The Awful Economic Impact of Overcollecting Taxes from Every U.S. Family.

ECONOMIC IMPACT 

Copied from:  http://web.archive.org/web/20040606010957/http://cafrman.com/EconomicImpact.htm

The economic impact is equally or more dramatic than the surpluses per capita. It includes increased earnings, reductions in taxes, tremendous job creation, wealth creation, increases the standard of living of everyone and more.

The surpluses shown on this site is your money. It is up to you to get it back. Do something!
“Collecting more taxes than is absolutely necessary is legalized robbery” – Calvin Coolidge

As we have demonstrated in this site, the picture depicts what is happening to 90% of Americans. It is time for change before it is too late. It is easy to change the laws. It is done every day. Now get the legislatures and the governor to change the laws to accommodate the return of these funds to the people.

Introduction

When governments lower taxes, government revenues increase.

You say how can that be? Governments raise taxes to increase revenues. Then lowering taxes should decrease revenues, right? WRONG!

Here is a story of what was discovered in 1815 in England after England vanquished Napoleon and ended up with a debt burden equal to 200% of Gross Domestic Product (GDP). This historical story was presented in Barron’s issue of December 4, 2000 and was written by Stephen W. Shipman, portfolio manager and director of research for George D. Burman & Associates in Los Angeles.

After the French wars with the return of the British troops and subsequent demilitarization, a surplus emerged. Thus began the modern era’s first great debate over tax cuts and debt reduction.

After much debate and wrangling among the British politicians, along the same lines as we see today, it was decided to return the surpluses to the people by reducing the high taxes necessary to sustain the war effort instead of paying down the debt. But the reduction was not only in the income tax but in many taxes that were imposed on the total population.

The British economy boomed and revenues barely receded. They had enough to make the payments on the debt. So they decided to try lowering taxes again and again revenues increased because of the explosive economic boom.

The result was tax reductions of surpluses rather than paying down the debt provided more benefits than just paying down the debt with the surpluses, because the government received more revenue because of the increased economic activity. Mr. Shipman stated:

“Clearly all evidence suggest and the record demonstrates that Great Britain’s phenomenal economic expansion following the French Wars derived from a policy mix that favored top-line production over balance-sheet austerity. The people of Britain, its laborers and entrepreneurs alike, responded by creating so much wealth that the government never again really worried about its debt burden.”

Mr. Shipman goes on to state that it is “…ludicrous to oblige American taxpayers to …” pay off the debt when the size of the debt compared to the British debt at the time is so small.

Hence, the statement that when governments lower taxes, the governments revenues increase was born and proven in the real world starting in 1815.

In addition, this effect/results has been immortalized by Dr. Arthur Laffer who created the Laffer Curve theory during the Reagan administration. Contrary to what you may have been told, the application of this principle worked. Taxes were reduced and tax revenues increased. The story being told is that government deficits occurred because of the tax reductions. This is a lie. Government deficits were created because Congress spent the increase in tax revenues and a great deal more.

However, we shall in this section and in other parts of this site prove with specific easy-to-understand economic principles how the above statement becomes true. But even better than reducing taxes is to provide cash refunds of surpluses equally to each person.

The economic impact is equally or more dramatic than the actual surpluses per capita. It includes increased earnings, reductions in taxes, tremendous job creation and more.

Remember what Alan Greenspan, Chairmen of the Federal Reserve, said in his testimony to the Senate Humphrey-Hawkins Committee in late July 1999, “…My experience is that private rates of return are significant higher than the governments’ rates of return.

This economic impact analysis will prove mathematically what was explained above. However, our approach to refunding the potential surpluses is not the supply-side (trickle-down) approach, but what we call the “trickle-up” approach.

We used Economic Output Multipliers (EOM), Economic Earnings Multipliers (EEM), Government Revenue Rate (GRR), Government Investment Ratio (GRI), and Employment Ratios (ER). Actually these items can be found in any elementary economics textbook and are really very simple principles. These principles are fully explained below and shown in the Section on our review of selected CAFRs.

Investing

Investing is spending or setting aside money for future financial gain. For an individual, investment might include the purchase of financial assets, such as stocks, bonds, mutual funds, or life insurance. In government accounting investments are “assets” such as “Cash and Investments”, not revenues or expenditures. As will be shown below these assets are set aside for the future income to be received from the investments and not needed for current operations of the government.

Therefore, by accounting definition the cash and net investments in the balance sheet of governments are mostly excess funds and potential surpluses not currently needed to carry out the functions of the government.

