Subject: Reply to Chris Comment: Prices may drop or they may not, but that is not what keeps the economy growing. People spending money keeps the economy growing.When demand goes up, GDP rises as well. When GDP rises, that means that there is more production coming out of the US. If you place a "restriction" on spending money, a restriction like a 40% national sales tax, people will be hesitant to spend whether or not the price of a television went from $500 to $450. Since this would be a permanent restriction, this will cause a permanent decline in demand, which would reduce GDP permanently from previous levels. A drastic change like this will send the US into a frenzy; since the same amounts of money wouldn't be flowing through the economy as they have before, businesses would have to reduce the amount of products, projects, and people in order to keep earnings to the level they are used to. Businesses coudl actually raise prices and marking up products to stay at their normal earnings level or businesses could discontinue and/or scrap certain areas/segments of their businesses to lower costs (which causes umemployment), or both may occur (rising prices and rising unemployment) and cause stagflation. Now, a very low consumption tax, such as 5% tax coupled with an income tax will cause people to save a little more than they do now, and the consumers wouldn't have such a huge restriction on spending to cause a permanent decline in the economy. But a 40% national sales tax would cause a permanent decline in the economy and would cause the US to go into a deep recession and most likely into a depression. |