Danger Signals Flashing From The Economy

We’re watching, in real time, the catastrophic results of the recent, rapid expansion in Government’s power over the private sector.  ObamaNomics is killing the goose that lays the golden eggs.

Government intervention in business and industry is driving down the tax revenue government needs to fund its own breathtaking surge in spending.  The private sector is unable and/or unwilling to generate enough taxable income and profit to satisfy government’s mushrooming appetite.

individual-tax-revenueThe 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.

This dramatic drop in individual income tax revenue signals two alarming economic developments:

  • declining small business profits.  This means declining resources available to invest in businesses and create jobs.
  • much larger deficits than predicted by “experts” in the Obama Administration and Congress.

Almost all income tax is paid by the upper half of the population by income.   So, this plunging tax revenue is an indication of how the upper half is doing.  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.

Not only is current tax revenue down, but without current investment, future small business profits, employment and 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 fund government.

corporate-tax-revenueThe 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 decline in fiscal 2010, even though White House economists predicted a strong recovery in taxable corporate profits.

The Bottom Line

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

Ironically, greater liberty also generates more tax revenue!

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