Alarm Signals Flashing From a Vulnerable Economy

Government can not continue to spend more and more while at the same time pursuing policies that drive down tax revenue. The private sector is unable and unwilling to generate enough taxable income and profit to support government’s mushrooming appetite. individual-march

The drop in individual income tax revenue in fiscal 2009 was the steepest since 1939.  As the chart shows revenue continues to plummet in fiscal 2010.

Virtually all individual income tax is paid by the top half of income earners, those with the resources to invest in business enterprises that create jobs.  Half the taxpayers earning over $200,000, the group targeted by President Obama for punitive tax increases,  are small business owners, who directly invest their own after-tax profits in business expansion. Investment of after tax profits is especially critical in 2010 as bank credit is still unavailable to most small businesses.

Thus, a drop in individual income tax revenue signals declining small business profits and declining resources available to invest in businesses and create jobs. Not only is current tax revenue down, but without current investment, future tax revenue will decline even more.

Corporate income tax is a direct tax on corporate profits.  President Obama and the Democrats make no secret of their contempt for profits.  But it is those profits that fund job creation and provide tax revenue to government.Corporate-march

The drop in corporate income tax revenue in fiscal 2009 was the steepest since 1932, the depths of the Great Depression.  As the chart shows, revenue continues to crash in fiscal 2010.

We all know what the excuse will be when the establishment media finally confront the Obama Administration  with this ominous data:

“Bush policies.”

But Obama continued and expanded the worst “Bush policy,” the massive bail-out program begun at in the final months of the Bush Administration.  Obama seized control of AIG, GM and Chrysler.  He prevented failing, insolvent companies from going through bankruptcy.  Instead, he kept them alive with transfusions of government cash.  He discouraged risk-taking and investment by promising to burden businesses with new taxes, new health care mandates, forced unionization, and an artificial energy shortage created by government.  Obama owns the “policies” driving this downward spiral.

The Bottom Line

The path to prosperity is liberty, not larger, more powerful, more authoritarian government. Greater liberty, and much less government intervention will leave companies, investors and entrepreneurs free to create wealth, produce profits and provide jobs.

Ironically, greater liberty also generates more tax revenue.

1 Comment so far

  1. Drew on March 15th, 2010

    Excellent post. The leftists always get it wrong, because of fundamentally flawed worldviews. They look at the rich not as productive entities who should be encouraged, but as fatted, evil calves who should be milked – or slaughtered – for all they are worth.

    Trouble is, the “rich” didn’t get that way by standing idley by to be taken advantage of. Its not in their nature. Rather, they compensate. The data do not lie, and the left’s policies are a fool’s errand.

    A little recognized fact is that 2010 tax revenues – as bad as they are – will actually be bolstered in a relative sense by activity in advance of 2011 tax law changes. Cap gains, OI and carried interest tax law changes are going to initiate (actually, have initiated) transactions that will benefit 2010 numbers………..and then 2011 is going to go splat.

    Small business is basically in lockdown mode. If the health care bill passes, expect 9 % unemployment as far as the eye can see.