government is trillions of dollars in debt with China along with a massive trade deficit and on top of that the mortgage and real estate markets are in the hole as well.

Yet my reasons are bigger then that! More because I am a student of history. I really suggest you read a book called The Forgotten Man to learn about how similar both our situation and our governments moronic reaction to it are to the years leading up to and during the great depression. This book is a fascinating and enlightening read.

It is very important for us to understand the history of our welfare state, how so many once proud Americans ended up on “the dole” because the coming problems may cause a worse knee jerk reaction. Always remember once the government creates a tax, a department or a program it never ever goes away. Check out The Forgotten Man today and plan well for the tough times to come.

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Why Ron Paul and low taxes are good for the economy

You hear liberals all the time discuss how the tax cuts by Bush were reckless. Now look I am not exactly pleased with Bush myself right now and I think his spending (and that of our both the Democrats and Republicans in Congress) is absolutely reckless and disgraceful. Yet cutting taxes makes a lot of sense, further I think we should keep cutting lower and lower.

In fact if I had my way Ron Paul would become our next President and completely cut the income tax to zero. Think that is unreasonable? Well if we cut spending to where it was just 7 years ago we could eliminate the income tax. Yea your read that right, just cut spending to 2000 levels and we do not need an income tax. That should make you really understand just how many other taxes we already pay.

I digress though, lets just talk about an easy way to understand why lower taxes are good for our economy. Now I could go into Economic theory and formulas and such but that is not necessary. I can instead explain this in a very simple and easy to understand way, think of it simply like having a “sales”. If you ran a store and wanted to sell more products would you do it by raising prices or by having a sale?

Now that is about a stupid question isn’t it? Anybody knows when stores have sales they sell more and when they jack up pricing they sell less.

The important thing to understand is that employment, investing and spending is what drives our economy. So to understand why lower taxes drive better economies from here is really easy. Let’s look at how taxes going up or down effect each of these three factors.

Employment - When taxes are lower businesses keep more of their profits rather then giving them over to the government. When a company has more money in profit they grow. As they grow they have more needs for personal and of course they hire more people. In short a lower tax is like a sale on hiring talented people. When you tax a business higher of course we have the exact opposite effect. Companies keep less profit, there is less funding available and they grow slower and hire new people at a slower rate.

Investing - This is simple to understand. If you invest money that inherently comes with risk. So if I put 50,000 dollars into an investment I could loose much of it. On the other hand if the investment does well I end up with a profit but I only keep the part I don’t pay as taxes. For me to take a risk the upside has to be attractive so of course the lower the tax on investment profits the more attractive investments are. Now if you want me to do something incredibility risky like fund a new business I better get to keep the lion’s share of my profit or there is no good reason to take the risk.

You see when taxes are low on capital gains it is like a sale on investments. Effectively I am paying less money to make more money. Did you know that at one time tax rates were as high as 90% for some income brackets. 90%! Don’t believe me look at some historical tax rates here. Now let me ask you why would anyone risk say 100,000 dollars to fund a start up business as a part owner. End up making 200,000 dollars for the investment and then have to pay all but 10,000 of it as taxes? Why in the hell would anyone take such a risk for so small of a true return? Again when this tax goes up it is like when a store raises its’ pricing and when taxes go down money flows in a “sale like” environment. Simply put when investments go on sale more investors buy more investments.

Spending - Now I am all for saving money but if no one spends any money the economy grinds to a halt. This one is the easiest of the three to understand. Tax Joe and Jane America at a lower tax rate and they keep more of their money, when people have more they spend more. In short for the average consumer lower taxes are a “sale” on everything. You just have to do a bit of inverse thinking to understand this. Joe works 10 hours a day and makes 250 dollars for his day of work. Each day he pays 100 back in tax so he profits an actual 150 dollars.

So Joe values money according to that formula. Hence he “pays” 10 hours of his effort for a 150 dollar item. Now tax Joe only 50 dollars and he now profits at 200 dollars for the day. Now a 150 dollar item only “costs” him 7.5 hours! In short by taking less taxes Joe is now buying everything at a 25% discount.

The combined effect

The reality is the economy is like an ecosystem composed of these three factors of spending, investing and employment. None can sustain themselves with out the other two. There is far more complexity then this but a basic understanding is simple.

• When more money is available to business from profit and from investors they hire more people.
• When more people are employed they have more money to spend, hence they spend it.
• When people spend more money it drives business and results in more profits
• When people can find jobs and get paid well and are taxed lower they also invest more
• Investments then feed business

It is really a circle of economic life. In this circle low taxes are like good fertilizer that makes everything healthy and grow faster. Higher taxes are like salting the earth, they lay waste to the ecosystem and stall growth. Now democrat or republican should not matter this is mathematical science and math does not lie.

Debate the role of government if you like, support a guy with an R or a D after his name or if you are smart perhaps an I. Yet don’t ever be fooled by how there is any good to come from higher taxes. Don’t let the government pitch class warfare on you saying only the “rich” are going to see higher taxes. Right now most American’s work till April 30th to pay all taxes, that is enough, more is not the answer.

Oh and yea I really meant it that we could totally eliminate the income tax, watch this video on Ron Paul for more about that.

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