An Education in Economics Seems to be Lacking

"State needs more tax revenue - Steve Poizner's plan (Page 1B, Jan. 6) sounds more like a 1990s AT&T commercial, which is old, useless and lousy. I guess it doesn't cost money to run the state of California, so we will just cut taxes and go further into debt. I never understood the reason why we cut taxes when everything is constantly going up. Ignorance is bliss.

Michael McWalters

Alviso"

The above, quoted text, was taken directly from the 07JAN10 edition of the San Jose Mercury News Reader's Opinion section. The major issue I have about this, other than the fact that this genius doesn't mention cost controls to mitigate the costs involved with running the State of California, is this reader's complete lack of knowledge where it pertains to economics.

As proven during the Presidency of Ronald Regan, a dramatic reduction of taxation has an inversely proportional increase in tax revenue. This is an economic function that has been proven time and again. Economics is the science of economy; basically the science of commerce, government or otherwise. This basic principal is the cornerstone of sound public governance where the governing body functions solely through the generation of tax revenue. A zero tax rate results in zero tax revenue. A moderate tax rate resulting in maximum benefit for the governing body would be somewhere around 8.5% of one's gross annual  income (in an income taxed system, i.e.: ours). The point of diminishing returns as it pertains to the tax rate is directly proportional to the economy's ability to function in a market based environment (i.e.: ours).

Basically, if you tax the hell out of people they invariably spend less because after they receive their paychecks they HAVE less. Directly related to this is the effect of a public with less disposable income driving less commerce. If, alongside the public, you tax businesses heavily they have less capital after their revenue is calculated. For businesses like Apple, where profit is almost a foregone conclusion, the decreased revenue means lower stakeholder profit. Apple will mitigate this lower profit by trimming back their payroll, as payroll is typically the single highest expense any company has, and is typically the easiest to immediately reduce.

Lets carry these thoughts out to their final outcome. Taxing people decreases their purchasing power, removing them from the market. Taxing businesses decreases people's employment, removing them from the tax base, thus reducing the businesses' revenues, thus also reducing the tax base. The long and the short of it is that an increase in taxation is a deterrent to participation in the open market, resulting in reduced tax revenue. Unfortunately, Liberals have never learned this basic principal of economics. Unfortunately for California, they never will. The only way to get California back on track is the reduce spending and taxes in order to keep people from deciding places like Nevada, Arizona and Texas are more desirable places to make a living.

UPDATE - 1008100841 - The link to the news article by Mr. McWalters is broken due to either the SJ Mercury News removing the article, or putting up a PayWall to keep those who don't pay for their recycled news away from it. Also, Mr. McWalters managed to find himself online. Check out the comments to see what I mean!