The Economic Impact Analysis

These are economic principles which can be found in almost any elementary economics textbook.

Economic Output Multiplier (EOM)

“Basic to all theories of business-cycle fluctuations and their causes is the relationship between investment and consumption. New investments have what is called a multiplier effect: that is, investment money paid to wage earners and suppliers becomes income to them and then, in turn, becomes income to others as the wage earners or suppliers spend most of their earnings. An expanding ripple effect is thus set into motion.

Similarly, an increasing level of income spent by consumers has an accelerating influence on investment. Higher demand creates greater incentive to increase investment in production, in order to meet that demand…” (“Business Cycle,” Encarta® 1998 Encyclopedia © 1993-1997)

Another explanation: The EOM estimates the change in output for a given change in demand, i.e., a certain demand (returning surpluses) increases the output of all industries in the government’s economic area after all “rounds” of spending are totaled.

After researching EOM data from the Department of Commerce, Bureau of Economic Analysis (BEA), and other sources, it was decided that an EOM of 2.00 is about the average that can be used for all governments.

This means that for every $1 of surpluses returned to the people, the economy expands by a certain number of dollars. For example if the economic multiplier is 2.0:1, this means that for every $1 returned to the people in a certain taxing jurisdiction, the economy in that jurisdiction will increase by $2.00.

Economic Earnings Multiplier (EEM)

Increased demand (surpluses) increases labor demand in all industries, resulting in increased wages paid for everyone in the government’s economic area.

This is the total dollar change in earnings of households that results from a $1 change in output delivered to final demand.

In a recent Wall Street Journal article the impact of increasing or lowering taxes (returning surpluses) was shown when it stated, “Richard Vedder, an Ohio University economist, estimates that on average a 1% increase in state and local taxes lowers personal income by 3.5%.” Conversely, the returning of surpluses, more than just a lowering of taxes, will increase personal income more than the 3.5%.

Again, research indicated, including considering the Department of Commerce, Bureau of Economic Analysis (BEA) data on its RIMS II economic model, that an EEM of .50 should be used.

Government Revenue Rate (GRR)

This is the amount of revenue collected by a government per dollar of economic activity in the government’s area of jurisdiction. This will provide the percent of return the government is receiving per dollar of economic activity.

We use a GRR of 10.00% for States and 8.00% for local governments. This means for every $1 of additional economic activity a State government receives 10.00 cents and a local government receives 8.00 cents in revenue. The Federal government receives 20 cents on each $1 of Gross Domestic Product (GDP).

Government Rate of Return on Investments (GRI)

This is the interest rate that the government receives on its investments excluding the return on retirement/pension plans investments which can vary considerably because of the type of investment.

The current GRI for the average government is between 5-6%. Most of the potential surpluses are in the government funds that receive this GRI. However, the retirement funds, universities, and a few smaller funds/entities are allowed to use the “prudent person rule”. This means they can invest in stocks, bonds, foreign currencies, foreign stock, etc., which the normal government funds cannot. However, usually a much smaller amount of the potential surpluses are from excesses in these funds/activities.

Increase in Tax Revenues

As has been stated above returning potential surpluses increases the economic activity in the government’s economy . With the government receiving 10.00 or 8.00 cents on every $1 of economic activity, the government will receive considerably more (from about 10% to about 14%) above what the government would receive if the surpluses were invested by the government (GRI). For the Federal government it is pure profit of about 40 cents or 40%.

Reduction in Taxes

Because of the increased revenues the government can reduce future taxes.

In addition, the activities/taxes/etc. that created the surpluses in the first place could be changed so that surpluses could not build again. This in itself will reduce taxes even further.

Employment Multiplier (EM)

This is the job creation amount. It is the amount of additional economic activity necessary to create one additional job. Although research disclosed that the range was between $45,000 and $75,000, we decided to use $100,000 as the amount needed to create one additional job.

Summary of Economic Impact Data

Here is a summary of what the above economic impact indicators mean.1. Economic Output Multiplier (EOM)
For every $1 of refund to the people the economy grows by $2.
2. Economic Earnings Multiplier (EEM)
For every $1 of refund the wages increase by $.50.
3. Increase in Federal revenues
For every $1 increase in economic activity the Federal government receives $.20 in additional revenues.
4. Increase in State revenues
For every $1 increase in economic activity the State governments receive $.10 in additional revenues.
5. Increase in Local revenues (City and County)
For every $1 increase in economic activity the local governments receive $.08 in additional revenues.
6. Employment Ratio (ER)
For every $100,000 in increased economic activity, 1 job is created.

