Alarming Data: Big Government Starving Itself

The private sector’s ability and willingness to generate income and profits for government to seize through taxation is rapidly diminishing due to the increase in federal power and intervention.

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 restricted.

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.  Obama and the Democrats make no secret of their contempt for corporate profits.  But it is those profits that fund job creation and provide tax revenue to government.

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

When the media finally confronts the Democrats  with this ominous data, they will, of course, dismiss it all as the result of “Bush policies.”  But it has been three years since the Democrats won a controlling majority in Congress.  Obama continued and expanded the TARP program begun at the end of the Bush Administration.  He seized control of AIG, GM and Chrysler.  He discouraged risk-taking and investment by promising to burden businesses with new taxes, 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 “policy” America desperately needs is smaller government, restricted to the few legitimate functions permitted under the Constitution.

Greater liberty, and much less government intervention will leave companies, investors and entrepreneurs free to create wealth, produce profits and provide jobs.

The path to prosperity is liberty, not larger, more powerful, more authoritarian government. Ironically, greater liberty also generates more tax revenue.