A Lesson in Common Sense and Tax Policy

I’m not sure where Quentin got this figure. Who made the calculation and what was the amount based upon? Quentin doesn’t say, but I’d wager it isn’t a proven amount but rather a guess. One would have to know the exact amount the wealthy will declare as income on their tax returns at the end of this year to prove this amount as valid. Most likely it’s a projected amount. See, the wealthy don’t get to wait until they file a return to pay their taxes. They are required by law to prepay them by making estimated deposits every quarter prior to filing. Perhaps the $700 Billion figure was based on these estimated deposits for the first three quarters of 2010…no matter…

A more intriguing question to ponder would be, how much tax revenue might the wealthy generate at the current lower rate of tax if they were also given some certainty about their obligations in the future? Would the government realize a greater sum than the $700 Billion estimate that Quentin asserts? I think it’s likely that it would.

Businesses need customers and investors! They also need to know what their expenses will be for the next five to ten years. In short they need some certainty about the future. Customers and investors aren’t very active due to uncertainty and until Congress acts taxes are set to be raised on all American workers. If all of the current tax rates were made permanent, and other incentives to risk were also established, everyone, including wealthier people, would experience greater buying power as well as greater confidence in their own futures. Would those incentives and assurances also work to create jobs…YOU BETCHA!

Would the tax generated from the wealthiest Americans exceed $700 Billion? History tells us the answer is yes:

…data show that the 2003 Bush tax cuts caused what may be the biggest increase in tax payments by the rich in American history. ** …the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%. Barack Obama says he’s going to cut taxes for those at the bottom, but that’s also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%.(emphasis mine)

What does your common sense tell you about taxing the rich…will it make you and the private sector more powerful or will it just make government more powerful (and reckless in spending our hard earned money)?

In response to Quentin’s comments I spent the day researching tax policy and tax history as they relate to job creation. What I realized very quickly is that Quentins statement is a set up (surprise!) because many things contribute to job creation:

Almost everything Congress has done in recent months has made private businesses less inclined to hire new workers. ObamaCare imposes new taxes and mandates on private employers. ** The “jobs” bill that the House passed last week expands jobless insurance to 99 weeks, while raising taxes by $80 billion on small employers and U.S-based corporations. On January 1, Congress is set to let taxes rise on capital gains, dividends and small businesses. None of these are incentives to hire more Americans.

Obama care, cap and trade and uncertainty in the energy market also add to their concerns. You can see that proving one thing, lowering taxes, will create jobs is difficult…not impossible for the reasonable mind…but damned difficult for a stickler like Quentin.

What we can do is study history to see the effect of difference between government that is hostile toward business and government that supports business:

…despite an unemployment high of just 6.4%, more jobs were lost in the first seven quarters of the 2001 recession than were lost in the first seven quarters of this recession. How is that possible? How could job losses have been worse in 2001 but unemployment so much higher now? Weak job creation. The latest Bureau of Labor and Statistics data show that employers have created 8.6 million fewer new jobs this time around than they did almost a decade ago. Heritage Senior Labor Policy Analyst James Sherk estimates that lower job creation accounts for 65 percent of the recession’s decreased employment.

We have posted many articles here at Post Scripts that explain the relationship between tax rates and revenue flow to government.The formula known as the Laffer Curve is helpful in demonstrating that extreme tax rates, whether too high or too low, will result in less revenue to the government. That doesn’t prove that tax cuts for wealthier Americans will lead to more jobs but it does establish that overly burdensome tax rates have a negative effect on incentives to create wealth (job opportunity) and revenue flows to government.

Now let’s get back to common sense! What does it look like when America is experiencing a robust economy? Most of us have experienced the good times before, so go ahead, close your eyes and recall…when jobs were plentiful…when you were free of big money worries and concerns…When the future looked bright and your personal increased buying power meant that you had extra cash to spend, to save or to invest!

I call on everyone to use common sense to deciding if money in the hands of individual Americans, rich, poor and in between, would make our economy strong and ensure that there are good jobs for everyone who wants a job. Consider a few simple ideas:

1. Is money power? We’ve all heard the expression…is it true? When you have extra money coming in and when you can pay your bills, go on vacation and put some money into your 401K do you feel more powerful than perhaps you do today in this time of economic uncertainty?

2. Should this power reside primarily with the people…or with the federal government? When you have the power to determine your own lifestyle, to determine how your hard earned money will be spent, do you feel personally powerful? How about when you write those tax checks to the IRS…does it make you feel like that money will be well spent? How about when government decides you should keep less and raises your taxes? And what about when it goes further and tells you what kind of light bulbs you must now buy or what car you should drive or what radio you should be allowed to hear? When government takes too much money from the private sector, when it regulates heavily, your power is abrogated to government.

3. Can statistics be manipulated to prove just about any point? Simply relying on a few statistics or sound bites won’t bring anyone certainty about tax rates…or power.

4. Is this about political party affiliation or political philosophies? Democrats believe in big government as a philosophy…Republicans believe in smaller government as a philosophy. Both have made compromises over the years but in the past century the democrats have won more battles…creating greater power in government. Is that what we want for ourselves and our country? Will bigger government mean more opportunity for you or less?

5. Should the average person use common sense and logic to determine the truth about a matter? Both sides in this argument have their talking points. Both sides use statistical information to make their cases. Sometimes they manipulate using statistics by leaving some information out or by assigning blame where it doesn’t belong. As with most things in life we are definitely all on our own.

The following video contains some historical information that will assist in determining how tax rates affect the economy and jobs:

Those who are truly interested in the Reagan tax record might also enjoy the article, “The Reagan Tax Cuts: Lessons for Tax Reform”

I welcome all opposing views and questions…and I trust the American people, given enough information, will make the right decisions. I’ll send you on your way with this quote from the Gipper about his intentions for you and our government:

“It is not my intention to do away with government. It is rather to make it work — work with us, not over us; to stand by our side, not ride on our back. Government can and must provide opportunity, not smother it; foster productivity, not stifle it.” – President Ronald Reagan