The answer to our spending problem is to “broaden the base”

Posted By on January 16, 2013

It is becoming increasingly clear the the answer the federal government’s excessive spending is to “broaden the base” … but before the attacks from payingtaxesDemocrats begin, let me clarify my reasoning (highlighted below) and explain.

The current debate in Washington DC is whether to address the deficit (and mounting debt) by raising taxes on the wealthy to meet the spending needs of our country … or cut spending in order to match our tax receipts. Most economics classes and lectures reason that neither approach done in a drastic enough as a way to address the country’s problem would work and would instead likely send us back into a recession or probably worse. The bipartisan commission set up by President Obama in his first term looked at the one-sided approaches and recommended a more balanced and more gradual approach. Their recommendations included significant cuts to government spending and increasing revenues by “lowering of tax rates and broadening of the tax base.” Still painful, but spread out over millions of citizens, far less harmful than the president pitting citizen against citizen and picking “winner and losers.” In the end we’ll all lose.

What it means by “lowering the tax rate and broaden the base” is to reduce the tax rates and remove deductions and credits to make up for it. *

A significant point is that in a country where nearly 48% of all citizens do not pay federal income taxes, there isn’t much incentive to control spending. In fact when many receive money from the government, there is an incentive not to do anything that disrupts the status quo. So, if the “base is broadened,” and more of the nation paid federal taxes, there would be an incentive to spend wisely in order to keep ones taxes a low as possible (especially wasteful spending). When we purchase something with our own hard earned money (or our contribution to the nations coffers), we have an interest in spending it more judiciously and can get pretty irritated when our elected representatives spend it in a wasteful way.

What we do know, and where both Democrats and Republicans agree, is that IF we can get more dollars in the hand of consumers, we can build a stronger economy – Republicans want to do this by reducing taxes, Democrats advocate  government stimulus programs – but both want more money in the consumers hands. A stronger economy means more jobs and more jobs improves wages (due to competition for employees, not government regulations). When we have full employment, demand for products and services will be strong and government revenues will rise due to the “broadened base” paying taxes (even at lower rates) on increasingly higher wages … but we all have got to have “skin in the game” and a reason to control wasteful spending. Common sense???


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