Robbing Peter to Pay Paul
In the last few weeks the Obama administration has proposed a series of additional taxes. It seems that everything from a new Value Added Tax to a new tax on healthcare is being considered as good tax policy for the ever expanding government. A key theme underlying the additional taxes is the repeated comment that this is needed because of the economic challenges that we face.
Indeed we face difficult times. In fact, this morning, the unemployment rate was announced to be 9.4% with over 15 Million people out of work in the United States. The policy response has been to work towards a nationalized support of the banking industry, the auto industry, the transportation industry, the education industry and the healthcare industry immediately. And this is all being done in the name of supporting the crumbling economy.
As I hear the rhetoric, follow the market and watch the economic data, I am reminded of a quote that seems to fit this situation:
"A government that robs Peter to pay Paul, can always count on the support of Paul" -George Bernard Shaw
For those that can remember, during the early 80's, the Regan administration faced rising unemployment, soaring inflation, a difficult international climate and a severely handicapped financial industry. At that time, the policy response was to cut taxes and downsize government. In fact, deregulation was heralded as the solution to the problem. The administration believed that individuals, seeking their own self interest, could make better decisions than the government, seeking its best interest, could make for the people.
The results were amazing to watch. Businesses that were now taxed less and regulated less, found profitability in hiring additional people. Those new workers found ways to afford homes and cars in a lifestyle that was not available without the new job. Unemployment decreased rapidly and interest rates, which responded to the inflation by increasing, soon decreased to average long term levels. De-regulated industries found that competition created incentives and motivation that regulated behavior and offered new opportunity. The reduced size of government required less in the way of taxes, but, as history proved, tax revenue to the government increased, despite the much lower marginal tax rates. In a contrary economic theory, the Obama administration is planning to spend its way out of this recession.
History has shown that a government can't spend its way out of a recession, the country must produce its way out of a recession by employing all of its resources effectively and reducing the amount of waste that comes from additional taxation and additional spending or government incentive programs.
America is certainly a democracy and everyone has a vote. The fear is that "a governemt that robs Peter to pay Paul can always count on the support of Paul." If there are enough Paul's, the policy will continue until all of the Peter's are gone.
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