Who will spend your money best?
Tax reform is a hotly debated subject that seemingly never ends. In recent weeks, with President Trump offering up his version of it, once again we find ourselves in the thick of the discussion, with both sides of the aisle making their case on what new reform should look like.
There are very polarized views on tax reform with some being in favor of more taxes to feed government coffers while others favor cutting taxes to businesses and Americans across the board so more money is retained to invest or spend.
Distilled down to essence of this reform are two differing beliefs.
Those favoring more taxes put forth the argument that money given to the government will be more wisely spent then money spent by those that earned it, mainly private individuals or the companies they run.
If individuals are taxed less, those individuals will spend that money on what they want to spend it on. If those earnings are taxed away however, the government (or whoever receives the tax) will turn around and spend it the way they see fit.
When this money is spent, no matter who spends it, it will find its way into an economy and subsequently boost that economy.
The first question then becomes how efficiently that money is spent. Few would argue that government by the very nature of its largess wastes some of what it spends. The cost of government and the agencies that administer the variety of programs that facilitate the spending all consume some of the money just by the nature of their existence. Programs take administrators and workers and all those people require salaries. People require buildings and materials to do their work and all that cost more money.
It’s safe to say whatever dollars are taken out of the economy in taxes does not make it back to the economy in one piece. For every dollar that is taxed away from the economy, only a portion finds its way back in. Herein lies the argument against taxation to stimulate an economy for example. Take a dollar from a taxpayer and that’s one less dollar he has to spend and therefore one less dollar that would otherwise stimulate the economy. Follow that dollar through the machination of government and what eventually makes it back to that economy is less than a dollar. It’s sort of like transferring water from one place to another with a bucket that has a hole in it. Keep it going long enough and there won’t be any water at all, it will all be wasted through the leakage. That “leakage” is the cost of government and it’s not a theory, it’s a cold hard fact. Government and its administration of taxes cost money.
Those that favor taxes may or may not acknowledge the reality of the leaky bucket concept but one thing the tax proponents do agree on basically encompasses their entire argument. Money spent by government is spent on the greater good instead of on individual greed or preference.
Many believe there are high net worth individuals that have more than enough money for themselves, subjective as that may seem, while others are going hungry. They believe that corporations squander money on evil endeavors or just plain frivolousness and that it’s better to take more in taxes to insure that some of that money is redistributed to the lower income classes and those that need help making ends meet.
Indeed the arguments on both sides have some merit and I doubt anyone stands 100 percent on one side or the other, namely in favor of no taxes at all or a complete garnering of all profits from the constituency.
But the polarization is heated and the arguments ongoing. The first step in all negotiations and arguments is first understanding the others position and in the case of tax reform, the facts are often misconstrued and politicized. For America to reach a solution, we must first lay the cornerstone of progress and the corner stone of progress is education. Instead of aisle infighting, perhaps the facts should be laid out in a deliberate and discernable manner for all to understand and then move on from there.
This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at MKB Financial Services 164 Maple St #1, Auburn, CA 95603 (530) 823-2792. MKB Financial Services and Cambridge are not affiliated. His website is www.moneymanagementradio.com. California Insurance License # OL34249