How Lower Taxes Leads to Lower Unemployment Rates and More Tax Revenue for the Government

With all of the talk of how bad the economy is right now and the recession that is supposed to be here any day now, the United States has posted yet another month of job growth, according to Yahoo! Finance. 166,000 previously unemployed workers found work last month, leaving the national unemployment rate at 4.7%, a pretty low number when looking at it from a historical standpoint.

What is the cause for the job creation? I think a major factor is President Bush's tax cuts that were put into effect a few years ago. Some might wonder what that has to do with unemployment figures, but you have to look at the big picture. Companies are taxed, just like individuals, based on their incomes. Normally, they have a much larger incomes than individuals do, so they are in a higher tax bracket. Now when taxes are cut, companies have a larger share of their profits to use how they please, and many of them use this opportunity to hire more workers.

But if we cut taxes, how is the government going to have enough money to operate, seeing that we already have a huge deficit? Simple: the more jobs that are created due to the tax cuts, the more people that are paying taxes, rather than receiving unemployment benefits. Therefore, paying less taxes gives more money to the government by having more people contribute through income taxes.

There does, however, have to be a limit on how much we can lower taxes for this effect to work. If we lowered it to zero, then no matter how many jobs were created, no revenue would be brought in. There has to be a happy median to satisfy both sides of the equation. I think this has yet to be found, and more revenue would be raised if taxes were lowered again. This is only coming from a college student, but there are many people out there who agree with me. Hopefully, something will be done soon to fix it, as the state of the American economy depends on it.