JOBS AND TAXES

Personal Finance

Dec 21,2017

By Lawrence J. Fedewa, Friday, December 22, 2017

The polls sponsored or cited by the news indicate that only one-third to less than one half of the American public supports the new tax cuts being finalized by the Republicans this week. The first thing to remember about these polls is that these are the same pollsters who reported that the overwhelming majority of Americans supported Hillary Clinton for President in 2016. However, the astounding ignorance of economic history reported by these polls may have some truth. Enough truth that it needs to be addressed.

The economic concepts involved are not difficult to understand, but the Democrat interpretation is being assimilated much more widely than the Republican rationale for these policies. The Democrats, since Franklin Roosevelt won the presidency in 1932 by blaming the Depression on the perfidy of large corporations, have preached that government is the answer to all our troubles and that taxes must be high to pay for all those solutions. Thus, corporations are bad, and government is good.

As Rush Limbaugh has pointed out, they have just never assimilated that the effect of Ronald Reagan’s reduction of taxes in 1984 and 1986 spawned a twenty-year era of prosperity in America. The result is that they have re-written history: Reagan’s tax policies were bad and Obama’s tax policies were good.

Here are the simple facts:

1.      “Economic expansion” means that companies are building new plants, buying more capital equipment, doing more advertising, researching more inventions, shipping more goods, and using more energy. This leads to hiring more people, which leads to labor shortages instead of labor surpluses, meaning that wages have to go up in order to attract new employees and keep current employees.

2.     Economic expansion requires more investment capital. Building plants, buying trucks, developing new products – all cost “seed” money, money spent before they produce any new income to pay for themselves.

3.     Lower taxes mean that less money is taken from profits to give to the government, But the shareholders of companies demand productive uses of the extra money – they don’t want it sitting a low interest bank account. Why not? Because expanding the company increases the value of their stock, while hording or even distributing cash reduces asset value and thus the price of the stock.

4.     So, management has to spend that money on projects that they believe will add to the growth of the company. This means expansion of some kind, whether, expansion of product line, of facilities, equipment, or advertising. Any kind of expansion means more people, more jobs.

5.     New products, new ideas, new procedures – all require new skills. So, the training departments of companies, and the curricula of colleges and vocational schools, and re-training programs of all kinds also flourish because of new needs and new markets.

Conclusion: tax policy which leads to economic expansion is a GOOD THING. The real value of tax reduction to the middle class and the young is not really lowering the tax rate or raising the deductions. The middle class will see its main benefits from the expansion of the economy – higher wages, more price competition, more new businesses, more money floating in the whole atmosphere.

The Democrat idea that middle class support for tax policy depends on how many dollars I am going to save on my own taxes this month or this year is totally misplaced. What are a few dollars less in my taxes compared to the new job I just got or my raise, or the new business I just started?   

The underlying problem with the socialist view of the economy is that socialism views the economy as static – the classes never change: the poor will always be poor, the rich will always be rich, and the middle class can never become rich but is always on the cusp of being poor. Thus, the rich are the enemy of the other classes, because they must keep them down to maintain their own riches. This is a pie which never gets bigger.

But Americans don’t believe in that. We all think the pie can get bigger, that any poor person can become rich with talent and hard work. Americans have what is called “upward mobility” – the opportunity to change one’s place in society, to become richer, smarter, happier, and healthier.

The government can’t do that. Only you and I and our fellow Americans can expand our lives. And expanding our economy helps – a lot!

© Richfield Press 2017

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