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Consumers control economy with spending habits

POSTED: September 7, 2008 5:03 a.m.

It’s been proven.  In a down economy, if you get to keep more of your earnings, government gets more tax revenue.  The reverse is also true. When governments raise your taxes in economic downturns, they generate less in taxes. Consumers control the economy by their spending habits. 

 

Last week the newspapers were full of the governor’s talk on the economy and the monthly revenue shortfalls.  The economic picture in Georgia is serious.  When we compare July 2007 revenues with July 2008, revenue is down 6 percent.  When we factor in the Governor’s projected growth in revenue of 5 percent for FY 2009, we have an 11 percent drop in revenue.  That’s over $2 billion in the course of the fiscal year.

 

The necessity to consider immediate budget cuts is because July and August shortfalls must be made up during the next 10 months of FY 2009.  If we wait until the end of September as some analysts are suggesting and revenues are still negative, three months of shortfalls would have to be made up in only nine months.

 

As a member of the House Appropriations Committee, I’ve been at the Capitol a lot lately. When the Governor spoke with us on Saturday, he stated that local government spending has been growing much faster than state government spending.   

 

The governor also expressed his concern that local governments are still taxing food.  He said that when the economy turns down, people quit buying nice-to-have items and only buy needed items, like food. The state is trying to do its part by not taxing these items; however, that is not true of local governments, which continue to tax food.

 

Different income streams make it more difficult to control spending at the local level than at the state level.  The state depends on income taxes and sales taxes for its revenue, so when the economy has a downturn and people lose their jobs, both of these taxes decrease and the state has to adjust its budget.

 

Local governments and schools depend on property taxes and sales taxes for their revenue.  When workers lose their jobs and sales tax revenue drops, there is no self-adjusting mechanism in the property tax side of the equation. 

 

Furthermore, there are no real incentives for the governments to make emergency adjustments to a budget already in place.  This is why I have been trying to eliminate your property taxes — so both state and local governments will have to live within their revenue streams and your homes can’t be sold on the courthouse steps.

 

To require local governments and school systems to operate within some spending cap would require that certain state mandates be eliminated so they can be more flexible in their operations.  It would also require that local citizens become more knowledgeable and involved in the budget process.  From the looks of Lumpkin County’s standing-room-only Budget Hearing last Thursday, those folks are getting engaged in the process.

 

I do not believe that the Governor is talking about cutting local government.  He believes it should grow at a slower rate until the economy catches up. 

 

Currently, total government spending (federal, state and local) accounts for 35 percent of the gross domestic product (GDP)-the value of goods and services produced. 

 

Put another way, 35 percent of all our earnings go to the government.

 

Total government spending was only 23 percent of GDP in 1948, which many economists say is the right size for government. 

 

When the government takes money out of the economy through taxes, there is that much less money to reinvest. 

 

From 1948 until now the average annual growth in GDP has been about 3.5 percent.  It has been estimated that had government stayed at 23 percent of GDP, the economy would have grown at 5.8 percent per year. 

 

Without these tax increases, government at all levels would have collected $61.9 trillion more in revenue — enough to have funded all spending programs without public debt.  Slowing government growth until it spends 23 percent of GDP and systematically reducing taxes to support that level of spending would double real GDP by 2030.

 

Bigger government and more taxes are not the answer. 

It has been proven over and over that when more money is in the hands of the consumers, tax revenues grow. 

 

Be wary of politicians who are too eager to raise your taxes during an economic downturn.  It’s the worst time to raise taxes. 

 

Tell me what you think the solution is; belt tightening by government at all levels, or raising your taxes? 

 

I can be reached at 689 N. Chestatee Street, Dahlonega, GA 30533, (706) 864-6589, e-mail  hamerson@alltel.net. Or contact Gerald Lewy at (706 344-7788.

 

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