The Trump Effect includes many things, including — really — the ability to arrive at deals appealing to most sides. However, one thing President Trump has mastered is a basic economic principle which the vast majority of political science majors find confusing, foreign, or incorrect.
However, it’s not incorrect at all. In fact, it’s simply the way the real world works, something President Trump has spent his entire life learning, and something many politicians, particularly the idealistic and agenda-driven politicians on the left, never do seem to learn.
If I had a long title, it might look something like this:
How Lowering Taxes Increases Government Revenue While Helping the Economy and Why Raising Minimum Wage Hurts the Economy While Adversely Impacting Government Reveue
When governments operate in higher tax margins (anything above about 10%), lowering taxes has a multiplicative effect on the money supply. Companies usually invest the additional money in the owners, who spend more, in employees, who spend more, or in R&D, which spends more. When they spend, other companies profit more but less is taken away, so they spend more, and so on.
All that extra money changing hands is also taxed, and while it’s taxed at lower rates, there’s a lot more being spent, so local, state and federal government revenues actually increase.
Lowering taxes does have a point of diminishing returns beyond which it’s hurting government revenues more than it’s helping, but that point is substantially lower than where tax rates are set right now.
The fallacy shared by most Democrats and quite a few Republicans is that “higher taxes generate more revenues.” This grade-school simplicity rests on the faulty premise that both corporate and spersonal spending habits will remain the same regardless of how much they’re paying or being paid. That’s clearly NOT true, as witnessed by their behavior throughout all the recessions and depressions we’ve had over the last 244 years as compared to all the healthy economic periods, “stagflations,” and true inflations. When it looks like money might be a little tight in the future, whether through economic downturns or higher taxes, both people and corporations tighten their spending habits quite a bit more than “a little,” thereby drying up the economy’s money supply, lowering both income and spending all around, and drying up government revenue.
Democrats also believe raising minimum wage will add to the money supply as well as tax revenue. It does for those receiving the increased wage, but only temporarily, as the market quickly closes the gap through increased prices to cover the additional expense. It has the opposite effect on those paying the increased wage, and they cut back. Things stabilize to an equilibrium in a very few years, between roughly 3 and 7, and you’re right back where you’ve started, EXCEPT for those on fixed incomes, such as pensioners or those receiving an annuity or even just payments from their nest egg. Now they’re underwater and return to the work force to make ends meet, competing with younger people, increasing joblessness, raising the burden on governments…
Once again, the simpleton, sophomoric, if not grade-school answer, whether it be “Raising taxes increases revenue!” or “Raising minimum wages helps workers!” is proven to be FALSE.
IN FACT: Raising minimum wage accelerates inflation over the long term.
IN FACT: Raising taxes lowers revenue over the long term.
These are basic economic axioms proven true over thousands of instances throughout the world. Anyone who has studied Economics in-depth (more than a class or two) from a reputable school knows this.
It’s the Trump Effect, quite simply, a thorough, realistic and working knowledge and understanding of basic economic principles.
By comparison, most Democrats obtain their degrees in Political Science. They excel at climbing political ladders, but they’re ill-suited to making sound economic decisions as their “understanding” of the way things work isn’t reality at all, but rather, a combination of idealism, agenda, and wishful thinking.
In fact, all of the above is WHY our economy is doing so incredibly well while Democrats and a few Republicans are shaking their heads left and right as they rail against it. The economy has, yet again, proven agenda-driven policies to be a failure, whereas a thorough understanding of economics, sound reasoning and good judgement trumps Democrat agendas every time.