Keynesian/socialist economists always tell us that, if we boost consumer spending, we’ll boost the Economy. They think that spending more will make Americans richer. They grow concerned when Americans save a little more and spend a little less, since they think that saving money makes us poorer.
So, what does happen when people save part of their earnings instead of spending it? Most people don’t just stuff it under the mattress – they look for some way to grow their money, either with interest from a bank or with dividends/capital gains from stocks or from starting their own businesses.
If they put the money in the bank, then the bank may act as a middleman, locating a business opportunity and making a loan. Buying a new issue of stock or starting a business similarly will put money into the hands of an entrepreneur.
Does the entrepreneur sit on the money? Of course not. That money gets spent! It buys additional R&D or a new piece of equipment or some other good or service – in order to make goods or services for consumers.
Businesses spend money, too! It’s not just retail consumers who spend money. When a business spends the money, much of the time it’s result will be to improve the capacity or the quality or the volume of consumer goods.
In short, much of business spending actually creates wealth in our Economy. All business spending? Of course not. When a business pays its employees, it is spending money which will go toward consumer spending.
To the extent that a business spends money to grow its business, that makes the Economy and all Americans richer. When our leaders make policy to encourage consumers to spend more than they would otherwise, those policies are keeping us from getting richer – making us poorer than we would have been without those stupid policies.
You likely have noticed in my previous essays that I want our government to be smaller, to spend less, and to take less of a tax bite from the people who earned that money in the private, productive sector of the Economy. Though I want all taxes to be lower, I still realize that some forms of taxation are worse than others in their negative effects on our Economy and Standard of Living.
Since business investment is the source of growth in our Economy – the way all Americans get richer – any tax which drains businesses of the money, which they otherwise would use to invest in their own businesses, makes all Americans poorer.
If we eliminated all taxes on businesses (and cut government spending to cover it), it would make all Americans richer. All three of the businesses’ natural constituencies would benefit. The Owners would get a greater Return on Investment, giving them reason to reinvest in their own businesses. The Employees (including the big-wigs in the front office) would get higher wages, making them more able to consume and save. The Consumer would get lower prices and higher quality products.
Every American is either an Owner, an Employee, or a Consumer – usually more than one – so all Americans would benefit from eliminating business taxes.
Free of business taxes, businesses could make products more competitive in international markets. More employees would be needed for expanded export sales, reducing US unemployment.
Action Item: Stop making our Economy grow more slowly than it could.
- Eliminate government policies which try to encourage consumer spending
- Eliminate all taxes on businesses, allowing the Owners, Employees, and Consumers – all Americans – to benefit
- Cut government spending to cover the reduced amount of taxes collected, so the burden isn’t just shifted onto other shoulders