Taxes and the Impact to the Economy

“Taxes and the Impact to the Economy”
By Phyllis Hunsinger
January 1, 2014

Each year for many Americans, the New Year’s Eve festivities recede to memory to be replaced front and center by the thought of taxes: finding and compiling the paperwork for taxes, followed by the payment of taxes. There is perhaps no more onerous task than understanding the tax laws, complying with the tax codes, and payment of taxes.

Yet, individuals are not the only ones affected by taxes. The influence on the economy is significant. Follow the individual’s tax dollar. Every dollar paid in taxes is a dollar that is not spent for goods or services that would benefit the individual or be saved by the individual for a later expenditure. Every dollar paid in taxes represents money the individual earned but is unable to determine how that money is spent. Business, especially small business, suffers because the individual loses control over how the earned dollar is spent. Most of the dollars are sent to Washington, D.C., and to state governments, making remote the possibility that local businesses will ever see any of those dollars.

Businesses take risks every year and recognize the real possibility that the business may lose money. In the event the business shows a profit, approximately 48% of that profit will be paid in taxes. Then the business owner may question why they risk capital and effort for a return of 52 cents on the dollar. Businesses are discouraged from expanding facilities or adding employees because capital is taxed away before it can be accumulated. When the risk of investment far outweighs the rewards of success which happens as a result of high taxation, every single facet of the economy is negatively affected.

There is no denying that some taxation is necessary to fund the proper role of government, i.e., the safety and defense of its citizens and the protection of individual property rights. But, when the taxes imposed by the government approach 50 % and higher, people begin to ask themselves why they should even bother to work or to invest in business. The economy will continue to shrink, and the productivity that made the standard of living in America the highest in the world will no longer exist. Once the tipping point is reached, the quality of life for the average citizen in the United States will soon parallel the comrades in other Communist countries.

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