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With the ink hardly dry on the tax cut pushed by President Bush, the benefit of the tax cut is in real jeopardy because local government spending is out of control.
Led by the perpetually big spending states of California and New York, states are facing a combined deficit of 25 billion dollars this year and another 55 billion next year. Add in local government projected deficits and you get over 100 billion dollars in deficits by next year!
Local governments decry the “bad” economy and lack of revenue, but the problem is simple: out of control spending. Over the past thirty years, total spending by state and local governments has increased at a faster rate than inflation. Total spending by these units of government is now at a record high of 15.2% of GNP.
Most state and local governments are prohibited by law not to run a balanced budget, giving governments the unenviable choice: raise taxes or cut spending. Rainy day funds have been depleted and the tobacco settlements have been spent.
Most state and local governments are considering increasing income taxes and property taxes; some are even creating “sin” taxes. One new tax, for example, was passed in Tucson, Arizona and taxes all sales over $1,000.00 at an additional 2%, which is simply an attempt to soak the rich.
The problem for the US economy is that the benefit of this year’s modest tax cut signed by President Bush may be negated by corresponding increases in state and local taxes.
Every dollar in additional tax hikes at the local level will kill the economic stimulus gained from the federal tax cut. Tax cuts at any government level will stimulate the economy and create jobs, but tax hikes at any government level will be an economic drag and stifle job creation.
If the economy fails to grow next year, don’t blame the Bush administration. Instead, put that blame on the thousands of governments that raised taxes and destroyed the benefit of the federal tax cuts.
To all units of government: it’s the spending stupid, not the lack of revenue.
Steve Marr is the former CEO of the fourth largest import-export firm in the U.S., a company which facilitated international trade for many of the largest companies in America. Currently, Steve consults with with businesses and ministries utilizing ancient Biblical principles for success in today’s marketplace. Click here to contact Steve, or visit his website at www.businessproverbs.com.
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