Export and taxation are fundamental aspects of the American economic engine. Exports help create wealth that results in increased employment and tax generation. Government relies on taxation to pay its bills and keep the doors open. When exports wain and job creation slows both the economy and government suffer shortfalls that make their way into government spending crisis. Ignoring exports in the debate on taxes is like ignoring the cow when discussing how to produce milk.
The news is aflutter with the upcoming debates on taxes and budgets. How to cut back, how to spend more wisely, and how to reduce waste are just some of the discussions. These are important debates and questions for a nation that desires to ensure that government is not so top heavy as to suck an unreasonable amount of resources from the economy. Yes...government does cost money and more government costs more money.
Finding the right balance between enough government to ensure proper national management while not impeding future growth is difficult. Leaders have debated this for hundreds of years since the very first tax man came to confiscate chickens to feed the chieftains troops. The argument typically revolves around how to get more taxes and use collected taxes to accomplish certain national objectives; a legitimate function of government.
A few times the conversation may move to something beyond tax rate and expenditures to how taxes are generated. Tax revenue comes from the economic production of a nation's businesses and people that sell their products on the international market to produce additional revenue. As business revenue grows the dollar amount (not tax rate) should grow as more wealth and new jobs are created.
Beyond the specific taxes a company pays on income are the secondary taxes earned through improved labor markets. As employees are put back to work and their opportunities rise there is a exponential growth in the amount of taxes being paid (not tax rate) due to more gainfully employed individuals paying into the system. Business and employment are two sides of the same coin.
Exportation, and the wealth it generates, is a direct result of the competitiveness of American businesses that manufacturing and producing within the country. You can't have jobs unless you have employers and you can't have taxes unless you have economic activity. You can't sustainably increase taxes unless you increase economic activity. Consider a few important associations of tax and exportation:
Tax as a Revenue Source: Taxes and fees are major sources of revenue for government. Increasing the amount of paying tax members also increases the wealth government can accumulate. Higher taxes generally decrease economic activity while lower taxes generally increase economic activity. Developing a parsimonious tax policy that ensure an appropriate tax rate that encourages growth with the ability to ensure everyone is paying their fair share of taxes is beneficial.
Employment and Wages: As exports increase the revenue gained from increased sales and improved employment wages can make a big difference to state and federal budgets. Opening up additional international sales helps to encourage growth beyond the consumption patterns of Americans making it possible to create higher levels of wealth generation. A net positive export environment is also a net positive growth market.
Investment Growth: As regions become export oriented and are able to generate new forms of wealth they will naturally draw interest from investors who also desire to earn profit. Entrepreneurs often attract larger investors that seek to create economies of scale. As investment and exports grow so does the amount of revenues government earns.
International Influence: America wouldn't have the influence today it does unless it was able to generate new wealth through innovation and sell those innovative ideas on the market. As people engage for business across the globe they will begin to adopt certain characteristics of successful nations to emulate in their own countries.
Export activity is an important part of the discussion as it relates to tax generation and balancing the budget. One method of increasing tax revenue is to put in place proper pro-business policies that help create new opportunities through the generation of small business and the enhancement of large businesses to create export oriented local economies. Government has a fiduciary responsibility to use policies in a way that lower transactional costs, improve upon national infrastructure, and create new opportunities to employ Americans. Exportation and taxes are part of the discussion on government budgets and cannot be easily separated.
Thursday, January 8, 2015
Tuesday, December 30, 2014
Tax reform is a leading issue that will be hotly discussed in the next few years. America’s resurgence affords opportunities to make important adjustments to government functioning and spending that can improve opportunities for long-term growth. Now is not the time to fall into a trap of complacency only because the economic position of the U.S. is improving. Reforming the tax system helps both businesses and citizens understand their tax situations and create more trust with government.
Depending on what perspective a person comes from will determine whether or not they are an advocate of tax reform. Many times these differences are created based upon demographics. For example, a person making $40K a year will have a different perception than someone making $500K a year. Simplification offers an opportunity to put them both on the same playing field.
Corporations and individuals will also have different perspectives. Corporations will desire to lower their liabilities which are good for business and society while individuals may want to lower their own tax expenditures allowing them to spend the savings and further economic growth. Both positions have merit and would likely be served by tax reform.
The Average American Perspective
The tax code is complex and dissatisfaction with how government is spending American tax payer money has always been a contentious issue. Tax reform affords an opportunity to be more transparent with the average American who may be wondering what happens to all that money and whether or not the tax burden is unfairly falling on their shoulders.
People are naturally distrustful of things they don’t understand. Almost no one understands the tax system and this includes accountants as well. Taking individual tax information to three different accountants results in three different answers. A simplified system will allow individuals to save their money and file on their own without the need of expert help.
The Business Perspective
Businesses also get bogged down by complex corporate tax rates. Taxes are a complex and hotly political issue but ultimately create a risk for business. Companies that want to invest in the U.S. will need to hire expensive attorneys and analysts to determine their tax liability on projected projects. This creates a significant risk for businesses that would be able to make better projections with a simpler tax code.
A complex tax code also encourages political mischief and crony capitalism. Complex systems are partly the result of politics. Interested stakeholders put pressure on politicians to create tax breaks, incentives, and loop holes that help a few powerful entities over the needs of others; the more complex the system, the more opportunity for political hanky panky. Keeping the tax system simple also keeps it transparent.
The tax structure is likely to become a big issue over the next few years as both political parties try and make some sense out of government spending and revenue generation. Tax reform is one of the issues that can lead to some level of agreement even though each party has their own particular take on the subject. At present the discussion is only just starting and a viable plan should be developed that can move through the legislative process.