Higher Taxes or Cut Taxes – Which would you prefer?

I’m already tired of the Republican National Convention, and it hasn’t even happened yet.

I live very close to downtown Tampa, most of which will be closed off for the convention. The police are practicing for riot control and protest march management. The Mayor is rejoicing over all the new dollars flowing in. The strip club owners are happy because, apparently, Republicans spend three times as much as Democrats do at such establishments.

In other words, there is an awful lot of activity going on in this sleepy Florida town with its Midwestern values. And the funny thing is, the main event (almost) doesn’t matter…

Put aside for a minute that Mitt Romney is the presumptive nominee and that he’s already announced his Veep.

Instead, think about the process of spending roughly $1 billion EACH for two candidates to fight over who gets to spend the country into oblivion while making no headway on correcting our economic course.

Romney and Ryan tell us we just need to cut taxes and cut spending. That will get us out of our funk.

Really?

Corporations in the U.S. hold trillions in excess dollars. Income and wealth for those at the top of the earnings ladder has shot higher in the past two years.

Are these people – corporate chieftains and the wealthy – holding out for a break in taxes? Of course not. That’s idiotic.

General Electric (GE) earned $5 billion last year and paid almost nothing in taxes.

Mitt Romney earned $20 million and paid only 14% in taxes last year.

I do not begrudge either, because they are simply following the law. Instead, I hold Congress responsible for not implementing a straightforward, common sense tax code that charges a fair rate and can’t be gamed.

Lowering taxes won’t lead wealthy people or companies to spend more. They’re spending as much as they’re going to spend already.

As for cutting federal spending… now that’s a great idea! Harry and I even have a few notions on how to accomplish that…

But just for kicks, look at the budget and ask the question: where exactly are we going to cut 1/3 of all spending without severely affecting entitlement programs and the military?

Also remember that each dollar the federal government does NOT spend is a dollar less in income for someone. A major cut in spending would be a huge drag on the economy.

Yes, the government must address its uncontrolled spending, but the notion that we can save our way to a balanced budget is far-fetched.

What the Other Side Says

On the other side of the coin, Obama and Biden tell us we need to charge higher taxes in order to put people back to work and rejuvenate the economy.

What? How does that follow?

The U.S. runs an annual deficit of $1.1 trillion. If we raise taxes, won’t that (hopefully) lower the deficit, not add to federal outlays required to re-inflate the economy?

Higher taxes are nothing more than a wealth transfer program. Right now the government is spending on credit in the hopes that a rich uncle (or not so rich taxpayer) will eventually cough up more money to pay down the debt. That’s almost like betting you’ll win the lottery.

Frankly, both narratives are wrong… and we all know it.

The U.S. is on a one-way path to a slowdown. We must pay back our borrowings from previous years. The Baby Boomers must scrimp and save for retirement. There’s not much, if anything, the federal government can do to change it.

We need higher taxes and lower spending. I don’t say that because I want to pay more in taxes. I don’t. I say it because I recognize the country will be in much better fiscal shape for the next generation if we keep our house in order today.

That said, it would thrill me to no end to see a real Congressional debate, without gridlock, on each area of spending in the federal budget before another dime of tax revenue is raised. Of course, that has about as much a chance of happening as something interesting coming out of the Republican National Convention this August 27 to 30.

Maybe I’ll go to the beach for the week.

Rodney

P.S. As Harry says, if Romney wins this election, he’s a lucky guy. Not because he won, but because no one will blame him for the impending doom ahead. Most first-time presidents elected during times of trouble have the luxury of pinning the blame on their predecessors. The thing is, it doesn’t matter who’s to blame. Both Obama and Romney are powerless to stop the Dow’s plunge to 3,300. This report explains why.

 

 

Ahead of the Curve with Adam O’Dell

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Just as Republicans and Democrats continue to march in opposite directions, so do the Dow Jones Averages.

 

 

What Killed the Middle Class?

Today real incomes of the middle class are 5% lower than they were in 1970 and 12.4% lower than in 2000… when they peaked! How could this be?

In our new infographic What Killed the Middle Class?, we take a look at some shocking numbers to show how bad it’s become and what has been fueling this middle-class revolt.

 

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.

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