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Health & Fitness

Why Government Can't Tax Its Way Out of Its Problem

In the end, spending restraint is the only meaningful solution to our problems. Increased taxation will move us further away from a solution.

How many times have we been told that “We can’t grow our way out of [our public deficits or public debt]?”  How many times have we been told that the government “needs the money”?  Or that it’s for the [fill in the name of the speaker’s favorite cause or group]?  We even have a Governor who said, “We need a strong public sector before we can have a strong private sector.”  Then there is the statement I find particularly troubling:  “If you don’t like the taxes we’re levying, move out!”

In this economist’s humble opinion, those who think that way have it all backwards.  They really believe that if you tax people and businesses more heavily the result will be proportionately more revenue and deficits will be reduced or even eliminated.  It doesn’t work out that way.  People respond to the incentives they are given.  If you tax productive activity more, the result will be less of that activity.  If the tax burden becomes heavier still, they will close their doors, pack up and leave.  How much revenue does the government collect then?

As I walk in the neighborhoods handing out my leaflets and meeting people, I get a different picture than I would get passing by in my car.  The data I track every week told me people were hurting.  When I got out and began seeing each neighborhood and talking to people, I got an appreciation of how much.  The people are tapped out!  They know it and they believe that the political class doesn’t know or care.  They appreciate when some taxing districts in the county have tried to hold the line or even reduce their tax levies for this year.  They are upset that the largest taxing district in the county voted to increase its levy by 4.95%.  Many don’t know how they are going to pay it.

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For most homeowners, moving out is not a solution.  Kendall County has the highest foreclosure rate in Illinois and one of the highest in the country. In a typical week, our local newspaper runs fifteen pages of foreclosure notices!  Anyone trying to move out to avoid higher taxes, finds a seriously depressed real estate market in which years of built-up equity has disappeared.  People who bought their houses in the last five or six years often find that they owe more than the current market value.

Increased taxation is not the answer to our problems.  Spending restraint is.  The people I meet are telling me that they want officials who understand their situations and who will conduct public policy accordingly.

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