Sunday, June 15, 2008

Tax Cuts Work

If you listen to some politicians, tax cuts do nothing for our economy and only contribute to the widening deficit. However, for those believers in that bunk, I only have to point to the island of Puerto Rico to prove them wrong.

Puerto Rico, like many island economies, was "once" an economy that was totally dependant on tourism and some agricultural based industries. In the late 1940's, the United States government gave the island a "duty-free" status on exports to the mainlain and eliminated all the taxes burdens (in the first 7 years) on any companies that set up manufacturing facilities. This simple act caused dozens upon dozens of companies to move their manufacturing to Puerto Rico and turn what had been typical underemployed Caribbeans islands into the most power island economies in the world (See Full Story).

I traveled many times to Puerto Rico as part of my job with one of those Fortune 500 manufacturers who set up shop on the Island. And, I was always amazed how many companies were doing business there. Logic says that this just shouldn't be. The island has only limited resources other than cheap labor. For a manufacturer, it cost a ton of money to move raw materials from stateside to the island for the manufacturing process. Then, when the goods are finished, it costs another ton to move them back to the mainland for distribution and sales in the United States and elsewhere through the world. But, this "powerhouse" of the Caribbean is a living example that tax breaks truly work. And, conversely, it is only logical proof that taxes can hurt businesses.

Years ago, a presidential candidate for the Republican Party, Jack Kemp, ran on the concept of setting up "Enterprise Zones" as a means to kick-start depressed segments of our economies like inner city locations that had had no business activity for years. Tax breaks would be given to encourage the same growth in business activity that we see on the island of Puerto Rico. I think it would have worked based on my own experiences in Puerto Rico. But, the tears of Democratically controlled Congresses prevented it from happening. That's because, to do so, would be to admit that, conversely, raising taxes could hurt business. One more thing. When jobs are created, the requirement for government spending on the jobless benefits are minimized. A person who has a good jobs doesn't need the taxpayers to ante-up for food stamps, welfare, and a variety of other government social programs. Further, the demand on scarce charitable funding is freed up for others who are less able to work.

My purpose of this bog entry is to remind my readers that increasing taxes is detriment to our economy. Please remember this when you hear that certain political candidates and existing Congress persons talk about raising taxes or eliminating taxes breaks.

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