Saturday, August 6, 2011

LAFFER CURVE MAKES TOTAL ECONOMIC SENSE

Today I viewed a TV appearance of Reagan-era economist Arthur Laffer who made a very profound statement, “Borrowed money that fails to build prosperity is wasted borrowing.” Think about that statement in relationship to our country’s current economic problems.

As a way of better understanding Laffer’s economic theories I suggest you take the time to read the explanation of the Laffer Curve Theory that is covered in a lengthy Wikipedia article.

http://en.wikipedia.org/wiki/Laffer_curve

While thinking about Laffer’s statement on borrowing, contemplate the following. It is obvious that we are borrowing massive amounts of money to support our government’s growing obligations to entitlement programs, which are unsustainable at the current level of spending. If you borrow money that is not contributing to productivity there is the cost of borrowing, and there is the secondary cost of repaying that debt. If the borrowed money contributes to productivity there will be the generation of additional tax revenue, which will then lessen the burden of additional borrowing, and ease the ability to repay the original loan.

Let’s not forget that Congress has been borrowing from Social Security since the early 1970s, issued IOUs, and has not repaid a penny. Congress claims that Social Security is an entitlement, yet haven’t we been paying into it? What would happen if the American public called those IOUs and demanded the fund be repaid with interest? Then we could talk about how much of the plan is earned vs. how much is entitlement.

Currently we are borrowing money and entitlement programs (Medicare, working people and retirees pay into that too, Medicaid, etc.) are growing at such a rate that we cannot keep up with the repayment demands, because the hole just gets deeper and deeper and is thus unsustainable. One problem is that people who pay nothing into the programs receive benefit of the programs. Another is that only 50% of the population pays taxes…meaning that only one half of the people of this country raise the money to support our government.

The theory outlined in the Laffer Curve clearly debunks the current Administration’s concepts of increasing taxation of the most prosperous percentage of the American public. What we cannot afford to have is 50% of the American people paying zero tax dollars. Every single American must and should have SKIN IN THE GAME. Freedom is not free.

COMMANDER GRANGER

1 comment:

Rollie Taylor said...

You are absolutely correct in stating 50% of Americans cant' pay taxes. It's amazing to me when I hear people say tax the rich. I say, tax the other 50% of Americans.