Random Thoughts – Taxes

IRSOk maybe I need to get out more on the weekends but it’s cold outside and my wife and I have been painting for several weekends now so I’m stuck inside. On the rare and brief moments I get to check email and other computer related stuff what have I been reading? One item that caught my eye was a headline that said “No, Entrepreneurs Like Steve Jobs Do Not ‘Create Jobs’ By Inventing Products Like The iPhone.” I clicked and it was a well reasoned look at why raising taxes on the super-wealthy (or even just the mere wealthy) won’t “kill” jobs as many politicians say. The article makes a strong case that raising taxes on the wealthy will create more jobs. Oh and it’s not exactly on a liberal website, it was on Business Insider.

Reading the article referenced above I was reminded of Henry Ford who once encouraged other manufacturers to hire workers that previously had been laid off. If they didn’t, Ford wondered “Who would buy my cars?” The idea is that if workers are paid a decent wage and can afford to buy goods, the economy will do well. A strong middle class is needed for consumption to fuel the economy. If, on the other hand, as we’re seeing today, there is a wide gap between rich and poor with a shrinking middle class, the economy will suffer.

The article was based on an editorial for Bloomberg by Nick Hanauer, a billionaire. Mr. Hanauer is very clear that he is not a job creator, nor are any rich people. Then who is? The consumer. Mr. Hanauer writes:

I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.

That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. 

Another problem with this taxes-will-cause-people-not-to-start-businesses line of reasoning is that it doesn’t matter how much I pay in taxes if I earn more than I had before. Imagine there was a flat tax of 30 per cent and I wanted to start a business. If I make $100,000 then I keep $70,000. I’m better off. Now imagine that taxes are raised to a flat 40 per cent. If I start a business and make $100,000 I keep $60,000. I’m still better off. Not as much but still better. It reminds me of the people I’ve worked with who would complain about how much they paid in taxes on their overtime pay. Who cares how much taxes you paid, you have more money in your pocket and that was the purpose of the overtime.

I may not be a billionaire but I’m not complaining if my taxes rise a bit from the historically low rates of today.

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