Tax Hike Slows Retail Sales in January
At the end of the year 2012, the payroll tax expired at the same time a tax increase was also put into place on those making $400,000 or more.
The expiration of the payroll tax holiday caught a lot of lower income people by surprise, and they took to Twitter to express their displeasure. There were quite a few who stated that they were going from struggling to make it, to not making it at all.
It was reported yesterday that retail sales in January rose by 0.1%, down from 0.5% in December, 2012. The recent tax hikes were blamed for the decline.
It shows that this axiom is at work. When taxes are raised, the economy slows down. The government does not create jobs, unless of course, they are government jobs. However, the government creates the conditions for the economy. They do this mostly through tax rates and interest rates, but also through regulations. Lower taxes and lower interest rates tend to create growth. Higher taxes and higher interest rates tend to slow the economy. The larger the move, the more profound effect the move has.
The key word is tend. For the last 13 years, none of this has worked to a large degree, because the economy for the final 18 years of the last century was so strong, that it grew too large, too fast, and no one tapped the brakes. Clinton raised taxes, but not enough, and the Republicans prevented him from doing so. The Federal Reserve kept interest rates down for too long.
The result was a series of bubbles that eventually collapsed: the dot com bubble, the housing bubble, the oil bubble, and the stock market bubble. Now we have a debt bubble forming from the top, and no one seems to have learned a damn thing.
The President proposed a new series of expenditures in his SOTU address that he claimed would not raise the deficit one single dime. It’s the same claim he has made on the campaign trail and in previous SOTU speeches, and we should know by now that it isn’t true.
Taxes were raised on more than 3 out of every 4 people last month and not the economy has slowed for the month, not that it was particularly robust to begin with. Even with the 0.5% bump in retail sales in December, Christmas time, the overall GDP for the 4th quarter shrank 0.1%. Expect more shrinkage during this year.
Helping people thrive does not include taking more money from them.
We live in a country where the tax system is out of control, and governments are demanding that we pay more, more, more. Look at the collapse of gas tax revenue due to more efficient engines, hybrids and electric cars. So, those of us who don’t own such a vehicle have to pay more to make up for those who don’t have one.
An incentive to buy a new car, right? Wrong. If you are struggling to pay rent or buy food, where are you going to get money to buy a new car?
Those who believe that higher taxes have no effect on economies, here’s your sign.