As I sit at home listening to and following online the battle in the U.S. House of Representatives between the "right" and the "left" over the looming fiscal cliff, I can only think about how far left the nation has truly gone.
There was once a time when government spending was minimal and a federal deficit was considered bad. Contrast that with today where our president just signed an executive order granting congress pay raises even as the poor and middle class are about to be hit with tax hikes which has the probability of throwing the U.S. economy back into a recession again. I stop and consider what would happen if instead of voting themselves a raise, Congress voted themselves a 5-10% pay-cut to help manage the federal deficit. That coupled with a decrease in the rates of Corporate income taxes, income taxes, and a reduction in Medicare/Medicaid, could potentially stem the ever-growing federal debt total.
Back in the 1920s, President Harding took office facing a massive deficit following WWI as well as high tax rates. His secretary of State Andrew Mellon came up with a plan to massively reduce the tax rates as well as cut federal spending. These actions enabled Harding's administration to go from yearly deficits to surpluses throughout his time in office. The point here being that lowering tax rates, especially the corporate tax rate, actually leads to higher government revenue because firms actually gross more profits yearly and this leads to firms expanded and bringing in more taxable revenue every year. Smaller taxes lead to higher government revenue.
On the flip side, examine the affects of higher tax rates and higher government spending during Franklin D. Roosevelt's time in office. At its height, Dr. Fulsom, a Hillsdale College professor, tells us that FDR raised income taxes to 94% for everyone making more than $200,000 a year. The Corporate income tax was also at 90%. This restrictive tax policy crippled small business growth and the economy because business owners were being taxed so high that they were unwilling to take on new projects and invest because they knew that whatever profits they made would inevitably be taxed.
This is the question we face today. Are we going to stand up for individual and fiscal responsibility or let Congress continue to take us down the "road to serfdom?" We live in a society where 47% of the population pays no taxes while the top 10% pay over 70%. We live in a society where millions of poor and illiterate accept federal welfare money without understanding that A.) this is designed to keep them poor and reliant on the government for their everyday needs and B.) the money which funds these programs is being forcibly taken from hard-working Americans. We live in a society where war has become a hobby and big defense firms bank on the U.S. being in a conflict in order to turn a profit. We live in a society where people wrongly believe government jobs equate to private sector jobs We live in a society that no longer recognizes the power of individual human action and the importance of non-restrictive tax policy. Mises once said, "The consumers suffer when the laws of the country prevent the most efficient entrepreneurs from expanding the sphere of their activities. What made some enterprises develop into big business was precisely their success in filling best the demand of the masses." Lets look to the past to determine the appropriate action to take to respond to this looming fiscal crisis because we have tried higher government spending with higher tax rates before and it did not work.
The ONLY way to get away from deficits and move towards surpluses is a concentrated effort to reduce tax rates and government spending at the same time.
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