If all income tax ended tomorrow and the government could still run, would Americans have increased buying power? Or would the market adjust to the increased funds?
The market would just adjust.
If I took off all my clothes in public but I wasn’t naked, would I still be arrested? :rolleyes:
Perhaps if we knew how the government could still be running when a major source of its funding were cut off, the question could be answered. If the property taxes were increased to make up for the loss, people wouldn’t have any extra income to spend. If tariffs were raised to make up for the loss, the prices of imported goods would be raised to the point of ridiculousness, and eventually no one would ship to the U.S. anymore.
Where would the money come from?
I don’t think this is intended to be a realistic question - it’s a thought experiment, rather like asking what would happen if a fairy came and put a dollar under every fellow’s pillow during the night. Would he be richer? Of course fairies don’t exist. That’s not the point.
Buying power talks about the power to negotiate the price of the products, that would not change, as everyone would have the increase from taxes, so no, you have no additional buying power.
It all depends on several factors:[ul][li]Does the gov’t reduce its expenditures proportionately to the drop in revenues (i.e., doesn’t borrow more or increase other taxes)?[]Are the goods and services currently provided by the gov’t going to be provided by private enterprise for a lower cost?[]Do the vast hordes of gov’t employees thrown out of work by this find productive employment, either for the private enterprises providing goods & services currently provided by the gov’t or in other productive enterprises?[/ul]If the answer to all of these are “yes,” then buying power would increase by the amount of increased production (from the former gov’t employees finding productive employment outside of the industries providing former gov’t supplied goods and services).[/li]
There would be more money, but there would also be more production. The average consumer’s buying power would not increase by the amount of their current income tax expenditures, but by some lesser amount.
Of course, these conditions are all pretty big “ifs.” There is no evidence that the gov’t would decrease its spending. There is some evidence for and against the supposition that many gov’t provided goods and services could be provided by private industry with less waste to corruption and poor management practice. It is not certain that current gov’t employees would be more productive outside of gov’t employment.