The Real Cost of Tax Cuts – Top line, Bottom line

Written by Briana Cavanaugh

July 20, 2011

There’s a lot of talk about budgets and budget cuts and all manner of idealogical stuff around budgets from two seemingly polar opposite sides. A budget is pretty simple actually. (No wait! really let me explain!)

Budget: noun

    an estimate of income and expenditure for a set period of time : keep within the household budget.
    an annual or other regular estimate of national revenue and expenditure put forward by the government, often including details of changes in taxation.
    the amount of money needed or available for a purpose : they have a limited budget.

The thing that makes it complicated is how we feel about the budget. But let’s leave that off for a minute, just know that it’s there.

The budget is just a way to estimate or plan for what’s going to happen.

Alright, so what is important about budgets on a larger scale? Changing them.

There are really 2 basic ways to change a budget: add income or subtract expenses. Make more money (effect top line), spend less money (effect bottom line). If you look at a profit and loss report which accounts for income and expenses for a set period in the past the income is at the top and the expenses are at the bottom. Budgets mimic that layout.

One of the traps of the US’s federal budget is that there’s this conversation that says that we have to spend less. And that’s certainly an option. But the other option is to make more money.

So while the conversation has been focused recently on cutting spending, take a look at this article about what happened 10 years ago. People forget that tax cuts actually cost money. Giving those tax cuts was basically giving the federal government and pay cut – it reduced income to the government. That means there are less resources for… well, anything.

Now whether you think that’s a good thing or a bad thing, having the conversation outside of acknowledging what’s happened does funny things to the conversation. It has an impact on our emotions and influences our decisions because it limits our choice. It keeps us in the dark. It also isolates and directs our attention to what “people in power” want us to see. One of the most powerful concepts, in my opinion, that we can be teaching about in the world is choice. How to look at our options, analyze them and make decisions based on as much information as possible while still being in integrity with ourselves.

I believe it’s important to contribute to community. I think public libraries are important and roads and transit and safety net services. And I’m willing to contribute to them. So increasing income for the federal government seems like a viable option to me.

The lesson here for me is: what do I want to look at? Do I want to worry about how much I’m spending or do I want to focus on increasing, stabilizing and creating income? Well both. But if I focus only on expenses, the income tends to slip away. Both sides of the equation are important to look at.

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