Tax cuts : Erupting the economic volcano

Todd A. Williams 106195 - 04/15/2003

We have learned from past tips that the economy is an aggregate of many different markets. That in order to grow an economy, markets must be stimulated to grow.

There are many different theories of how improve the growth potential of markets. However, this tip will focus on the idea of tax cuts.

Tax cuts : The theory of a tax cut is that if you are not forced to give money to the government through taxation, you will be more inclined to spend the savings through consumption, or investment. Individuals will spend the money to the greatest need or desire that they have. The more money people have, the more then spend. Jobs are created, people become happy, and the money flows like hot lava!

Governments do not produce anything, they receive money through taxes, and spend money by purchasing goods and services from the private (non-government) sectors of the economy. Government is the greatest consumer of financial assets. Many people believe that by cutting taxes, you reduce governmental income, and reduce the amount of money available for social programs.

There is some validity to this argument. Yes by cutting taxes you reduce the income available to spend by the government n the short term. However, in the long term, government actually increases the amount it will receive.

Here is how. By increasing taxes, those with the ability to shield money (legally) from taxes have a greater incentive to do so. The higher the tax rate, the more incentive to be aggressive to pay as little tax as required. By reducing the tax rate or cutting taxes, you reduce the incentive to shield money from taxes, and create a greater incentive to pay taxes. This in essence will raise the amount of taxes collected. It also raises taxes collected because of stimulated spending.

There is another prevailing idea regarding tax cuts. This idea states that the rich receive the tax cuts while the lower incomes do not.

Yes, that is true. The more money you make, the more you get to keep with tax cuts and reductions. That is a law of reciprocity. The truth is that poor people don't pay taxes. If taxes are based on income, and percentages, then don't people pay a fair share? The idea of distribution of wealth is a great social ideology that screams in the face of a reward system.

The truth of the mater is this. When you have your financial house in order, you do not want to just give it away to the government. You want to be in control of your own financial destiny. You can better decide how to spend your hard earned money more so than a stranger telling you how to spend it.

So coach, how can all this help me financially now? Glad you asked. Here are two strategies.

First get a great tax accountant or attorney. Get someone you feel comfortable with, and has great references. A good tax accountant or attorney is worth their weight in gold.

Secondly, look into investing in items that are tax exempt or tax free. The higher your income, the more tax free or exempt opportunities you will want to be aware of.

The idea of money management is that it isn't how much you make; it is how much you keep. The more you keep, the better your financial life, and the better legacy you can build for yourself, your family, and your community.

Until next time

Maximize your dreams Organize your life to overcome obstacles Network to net-worth Enjoy the moment Yield an abundance Your money coach

Todd A. Williams

Resource:
Todd A. Williams is an author, educator, and public speaker who is quickly becoming a leading voice in the area of money management. Sign up for his free e-mail newsletter at
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