Economic ramblings inspired by this election
Well, there has been some discussion with my friends on Facebook about economics recently, and some consternation among some that I am not wild about Obama. So here is my response to one of them (Matt) specifically. I posted it here because it's too long to go in the comment thread there. To see the previous discussion, you can go to my Facebook page. Not sure how to link that from here, but look for Samia Perkins.
Okay, so first off, that’s great that you are going to do more study on this. I’d like to hear what you learn, and how it influences your perspective. However, I don’t think you need to have a degree in economics or to do special study in order to have a discussion about these issues. We have a family budget and run our own businesses. That gives quite enough of an education to understand basic economics.
So about small businesses. The majority of small businesses in this country are not considered small by their earnings, but by their employee base. Obama said in the debates that 95% of small businesses would not be subject to the tax increase, but if they are sole proprietorships, the gross income of the business is taxed as the gross income of the proprietor. This was the case with the guitar shop until a few years ago. So some, possibly many businesses could be subject to the tax increase. Yes, they may be able to avoid this by incorporating, but that just furthers the point. If taxes are prohibitive, people will do whatever they can to avoid paying them. If there is a loophole, they will find it.
Another point on tax increases: There have been 3 major cuts in the 20th century, Calvin Coolidge, after WWI was over, cut spending back to pre war levels; JFK; and Reagan. All of these led to prosperity in the country, and actual increases in IRS revenue. This is actually called the Laffer curve: http://en.wikipedia.org/wiki/Laffer_curve
There are several reasons for this. Business owners provide jobs, and if revenue is cut, they will cut their employee base, or cut wages, so either more people are dependent on unemployment (taking govt money), or they are not paying as much in taxes.
Once a top income earner has more money, they will invest in business, grow their employee base, or give employees raises, both of these increasing govt revenue. Disposable income is also spent on various things that also support the economy, home improvement, luxuries ( hey, anyone want a custom ordered guitar? How about an amp? Guitar lessons for your kid), etc…
Government gets some of that, too, via sales taxes, and then taxing the earnings of the companies that people are buying from.
If taxes go up, people will have to cut back some spending to make up for that, so maybe they will decide not to give their kids lessons, or not buy that guitar, or not do that landscaping project. Or maybe not write that check to a charity.
If you punish an activity, it will decrease. Raising taxes is in some ways punishing innovation and removing the impetus to spend.
So what does it cost a millionaire to get to that point? They worked hard and took risks to get there, so why should the government take more of what they earn? Why would you put in the work and the risk unless it will benefit you?
I mean, I am a good example. I don’t make anywhere near $250K, but I am an independent contractor. So I have to pay my own percentage of taxes, along with what an employer would pay. So I will pay anywhere from 30 to 33% of my income in taxes. And I am a working mom with 2 kids, just barely getting by, living paycheck to paycheck. And I work my a** off, and pay for my own health insurance. So why should I have to pay so much to the government?
If electing Obama is about fairness, then here is a fair proposal: decide an income level that is tax exempt, maybe $25,000, could be more or less. Then everyone else is taxed at a flat rate, maybe 15 to 18%. This would be fair to everyone, and would really stimulate the economy and lead to prosperity. Actually, many of the former Soviet nations have a system like this.
This is one of the many reasons why I will never support Obama. There are just fundamental differences in our belief systems. We could also get into the fact that he thinks health care is a fundamental right and that the government should provide it for people, but that is a whole other discussion.
If you've read this far, thanks!!