It's Taxing!

The tax rate seems to be the topic that's on everyone's mind, and honestly most of it makes my head hurt, but there is a simple explanation that seems to elude those in Washington. So I'll explain it so a simple citizen like myself can understand what they try to make complicated with their rhetoric.

Tax rate increases have NEVER raised tax revenue, here's why. People with money have a choice, they can pay taxes on income or hide it in tax free investments like municipal bonds. Say you have $100,000.00 of income hanging around. Now the government will subject that income to a 39% federal tax leaving you with $61,000.00, or the smart option, investing in municipal bonds. While the return is minimal, you still retain your initial $100,000.00 plus the interest, a $39,000.00 savings. Even if it only pays a few percentage points of interest, you didn't get taxed the $39,000.00.

Now Washington should and does know this. When people face tax increases they shift their money from productive investments, to less productive areas, (like municipal bonds), to keep the money they've earned. This hurts the economy as it causes the GDP (Gross Domestic Product) to decrease. Here's why that's bad.

W. Kurt Hauser of the Hoover Institution at Stanford University has charted the relationship between tax revenue collected and GDP. Apparently the higher the GDP the more money the government collects! Contrary to Washington's idea that raising tax rates increases money in hand. Between 1950 and 2009 tax revenues have been between 17.9% and 20.6 percent of GDP. Despite tax rates being between 89% and 35% of taxable income. So in speak we can all understand, the rate of taxation doesn't matter, the amount of money the federal government collects is driven by the prosperity of the country,(GDP). This chart is amazing, the tax rates go from almost 90% to 35%, and the tax income remains a steady flat line.

So with that simple explanation even an elected official should be able to see, the secret to federal tax revenue is to increase the GDP. And the best way to accomplish that is to give business incentive to create wealth....,.DON'T RAISE THEIR TAXES! Unless, of course, your trying to purposely bankrupt the republic, and punish the successful.......

God Bless!
Capt. Bill