There is a great debate raging over the past few presidential cycles about taxes.
In particular, taxes on the so-called “rich” have been a hot topic. For those who argue that increasing taxes will somehow benefit the economy, the sales tax holiday must be an uncomfortable time.
This weekend, shoppers will not have to pay the state’s 4.75 percent sales tax on most items.
Guess what happens when the sales tax is eliminated?
Not surprisingly, sales go up.
What the sales tax holiday reveals is not just that lower (or no) taxes result in higher economic activity, but that people will change their financial behaviors to maximize the value of their money.
This is something that economist Arthur Laffer has talked about in a number of books. His “Laffer Curve” illustrates that higher rates of taxation do not necessarily result in higher revenues for the government.
This is worth pondering. If the point of raising tax rates is to generate more revenue for the government, but raising tax rates to certain levels actually DECREASES government revenues, then why would anybody want to raise taxes? This reality takes off the table the “people need to pay their fair share” argument (which has its own deep flaws).
We’ve seen illustrated perfectly by increases in the capital gains tax rate over the years. Like clockwork, when the capital gains tax rate is cut, capital gains tax revenue actually increases!
Those intent on punishing the successful, however, don’t let these facts get in their way — they see taxes not as revenue generators but as some sort of punitive measure against the so-called wealthy.
But in their blind intent to redistribute wealth, the actually do nothing but hurt those in the bottom and middle layers of the economy because the economy inevitably slows down when those with money sit on it rather than invest it in capital projects that are subject to the capital gains tax.
It’s all so simple, it’s laughable.
To argue that all people won’t shift their spending and saving habits to pay the least amount of tax is, by extension, to argue that there will be lower sales on the sales tax holiday than on other days.
Of course that is not true.
Our mission: how about a capital gains tax holiday? Or a gas tax holiday? Or an any-other-tax holiday? The result is as predictable as the rising sun: more money will be spent, which is the best thing that can happen to our economy.
And there is really no debating that.
REPRINTED FROM THE NEW BERN SUN JOURNAL
