One of the most fundamental issues facing politicians is being able to easily explain their policies in a way that is easily understandable by the audience, and do so in a quick sound byte that will work in the media. Case in point, Tim Hudak's plans to both lower the deficit and business taxes at the same time, and add 1 million jobs to the economy. Cutting taxes and lowering the deficit can confuse voters, as they see a reduction in the tax rate as a reduction in revenues.
So here is how I explain it to people. Let's say Ontario has 100 businesses paying $1 in taxes each year for tax revenues of $100. Lowering the tax rate 25% brings in 50 more businesses to the province, with each business paying .75 cents in taxes, meaning tax revenues of $112.50.
Now factor in each business employs 10 people, paying $1 a year in taxes as well. This gives employee tax revenues of $1000 under the old business tax rate. Under the 25% reduced tax rate you now have 500 more employees paying that $1 a year in tax, resulting in employee tax revenues of $1500. So you've gone from $1100 in tax revenues to $1612.50. And that doesn't factor in the boost to the economy by increased spending via consumer demand for products and services.
Keeping it simple gets the message across.
So true. More people working means more taxes being paid overall. Sticking to your example, 1000 employees paying $1.00 is $1,000. But, 10,000 employees means $10,000.
ReplyDeleteAnd, that is exactly what happened between 1995 and 2002/3. Plus, those 10,000 people bought goods and services, which in turn meant businesses thrived and more businesses opened up. And, on and on.