When is a tax increase not?

Keeping in mind, from the prior weeks post, that borrowing money to decrease taxes does not always result in a financial benefit the opposite can also be true. If the increase in tax is used to lower the deficit, or even better create a surplus, this accrues to the financial benefit of the tax payer. Thinking about your family unit it is akin to making a payment on a loan which reduces debt and also the amount of interest.                                                                                      A good example of this was the tax increase that was put into place by President George HW Bush. Keep in mind that as a Republican this action was political suicide. Not only did it set the table for his failed bid for re-election, it also created a significant split in his party. So why did he take this unpopular action? The simple answer is that it was in the best interest of the American people.                                                                                                                                             The economy was suffering and the national debt was rising. The action taken by President Bush initiated economic recovery and started the trend toward reducing the deficit. The unfortunate political outcome was that the results bore fruit during the tenure of President Clinton. The downward trend in deficit actually resulted in several years of surplus and a financial benefit to taxpayers.

                                     FY       Deficit   Increase in Debt   Deficit/GPD      Significant events