Why Tax Cuts or Tax Holidays Would Better Stimulate The Economy

When you or I send a $1 of our money to the Federal government in the form of taxes, it costs a lot of money to process that buck and send it back out into the economy. Actually, when the Federal Government gets through processing every tax dollar, only about 60 cents on each dollar of tax money is able to go back out the door in the form of a check (Click to See the 2007 Results of a Congressional Study). Further, it is estimated that about 9-1/2 cents of each tax dollar is eaten up by the taxpayers (business and individuals) in tracking their income and expenses and in preparing their tax returns. If the Federal government processes a check to a State government, even more excess burden is applied when that State processes those dollars and sends that money back out their doors. That could be as high as another 30 or 35% of administrative and burdened cost on the money being received from the Federal Government.

Therefore, it is safe to say that the "bureaucracies" of both our Federal and State governments will eat up about 58 cents on every tax dollar that was originally sent to Washington D.C. and intended to be spent locally on some program. That's why the Stimulus Program is so ineffective. For every tax dollar being collected, only about 42 cents makes it to any road project or other intended stimulus or other state spending program.

When a tax holiday, tax cut, or a targeted tax deduction is used to stimulate the economy, all that government waste --- that 58 cents of burdened expense on every dollar --- is totally avoided. Each dollar is kept by the taxpayer. Therefore, each dollar is almost 2-1/2 times more powerful, stimulus-wise, then sending that same dollar to the Feds. That is why, to me, the original Republican idea of having a tax holiday to stimulate the economy was a significantly better idea that what we got with the Obama-flop Stimulus Package. All Obama did was to create more bureaucratic waste; minimize the effect of stimulus; and create unbridled debt. I would hope everyone remembers that whenever they go to the voting booths between now and the end of 2012.