A Paradoxical Truth

February 18, 2014

When California's budget doesn't balance, there's always a debate over whether we have a "spending problem" or a "revenue problem". And we are told we must decide between cuts to government services or higher taxes. But I think this debate misses a larger point, which is that insofar as we have a revenue problem, it is not because we are taxed too little. But rather, it is because we are taxed too much.

You see, the best way to increase the amount of revenue coming to the government is to increase the number of people working and paying taxes. The problem is we don't have that right now. Instead, half of college graduates are having to go back home and live with their parents because they can't find jobs. They aren't working, they aren't producing anything, and they aren't paying any taxes.

The problem with raising the tax rates is that it creates a drag on the private sector and hinders economic growth. Democrat President John F. Kennedy got it right when he said, "It is a paradoxical truth that tax rates are too high and tax revenues are too low. And the soundest way to raise the revenues in the long run is to cut the rates now." He also said, "The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus."

It may seem paradoxical to some, but the best way to increase the amount of revenue coming to the government is to cut the tax rates now. Because when you lower the tax rates, it allows the private sector to prosper, businesses are able to hire, and more jobs are created. The result is more people working, more people producing, and more people paying taxes. Even though the tax rates are lower, the amount of revenue coming to the government is actually higher.

So we don't actually have this false choice between higher tax rates and cuts to government services. By lowering the tax rates, not only will people be able to keep more of what they earn, but we will also have enough revenue to pay for the government services we need. It's important to remember that in order to have a healthy public sector, we first need a strong private sector to pay for it.

~Michael Hunsweck