Why Lower Taxes Spur Economic Growth for All Americans

Sometimes less is more, and taxes make the point. Here is a one-minute lesson in how tax cuts increase growth. Our Founders wanted limited government, minimal spending, and lower taxes. Why? Limited government is accountable, and money spent by those who earned it produces growth.

Our Founders, just like Presidents Kennedy, Reagan, and Trump after them, knew a secret: Everything around them – like everything around you – is made by the private sector, not government. Government makes nothing. And here is where cutting taxes comes in.

Since people know best how to spend what they earn, that personal spending reinforces work, spurring others to meet their demands, who are then paid for meeting others’  “wants” and “needs.”

The private sector is a miracle. As Adam Smith wrote, millions of people with different demands get them met every day by millions who supply goods and services by working – so long as all have the freedom to work, consume, invest, and repeat that process. He called it “the invisible hand.”

The “invisible hand,” regulated by fairness – fair competition, fair treatment of labor, fair access to capital – creates “growth.” Growth is good. It causes people to earn, spend, and improve their lives. It inspires people to be creative, alert to opportunities, inventive, and hardworking, creating growth.

There is, of course, a catch: Government must remain limited for the “invisible hand,” a supply and demand balance, to work. Government must only do things that the private sector cannot do – that is, stimulate production in ways that keep everyone safe and connected, like defense and roads.

If government gets in the way, does more than needed, thinks it has power to insist the market be twisted; if it oversteps, overspends, overregulates, starts to intrude on the private sector beyond assuring equal opportunities for all to prosper, then prosperity falters. Bad things begin to happen.

When those in power excessively regulate, spend, and tax, they put sand in the gears of a working economy – whether federal or state. They create increasing burdens on those who work, invest, and create jobs – those who make everything. The harder it becomes to work, to keep what you earn, to spend it yourself, and to profit – which involves hiring people – the less growth, less hiring happens.

Here is where “the multiplier effect” comes in. It is simple.  Dollars left in the private sector create increases in buying, investing, hiring, and prosperity, since the real demands of real earners are met by real suppliers, who understand they make a profit if they invest in what people want to buy.

In effect, whether people buy ice cream or tractors, dollars are spent in the private sector on what people want, and they keep bouncing, every new buyer creating a producer who hires people who produce and become buyers. Some say a dollar left in the private sector bounces fifteen times. Meanwhile, one put in government makes nothing, buys part of a bureaucrat, who pushes paper.

Ironically, it is even that can slow economic growth – since that dollar is not only taken from those who make things, but it is buying a bureaucrat who often deliberately slows things down with more regulation, taxation, and added burdens on those who are just trying to advance growth.

In short, the best way to improve an economy – national or state – is to listen to people, cut wasteful and unnecessary spending, stop endless regulations, and cut taxes. This lets people keep more of what they earn.

The real answer for increased prosperity – for all citizens – is to stop unfunded state mandates driving property taxes, stop raising income taxes for senseless overspending, and allow “the invisible hand” to work, helping those who want to work, buy, invent, hire, and invest.

By focusing on keeping government limited to what the private sector (objectively) cannot do, and by reducing waste, duplication, anti-business regulations, and distortions through ideology, growth happens.

In the end, what makes people happy is less government spending on what they do not want, and more accountability, fewer taxes for unjustified spending, no score-settling with overregulation.

What most young and older people want is just the chance to succeed, earn, keep what they earn, spend it as they wish, and create more and better jobs. Sometimes – and taxes are this way – less is more.  When I am Maine’s governor, we will cut waste, end corruption, cut taxes, and spur growth.