Thought #4                                                             January 2009
Author: Bill Thurston

Tax Cut! What Tax Cut?

My first thought was to quote the governments definitions of "tax" or "tax cut". But we all pay some type of tax and we know that it is money we (citizens and businesses) give to our government. A tax cut is obviously a decrease in some tax.

Let's take a look at the proposed American Recovery and Reinvestment Plan (see Thought #2). Part of this plan is to get people spending again, by giving 95% of working families a $1,000 "one time tax cut".

It sounds good so let's examine this "tax cut". First of all, we have done this two other times in the last decade. If the new program is like the last two, our government is going to advance most of us $1000 against a refund on next year's taxes. OK, but we spent $1000, so where did it come from? We will give our government $1000 less of the taxes we are going to pay next year so our government will have less money to spend  because it was spent this year to stimulate the economy.

But wait! They aren't curtailing spending, they are going to introduce the largest spending bill (with the "tax cut") in our history.

How do they do this when they have no money?

Let's take a quick look at how our government gets money. We pass laws to allow our government to tax us and others around the world, so that's one way. If they had any savings or checking accounts, they would get interest but they don't seem to save very much. Other countries could give us monetary gifts but they don't. We get some money from custom duties. Oh, and then there is the Money Tree! Yes, the federal government has a Money Tree with trillions of dollars hanging from its limbs. Here is how the Money Tree works.

1. The money on the tree isn't money that exists today, it is money the citizens and their offspring will earn in the future. If we let our government pick money off of the tree, then we promise to pay it back with our future earnings.

2. So when money is picked, it becomes a loan against the citizens.

3. But the federal government can't pick money off the tree unless they get our approval. Actually they get the approval from the representatives we sent to represent us in congress.