An Economic Stimulus for Whose Country?

We know it is an election year when the U.S. Congress votes to send us all a check. Several weeks ago the Congress approved and President Bush signed legislation granting $150 billion in tax rebates with the stated intention of stimulating the U. S. economy. According to the Internal Revenue Service, “starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million individuals. The stimulus payments will go out through the late spring and summer.”

Much as we all appreciate the unexpected rebate of even a small portion of our federal taxes, past experience indicates that were our national leaders truly interested in the long-term health of our economy, rather than pleasing taxpayers in an election year, they would sharply cut taxes and make it more profitable to work, save, and invest.

As one presidential candidate asked, whose economy are we stimulating when the U.S. government borrows $150 billion from China to give $600 to each taxpayer so that they can purchase goods made in China?

A recent paper published by The Heritage Foundation states that “tax rebates fail, because they do not encourage productivity or wealth creation. To receive a rebate, nobody has to work, save, invest, or create new wealth.” It also pointed out that “every dollar that government rebates ‘inject’ into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another.”

This is not mere speculation on the part of The Heritage Foundation; it points out that the “quick fix” of random tax rebates has been tried before, in 2001, and “had little economic impact.” On the other hand, the tax rate cuts of 2003 were effective because they “were designed to increase market incentives to work, save, and invest, thus creating jobs and increasing economic growth.”

It should not be surprising that those countries that suffered most severely from the deadening hand of socialism are today experiencing vibrant growth through flat and low taxes. In fact, every flat-tax country, except Hong Kong, is a former Communist nation. In Eastern European countries like Slovakia, rich and poor alike pay a 19 percent tax on their incomes, and their economies are growing faster than the rich Western European countries, where many companies now are considering moves to the East.

What is most extraordinary is that while many in the U. S. Congress continue to focus on class envy and socialist redistribution schemes, the country that suffered most from the Marxist nightmare has implemented a 13 percent flat tax rate, four percentage points lower than the most ardent flat tax supporters in our country have requested. Since adopting the flat tax, Russia’s economy has grown by 10 percent, which exceeds growth in the United States and Western Europe during the same period. Hong Kong has had a flat tax for over 50 years and is the world’s fastest growing economy. There are even signs that China may follow Hong Kong’s example.

The recent rebate approved by Congress brings to mind a quotation often cited by President Reagan:

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship."

In our land of freedom, free enterprise, and opportunity, we should relearn the principles that made our nation the great arsenal of democracy, the principles that those so recently enslaved by socialism have learned through their bitter trials. Low taxes succeed because they reward work, encourage savings, and provide the investments that lead to new jobs and economic growth. The cynical quick fix, given in an election year, may help pay a few bills, but in the long run it only deepens our national debt and does little to improve America’s economy.