Growth and Taxes

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A handy number: 70. Take 70 and divide by the growth rate. You’ll get the doubling period.

Let’s say the economy grows 3% a year. This is a fairly slow growth rate. This implies a doubling period of 70/3 = 23 1/3 years. That means our GDP would double every 23 1/3 years, making the GDP about $28.5 trillion in 2033.

If we can change that growth rate to 5%, then we double every 14 years. 7% is 10 years. 10% is 7 years.

When I die in roughly 50 years, based on these growth rates, the economy could be:

  • $62.5 trillion at 3% growth
  • $163.5 trillion at 5% growth
  • $420 trillion at 7% growth
  • $1,670 trillion at 10% growth

Now, let’s suppose that the tax rate determines the growth rate. I’ll invent some numbers, since there are so many other factors to the growth rate beyond taxes, namely regulations and forecasting.

Right now, we tax about 25% of the GDP, and we get, on average, about 3% growth. If we lowered taxes significantly down to 20% GDP, then we might see 5% growth. Cutting taxes in half beyond that to 10% might give us 7% growth. And the tiny tax burden of 2% would give us 10% growth.

Question: Would you rather have 25% of $62.5 trillion, 20% of $163.5 trillion, 10% of $420 trillion, or just 2% of $1,670 trillion? Obviously, the first would give us about $16 trillion, the second $33 trillion, the third $42 trillion, and the last $33 trillion.

But, you have to completely ignore the fact that you’d be a part of an economy. If taxes were 1%, you’d be part of an economy more than 25 times as wealthy as the first. That means, whereas there are, say, 1.5 cars per family in the US today, and under 3% growth we could get to the equivalent of 6 cars per family, under the 1% plan we would have the equivalent of 150 cars.

Obviously, wealth won’t be measured in cars. However, it is measured in dollars, and the dollars I am using are not inflated dollars. That means $1 in the future would buy the same as $1 today.

When you hear about “trickle-down economics”, understand that people get behind this because they want to see 5%, 7%, or even 10% real growth. They want the entire economy to grow as quickly as it can.

I advocate not just a small reduction in taxes, but the complete obliteration of taxes and spending and regulation. I believe we are selling ourselves short by not enjoying 10% growth. If every worker of today is not 10% more productive tomorrow, then we are doing something wrong. If every worker isn’t bringing home 10% more in real income, and every worker cannot afford 10% more valuable goods, then we have failed.

America didn’t grow from barely inhabited forests and plains to the unimaginable economy it is today by slow growth rates. It did so by unleashing the human spirit and allowing everyone to grow their own economies as fast as they wanted, and then reinvest their newfound wealth back in themselves ad infinitum.

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