‘Taxes’ are out . . . ‘Revenues’ are in

Bonnie Willis's picture

April 15th came and went, and there was a sense of resolve this year.

I didn’t hear about Tax Day Rallies from Tea Partiers — probably because Tea Partiers are still a bit burned out and discouraged from last year’s election.

I didn’t hear stories about last-minute filers waiting in long lines to get their tax forms in on time — probably because many filers did their taxes online.

No, this year, tax day came and went with a hush. Nonetheless, as usual, many felt the sting and suffered in silence as they wrote their checks to Uncle Sam, because they didn’t get enough taxes taken from their paychecks throughout the year. And others are waiting with hope and anticipation for the refund they expect to receive because of all the deductions they had.

As a small business owner, who submits quarterly tax payments, I’ve become increasingly sensitive to how officials are using the word “taxes,” and have noticed a shift in the language. Maybe you have too.

Increasingly, they are not using the term “taxes.” Rather, they are using the term “revenue.”

At first, I thought this was odd because I often consider the term revenue to mean income received by a business for products or services sold. I never really consider revenue to be funds gathered by the government to finance their spending.

Still, the use of the word revenue, when talking about taxes, is technically valid. However, it does feel a bit deceptive to me because politicians might say, “we need to increase revenue,” and the public would not object. However, if they say, “We need to raise taxes,” the public might surely object.

I also find the shift in the language from “taxes” to “revenue” a bit deceptive because it is a mistake to directly correlate an increase in tax rates with an increase in taxes (i.e., revenue) received by the government.

To the contrary, our nation has repeatedly seen in recent years that revenue will often increase when you decrease the tax rate. Such was the case during the Reagan and George W. Bush presidencies.

Conversely, we experienced a decrease in revenue when we increased tax rates. This was the case during the Carter and George H. Bush presidencies.

There is a balance that needs to occur between tax rates and economic stability that will optimize revenue. If tax rates are too low, the government simply will not collect enough money to perform its constitutional duties. However, if the tax rate is too high, individuals have less incentive and motivation to earn and invest money within the economy.

When individuals have more money to invest in their companies, for example, they can hire tax-paying employees, develop innovative products that increase company profits, and more. So, despite having a lower tax rate, the government experiences an increase in revenue (i.e., taxes).

Having clarity in how we define taxes might be helpful as we engage people of different political ideologies.

If we can all agree that the government does require a level of revenue to function effectively, we can then look at historical and current evidence at the state level that demonstrates which tax rates might yield optimal levels of taxes and not have ideologically driven proposals like simply increasing the tax rate of the rich because they can afford it.

In the end, such an increase is likely to further stall the economy and yield less revenue.

[Bonnie B. Willis is co-founder of The Willis Group, LLC, a Learning, Development, and Life Coaching company here in Fayette County and lives in Fayetteville along with her husband and their five children.]