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The case for raising taxes to balance the U.S. budget

Dr. Fred McKinney | 8/3/2011, 11:31 a.m.

Yet, in the face of all of these facts, fiscal conservatives righteously believe and have gone so far as to pledge that they will not increase taxes. These pledgers are violating their constitutional responsibilities and are ignorant, or worse, as to the impact their folly is having on the economy. They fail to see that their actions are raising interest rates and making matters worse for the very people, small business owners, they purport to be supporting. An increase in debt interest of even 50 basis points (a half of 1 percent) translates into $150 billion more in interest payments on the federal debt, further increasing the deficit and debt.

Talk about the dog chasing its tail. What has not been addressed at all by these so-called supporters of small business is that a likely 1 percent increase in the prime rate would amount to a transfer of wealth from borrowers to lenders of over $60 billion per year. I fully expect interest rates to be 200 to 300 basis points higher by this time next year if taxes are not increased. From the perspective of a small business owner, whether taxes increase by $60 billion or your interest payments increase by $60 billion the immediate impact is the same. But even this is not fully correct. An increase in taxes closes the deficit gap, reduces income inequality and the damage inequality does to economic growth. It also puts downward pressure on interest rates and funds the government. On the other hand, an increase in interest payments transfers more wealth to lenders from borrowers, further worsening an already dangerously unequal distribution of income and wealth.

These things matter for minority businesses as much as they do for all businesses. It is enlightened self interest that should lead business owners to realize that enough is enough and we must fund the federal government. No fudging of the facts by conservatives will produce a result more beneficial to small businesses and households with modest incomes.

Dr. Fred McKinney is president and CEO of the Greater New England Minority Supplier Development Council.