Friday, December 03, 2010

The Real Story On 'Tax cuts'

A great deal of back and forth is being generated over the extension of the Bush-era tax levels. Notice, I don't refer top them as tax cuts, because nobody's taxes are actually being cut..just maintained at the same level.

The Left is in full class warfare mode, with the Democrat Lame Ducks passing a so-called 'middle class tax cut' that extends the Bush tax percentages to only to individuals earning $200,000 or less per year and families earning $250,000 or less, while raising them on everyone else.

The Republicans in Congress have drawn a line in the sand, saying that unless the tax levels are extended to everyone across the board, nothing else Obama and the Lame Ducks want is going anywhere.

For that, they're being berated as tools of the Evil Rich, obstructionists, even likened to terrorists...and that by one of the more financially questionable Democrat Senators, Bob Menendez of New Jersey.

What would you say if I told you that not only would the Democrat's jackass tax plan weaken the economy even further, it will actually result in less tax revenues?

Let's examine some basic truths here.

When you earn, inherit or find some money, you and everyone else does one of two things with it, unless you're going to burn it or bury it - you either spend it or you invest it.

Please note that savings is also a form of investment, although at a rate of return that makes your banker smile more than you.

It ought to be self-evident to anyone who has an IQ with a fighting chance of two digits that when you spend or invest, you promote economic growth as the people you give your money to likewise spend or invest. And that can be in the form of buying goods and services, lending money out to someone, expanding a business and employing others, or in the case of some businesses, developing new products to sell.

That's especially true of people who earn more than $250,000 per year, for two reasons; one, they're spending or investing more because they have more to spend or invest and two, a lot of them are small business owners or entrepreneurs who employ others and create even more wealth for people to spend or invest.

As a sidebar, a lot of the income of 'the Rich' comes in the form of what accountants call pass through other words, it's gross income that goes to pay expenses, salaries or for materials and is thus not really 'income'. Here's an example..a 'rich' rock star receives a $200,000 advance from his record company. While this is income, the lion's share of it goes to pay for up-front touring expenses,equipment, management and booking agent commissions, promotion and publicity, recording in some cases and a myriad of other expenses. And yes, taxes.

The same sort of accounting applies to your average small business, where that $200,000 in gross sales gets whittled down considerably by expenses.

So raising taxes on 'the Rich' accomplishes several things. It cripples the economy since 'the Rich ' now have less to spend and invest. It kills jobs, since 'the Rich' have less money to spend on goods and services, which means the providers of those goods and services start laying off people since they in turn have less income and less money to expand or hire employees.

It becomes a vicious cycle, and believe it or not, it ultimately leads to less tax revenues, not more.

When people are spending money, they're paying taxes. When people are employing others, they're paying payroll taxes, and the people they employ are also paying taxes. As prize winning economist Arthur Laffer proved, up to a certain point, the more government lowers taxes, the more people spend and invest and the more tax revenues the government receives.

And another 'benefit' of the plan the Lame Duck Democrats in the House voted for is a steep rise in the capital gains tax. Can you say 'massive sell off in the stock and bond market' if this goes through? Sure you can.

Rest assured that the Democrats and the Left are not concerned with 'middle class tax cuts' for the most part. What they're really about is killing the goose that lays the golden egg.

And the Republicans are wise to weigh in on the side of sanity and oppose them.

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Rosey said...

Reference my earlier comment about Tax & Spend Democrats. This class warfare crap is really tiresome.

Anonymous said...

Hah! The old "trickle-down economics" BS, aka voodoo economics. It's just not true. Economists ran the numbers and common sense actually came out in the lead. Lowering taxes leads to lower revenues. As I learned in my very first economics class, and as I experience in my own life, the more people make, the less they spend as a percentage of their income. The guy making 40k a year likely spends 100% plus. The guy making 200k a year spends a far lower percentage, locking more of it in savings and stocks. Now I hear you say, "But those investments build the economy and lead to more taxes?" Well, yes, sort of, years down the line. However, stock investments are largely just a form of gambling that has no effect on the company's finances.

So taxing 100 billion or whatever from the rich then pouring it into unemployment and tax breaks for the less well off will supercharge the economy. Handing the money to the rich will lead to a tepid effect.

So you're totally, utterly, hilariously, scarily, sadly wrong.

Anonymous said...

Let Obama lead the way. Since he thinks that the tax rates should go up, let him figure out what his taxes would have been over the years that he earned millions from his book and adjust his taxes accordingly. If its good for us its good for his highness.Let him and Michelle lead by example for a change.Or because he considers himself better than the rest of us since he believes in income distribution, does that mean it doesn't' include his income?

Freedom Fighter said...

Hello, Anonymous.
I see we have another disciple of the Nancy Pelosi school of 'unemployment checks are the fastest way to create jobs' variety.

'Economists ran the numbers'? Do you mena a cretin like Paul Krugman?

Let's review again..anytime you receive money, you are either spending it or investing it. There is no other possibility unless you're using the greenbacks for wallpaper or kindling.

Someone making $200K is spending more than someone making %40K per year...and what's more that $200K person is likely employing others.

That's exactly why Reagan's tax cuts and fiscal policies made the American economy boom after the Carter years and why the Bush tax cuts bailed us out of the Clinton recession.

As for your notion of "taxing the rich" then pouring it into unemployment and tax breaks fo rthose you consider more 'deserving', wasn't that what Obama's 'stimulus' was supposed to do? Worked great, didn't it? Let's do it again!

It's obvious that you're either an academic, or government employee who feeds at the public trough and has little knowledge of how the real world works.


Anonymous said...

The lefties are still afraid of trickle down economics. It was no great discovery simply stating a basic truth. Poor people don't hire workers rich people do.

Keynesian economics was invented by a socialist to counter economic theory that leaned more towards freedom. It was invented out of whole cloth. I am not suprised that you would brag about learning Keynesian economics from your liberal professors. Many schools of "higher learning" are infested with Marxist professors who are bent on indoctrinating their students. Many student are smart enough to see through this. Sadly some are not...