Can Slashing Taxes Save The U.S. Economy?

Can slashing taxes save the U.S. economy as some people claim? It's a good question. Let's find out.

Simplicity is the easiest way to find out so let's open a hypothetical hamburger stand. Because we have the best burgers, as the U.S. once had the best economy, our hamburger stand becomes very successful. 

But then our costs rise sharply until now each hamburger costs us much more than we charge our customers, as has happened with the U.S. government that takes in only 61 cents for every dollar it spends.

What are we going to do? One option is to slash our costs so we can make a profit on each hamburger we sell. But that's hard to do as the U.S. government found out in trying to cut costs with its constituencies. Each of our constituencies will also fight it including our meat and bread suppliers and our landlord.

For the U.S. government, an option is to raise taxes, but no-one wants that. In our case, if we charge more for each hamburger, our customers won't like that and may go elsewhere.

But there is a third option. Despite our rapidly mounting costs, we can slash our prices, much as some  people propose slashing taxes. If we do, we will sell a ton of hamburgers. But this is financial suicide, because each hamburger we sell for just 61 cents, costs us a dollar.

However we can use the easy answer the U.S. government is using. If our hamburger stand can obtain credit like the government can, we can cover our losses by borrowing the difference from the bank. Yet as we do this it creates another problem for we have now added bank fees and interest charges to our cost structure.

But with this borrowed money, for now we continue to appear successful with all the business flowing in as normal. And we can keep absorbing our losses until one day we can't pay our bank or anyone else and we go broke.

Yet some people say slashing taxes is what we should do (without discussing the borrowing necessary to do it). Thankfully, they don't run our hamburger stand.

Dick