The Tax Cut misconception

Posted: December 3, 2010 by datechguy in economy, opinion/news
Tags: , , ,

As I was going door to door yesterday I stopped at a book store that absolutely screams “progressive” but is a mostly cool place with a fair amount of Anime and some wonderful used old volumes. At the store I asked the question I ask at almost every business, what would you do to stimulate the economy?

It was his opinion that the problems were systemic (first person to have that conclusion that I talked to) however there is one thing he knew for sure:

I wouldn’t give tax cuts to the rich.

I don’t know who he thinks actually hires people (I’ve never seen a paycheck written by a poor person) but his opinion has been a distinct minority in the hundreds of doors I’ve knocked on in the last month.

It’s certainly not my business to argue with potential customers (and he is more than welcome to get on our customer waiting list with the show sold out) but let me make the opposite case.

It has been amply demonstrated that Cutting Taxes across the board increases tax revenue as the money gets spent over and over (and is taxed over and over at the lower rate). It’s a simple business principle. You make more money selling 5 items with a $1 markup then 2 items at a $2 markup.

Remember Williams Restaurant? If you can’t sell a $20 steak sell $8 burgers and sell more of them.

People seems to have this image of rich people as Scrooge McDuck with a Money Pile diving into it, or of Mr. Krabs chasing pennies, you are more likely to see the rich chasing profit and or comfort and both of those things generate jobs.

It is the rich who chasing profit, invest in new business’ and ventures financing both their ideas and the ideas of others. This is the a big job creator.

And it is also the rich who after making said money buy expensive things like yachts and customer cars or restoring WW 2 Tanks and other expensive hobbies, this employees a lot of people.

And it is the rich who keep their houses spic and span hiring staff and cleaning companies and landscapers etc…

And if you are an artist, tell me who is going to pay you $5000 for some bent metal or a faux stuffed emu? It is not going to be the avg guy. It is either going to be the rich who have money or the government who is spending another persons money.

The truth is many people don’t care about the revenue levels, they are simply socialists looking to redistribute wealth and punish those who in their mind have too much.

The secret to a happy life is to not worry about if someone else has more than you. Do the best you can with what you have and appreciate it.

And as I type this the unemployment rate went up to 9.8%. Unexpectedly I’m sure.

  1. dahospitalityguy says:

    I’m a little bit surprised that you’d make that arguement. But then again you were a business owner, you had employees, so of course on the business end of things I would have to respect such opinions.

    Just a couple points I would like to make.

    1. These tax cuts came into effect in 2003. Mostly as a response to the tanking economy after 9/11 in which unemployment raised from 4% to around 7% (looking at a graph so I don’t know the exact numbers). Then it dropped from 7% to 5% the first two years of the tax cuts. Then in 2007 the unemployment rate began to spike upwards until it reached 10% in 2010.

    So what I don’t understand is this. If the Bush tax cuts were the tax rates from 2003 -2010, and the unemployment rate went up from 6% to 10% why would someone conclude from that information that to continue these tax rates would lead to the creation of jobs when over the span of 8 years the net gain from the tax cuts was an increase in unemployment?

    2. You made a point about selling $20 steaks or more $8 burgers. Then in the next statement say that the rich purchase more expensive items. Sounds like a contradiction of points to me. You make the point that the rich purchase the more expensive item.

    The business would much rather sell a $20 steak AND sell many more $8 burgers and keep it sustainable. The rich for the most part would spend their money regardless. It is those that don’t have money who can’t spend it.

    Then again we’ve never heard about company lay offs while at the same time producing record profits. Oh wait…