Wednesday, May 2, 2007

Taxes and the Illinois Economy

Too much of the talk about the Illinois State budget has been about how to raise taxes, not whether or not it is the state’s best interest to have more taxes. Illinois has lagged behind the rest of country during the economic recovery of the last few years and we are final now starting to catch up, the last quarter had one of the strongest periods of economic growth for the State since 2000. Taxes create a number of distortances in the economic that hurt economic growth, not only do they take money out of the hands of the consumer that could be used to buy goods and service or make investments that produced new jobs and economic growth, taxes also produce a large deadweight loss, for a further explanation of deadweight losses see my previous posts, because of these dead weight losses, for every dollar you take out of the economy, you loses another 60 cents to a dollars in economic activity. What this means is that unless the government programs funded by those tax dollars produce a $1.60-$2.00 dollars in benefits for every tax dollar spent, there is going to be a net loss to the economy. This net loss means is slower economic growth, fewer jobs, lower paying jobs, ect. So both the State decides to raise taxes or add any new government spending programs, they and the public need to take a long look at the cost and the benefits and make sure that the benefits outweigh the costs. While many government programs may seem to be nice and people might like them, it does not mean that they should be put in place because there cost to society in general is greater than there benefits. The Illinois economy is final starting to recover, the Governor, the General Assembly and the voters should take a long look before support any taxes or spending programs that will hurt economic growth because strong economic growth will help far more people than any government programs.

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