ALL ABOUT TAX POLICY

            Tax the rich!  Tax corporations!  Confiscate “windfall” profits!  All are Incantations, expressions of the genetic code of one party, and accommodated tacitly by weak-kneed, unprincipled legislators of the other.

            Tax policy is a serious subject; so let’s start the debate before it’s too late.  Let’s look at some facts that politicians of both parties have not and likely will not address.

Interesting fact NUMBER ONE: You cannot "tax" the rich.  Whoa! Don't leave me yet.  I know that is a radical statement, but just hear this out:

         Let's take a typical rich person.  What constitutes his wealth?  His wealth lies in his business assets and/or his investments.  A percentage of this wealth he takes out in yearly income to maintain his personal life style and his family's needs.  The rest of his wealth he uses to invest, to add to his business in the way of maintenance, expansion or innovation.  He must do this in order to sustain his productivity and maintain his competitive position.

         Be aware, no one keeps money under their mattress.  Money just setting in a bank is being used somewhere in the economy.  Money is like blood in the arteries of a living person.  Governments, like bloodletting doctors of the past, provide the principal avenue for the waste and abuse of this vital resource.

         Now you tell me. If you increase taxes on this rich person by 10% 20% -- go ahead and wipe him out with an 80% increase.  Is that money going to come from his personal income?  Maybe so, eventually.  But, before a dime comes out of his personal income you can bet he will first take it out of his investments or his business.  The net effect will be to cripple growth, productivity and job creation—everything we want to avoid.

         Bottom line?  You are not taxing the rich person; you are taking money from his business or someone else’s business that utilizes his invested wealth.  And this just might be a business that supplies you or your neighbor with needed products, services—or a job.

         Another little item you ought to keep in mind. If you raise taxes enough on this guy, this producer of jobs, this innovator, this investor in your future, he is going to pack up himself, his family and his business and move to a more hospitable State, or perhaps even to another country.  Maybe you would like to trade this rich person for the impoverished hoards fighting for a chance to come into this country and ratchet your taxes up even more.

Interesting fact NUMBER TWO:  You cannot "tax" a corporation.  To a corporation, be it large or small, a new tax constitutes an increase in the cost of doing business.  The corporation must then choose among several options to remain viable: (a) pay its employees less, (b) pay fewer employees, or (c) increase the price charged for its goods or services. So you see, wage earners and consumers finally end up with the tab. 

         This so called taxation of the rich and corporations is a revenue collection mechanism of government that is in truth financed by wage earners and consumers.  They suffer either decreased wages, increased cost of living—or worse, lose their jobs. This model assumes adequately competitive situations where the freedom of a corporation to take profits or absorb losses is restricted by unencumbered, competitive market forces.

         By the way, maintaining unencumbered, competitive markets is the responsibility of government.  You cannot have free and fair markets without the laws and statutes that govern the behavior of the participants in these markets.  As any economist worth his salt knows, laissez-faire Capitalism is as unworkable a system as the Communist Workers Paradise. Corporate crime, stock manipulation, unbridled conglomerate formation and antitrust violations must be addressed with effective legislation and judicial enforcement.

         The only valid criticism of a wealthy person ought to be that he came by his gain unfairly, unlawfully or without regard for the rights and dignity of his fellow citizens.  If such a person is tolerated or abided under our laws, then it is the fault of our courts, the laxity of our statutes or the indifference of citizens who elect irresponsible legislators.  Never forget, we live in a representative democracy.  We are in charge, but only so long as we do not abdicate our responsibility to understand and be engaged with these issues.

         A few other factors regarding "taxing the rich":  Without question, this is an effective revenue collecting mechanism.  Plus, it allows governments to encourage or discourage certain business practices (safety, environment, community, citizenship, etc.)—and can be a good thing if applied equitably, realistically and with care not to create disadvantages within global markets for our producers and employers.  Keep in mind, however, that this power afforded legislators is routinely abused.  Many have boldly used this congressional taxing authority as a means of buying votes or enriching their campaign coffers—thus affording unfair advantage to incumbents.  Fair Tax and Flat Tax proponents are cognizant of the fact that legislators will not readily relinquish this power.

         Unfortunately, this issue of taxing the rich or corporations is used by demagogic politicians to claim they are favoring the poor or middle class over the rich or corporate entities.  Such deception is a disingenuous mockery of all voters.  Just as reprehensible are the academic economists to say nothing while politicians bludgeon voters with economic disinformation designed to incite class hatreds. 

Interesting fact NUMBER THREE should now be obvious:  All costs of government, all taxes, duties, levies of any kind, no matter their purpose, intent or upon whom they are initially levied are finally, in the last analysis, borne by wage earners and consumers. 

         Are you a wage earner? Then I implore you to reread that last paragraph.  The truth of it should seem obvious, but I guarantee there are economists with an alphabet soup of accolades and degrees after their names who do not understand this.

         How consumers are gouged deserves brief explanation.  It has been estimated that 60% of the cost of a loaf of bread is tax.  That is tax added to cost at every step of production, packaging, transportation, wholesaling and retailing.  At every step taxes of every description add to the final cost—not just federal income taxes and FICA taxes, but state, city and property taxes.  Each and every one of these taxes adds to and inflates the cost of every product or service, without exception.  If just the federal portion of these taxes were eliminated and replaced with a consumption tax of 15%, consumers would likely see a dramatic reduction in the cost of goods and services.

         How about the government confiscating “windfall” profits?  Do we really want this president entrenched or conceded to legislators?  Should we assume that in every instance this power will be used to the advantage of every citizen, or are we affording legislators another device to buy votes from a constituency?  Is this practice constitutional?  I sincerely doubt it.

         If we do allow legislators to have this power, maybe we should instill some order to the process.  Let’s clearly state what is and under what circumstances a profit can be defined as windfall—now there is a chore for a battalion of lawyers worthy of at least a 5000 word tome.

         Then too, shouldn’t we let voters in on this decision?  Voters need to access how best the proceeds would be used by hearing competing arguments from the corporation, the corporation’s stock holders, citizen advocates having stakes in the issue, finally from the legislators with a completed, unalterable bill that spells out specifics and guarantees as to how these revenues will be allocated.

         Please do not interpret any preceding paragraphs as arguments against "taxing the rich" or against the concept of a progressive tax.  My only purpose is to point out the desperate need for all of us to comprehend the economic consequences of tax policy.

         Tax policy has proximate effects and global effects. If you want a proximate effect of diminishing growth and job creation in your community, your strategy would be to tax disproportionately those who engage their time effort and personal assets into businesses or investments that are creating jobs or growth.  Do not feel the slightest remorse for the "rich person" or the corporation in this instance.  Their costs, including taxes, are passed on, and the wage earner and the consumer will shoulder the burden of these taxes in the end. 

         The global effect of any tax is always the same: to remove money or capital form those who earn it (rich or poor), those who enhance its productivity; and then redirect it toward government purposes, which may or may not be so productive.  Of course, many government purposes are productive and absolutely essential.  Perspective on this sometimes depends upon whether or not you are at the receiving end of government expenditures.  Truthful, all of us are at the receiving end, but it is important to remember that the wage earner and the consumer are always at the giving end.

         I do not want to hear this issue debated by politicians of either party.  Let’s have economists investigate, research, and debate this issue so that voters can be reliably informed on the facts.