Raise the Hammer

The answer for Hamilton is to cut property taxes AND build a great stadium. You hear a lot about the massive debt the U.S has taken on recently, but did you know that interest charges as a percent of GDP are now 50% lower than in the year 2000. Currently, total government interest costs account for 2.08% of GDP, in 2000 these costs were 2.94%.

In this environment, debt is not a problem holding back economic growth, it's a lack of private sector activity. Since 2000, total US government spending has gone from 32.56% to 43.85%. Government has gotten too greedy and it is killing the golden goose (private sector) that pays the taxes.

If we look at Japan, in the year 1990, government debt as a percent of GDP was about 50%. At that time, debt costs comprised 20.7% of government expenditures. Fast forward 20 years and a debt to GDP ratio around 170%, debt costs account for only 22.4% of government expenditures.

Japan's economy is approximately $5 trillion US dollars. Since 1990, the Japanese government has spent 120% of GDP more than it has taken in through taxation. That means that in the last 20 years, Japan has borrowed the equivalent of $6 trillion US dollars (much of it going to public infrastructure), or $46,875 per person. And yet, debt costs as a percent of total government expenditures has basically remained flat at around 20%-22%.

Japan also has the highest corporate taxes in the world and also high income tax rates. High taxes and large public infrastructure / bank bailouts have been the Japanese economic model for 20 years. The result, poor economic performance. Unfortunately, President Obama is following the exact same game plan, big government spending and future tax hikes on the free market.

What does all of this have to do with Hamilton, well, we already have some of the highest tax rates in the GTA and we have recently been building out our infrastructure. In other words, we are adding assets to the public sector (through higher water rates), thereby reducing the amount that flows to the competitive free market.

If the city cut property taxes, people would spend this in the private sector. When the private sector grows, tax revenues grow, when tax revenues grow debt levels fall as a percent of GDP. However, when the private sector grows, people demand higher returns on their money, which is ultimately what leads to higher interest rates and higher debt costs for governments.

There is a quote that says, too whom much is given, much is expected. Well, unless the City of Hamilton first gives the people of Hamilton generous tax cuts, it will not get us going back to work and supplying the tax revenues it expects us to. Greedy governments that worry more about their own balance sheet than taxpayer's balance sheets kill the private sector goose that lays the golden egg.