Wednesday, March 14, 2007

The Real Reason For Paygo Taxation

The WSJ Editorial page is obviously more economic savvy than the Democratic congress members and senators who support the Paygo method of taxation in America. It all makes sense. Taxes hurt businesses. Increasing taxes hurts businesses that much more.

Suppose you own a business and have a million dollars in cash, with which you want to enlarge your factory or laboratory, building more products, providing more services and hiring more workers. The federal government says it will tax your money away -- but says you will be better off, and so will the economy.

How is that? Well, the taxes, the government says, will reduce the federal budget deficit, and a lower deficit means interest rates will decline. So you will be able to borrow the money back to expand your business -- and at a slightly lower interest rate than prevails today. Feel better now?

If you don't, you will not be thrilled by the House Democrats' paygo budget rule, adopted earlier this year. You will also want to watch the Senate budget resolution being marked up this week in the budget committee, which will set limits under the Senate's existing paygo rule. These rules require that whenever the House or the Senate legislatively expands mandatory spending (mostly for entitlements), or reduces taxes, the hit to the budget must be offset by a cut in other mandatory spending, or an increase in other taxes.

...Paygo is a way of diverting attention from the wisdom taught by Milton Friedman: The true burden of government is what it spends -- not what it takes in taxes. Whether funded by taxes or borrowing, government spending diverts real resources (manpower, land and material) from private to government use.

So let's get this right. You give the $1 Million you MADE to the government because "they know better than you how to spend your money," And now you have to BORROW $1 Million to pay for your upgrades. Now you have to make an ADDITIONAL $1 Million plus interest to pay off that loan.

That $1 Million upgrade has effectively cost you over $2 Million. And this is good for business how?