Unemployment and Welfare

Because of the increase in employment, unemployment and the costs of unemployment would be drastically reduced thereby reducing the tax burden for these costs. Likewise, with the increase in employment opportunities and wage increases, the welfare recipient may decide it is more profitable and easier to get a job than remain on welfare. This also will decrease the welfare costs to the taxpayers.

An Example of the Principles

The State of Ohio at the State-level has approximately $42.40 billion of the taxpayer’s money it is not using, i. e. surpluses equal to $3,703 for every man, women and child in Ohio or $14,811 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in Ohio.

If these surpluses at the State-level were returned to the people, the total economic benefits increase to $8,144 per capita and $32,574 for a family of 4.

Here is a chart that tells the whole story, but only for the major portion of State-level government, not the potential surpluses at the school districts, cities, or counties in Ohio. Their potential surpluses would be added to the amounts indicated below.

Economic Impact Analysis Summary – Ohio CAFR Review – FY 2001FIRST YEAR BENEFITS PER CAPITA Economic Principle Explanation Amount
(In Thousands) Per Capita Family of 4
Actual Refund Total Potential Surpluses $ 42,395,994 $ 3,703 $ 14,811

Economic Output Multiplier (EOM)
For every $1 of refund to the people the economic activity increases by $2. This is the increase in Gross State Product (GSP). Results in increased sales for local businesses. $ 84,791,988
Increase in GSP – Sales 22.84%

Economic Earnings Multiplier (EEM)
For every $1 of refund to the people the wages paid to each household wage earner increases by $.50. $ 21,197,997 $ 1,851 $ 7,405

Employment Ratio (ER)
For each $100,000 in increased economic activity, one additional job is created 847,920 jobs created

Increase in State Revenues means a Reduction in Taxes
All governments earn revenue based on the economic activity in their respective taxing jurisdiction. For every $1 of economic activity, the State receives revenue of approximately $.10. This increase in revenue should result in reduced taxes. $ 5,935,439 $ 518 $2,074

Increase in local government revenues For every $1 of economic activity, the local governments receive revenue of approximately $.08. $ 6,783,359 $ 590 $ 2,360

Increase in Federal Revenues
The Federal government earns $.20 on every $1 in economic activity. $ 16,958,398 $ 1,481 $ 5,924

TOTAL BENEFITS THE FIRST YEAR $ 8,144 $ 32,574

Results of Our Reviews

To look at the results of our reviews .

Each report contains an economic impact analysis to demonstrate the tremendous benefits to the taxpayer when the surpluses are returned to the people.

There are 83,000 CAFRs prepared every year. Some are duplicates of data in other CAFRs. Just think of the surpluses that exist with all the school districts, cities, counties, other States, and Other CAFRs. If these surpluses were returned to the people, there would be no need to worry about Social Security again.

We believe that any surpluses held by governments should be returned to the American people so they can do their thing.

Summary – Unanswered Questions
We have proved that when money (surpluses) are provided to the people rather than remain in the hands of governments, governments receive more revenues from the increased economic activity. Let’s look at something very closely.

Premise: One government does not tax the income received by another government.

If a city or county government returns surpluses to the people rather than retaining the surpluses and invest them, the city and county governments will receive considerably more revenue from the increase in economic activity than from the income on their investments. Why don’t city and county governments return surpluses to the people if they can receive more revenue and not have to continually ask for tax increases?

The State government does not tax the income received by city and county governments, but does receive revenue if the surpluses are returned to the people and the people use the surpluses to increase the economic activity in the local area. Why doesn’t the State government require all cities and counties to return surpluses to the people?

The State government should return its surpluses to the people because it will receive more revenue than the income from investments. Why doesn’t the State government return its surpluses to the people and not have to continually ask for tax increases?

The Federal government does not tax investment income of city, county, or State governments. However, if the State and local governments’ invested funds were in the hands of the people, the Federal government would receive an enormous increase in tax revenues. Why doesn’t the Federal government require that all surpluses be returned to the people, including its own surpluses, if any?

It appears that everyone wins if the surpluses are returned to the people. The people receive refunds of taxes paid and every level of government benefits with increased tax revenues over investment income.

We believe that ignorance of the economic impact as outlined in this site by many politicians plays a part in this problem; but we also believe that for some politicians and those that control these politicians control of the nation’s wealth has something to do with it.

It is up to you to do something about these surpluses!

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s