I'm a little sad today and it's not just because we won't be seeing Tina Fey as Sarah Palin on SNL anymore. I'm sure it's no secret that I'm a Republican and a Conservative but more than that I am a capitalist. I can understand how people have different views about the war in Iraq, environmental issues, abortion, etc, but when it comes to economics, to me it's just about how the world works and how it doesn't. I took three economics courses in college and I loved them all. And what I learned is that if you truly want to increase the standard of living for a population, you want to decrease taxes (across the board not for some while raising it for others) and get rid of unnecessary government regulation that gets in the way of a free market (I do concede that some government regulation is necessary). This spurs competition and investment in new ideas and leads to an overall increase in production and wealth.
I hope I am wrong, but I am afraid that too many people took the bait of a "tax decrease for 95% of Americans" and assumed that meant that their life would get better. And in the short run it might. However, my concern is how businesses will react when their taxes are increased. Corporations have a *fiduciary* duty to maximize profits for their shareholders. So what do they do when taxes are raised?
1) Absorb it - profits decrease, dividends and share prices decrease and there go our 401(k)'s and IRA's. Especially bad for retirees or those soon to retire.
2) Decrease expenses such as payroll or investment in new technology. Neither of these bode well for increasing the standard of living. (Especially if jobs are actually cut and some will win the grand prize of the biggest tax decrease of all - the one that comes with having zero income).
3) Increase prices - meaning that all of that tax decrease will be spent in acquiring the same good and services that households do today.
Based on the fundamentals of macroeconomics that I have learned it seems that at best this tax decrease will be a wash for the middle class and could actually end up hurting them in the long run...probably just in time for a Republican to take office and get blamed for it.
On a separate note (and this is opinion) I don't think that corporations or people making over $250K should be punished for doing well. We already have a marginal tax system so those individuals are already paying higher taxes, I don't see the need to increase it any further. I also don't believe that those making more money necessarily have a higher standard of living. Based on number of children, what part of the country they live in, how long their commute is, how much in student loans they are paying back, etc, a person making $75K could actually have more disposable income than someone making $250K (just an example). And lastly, although I do wish that some of the more noble professions such as teachers, firemen and policemen were paid higher salaries, doesn't everyone have the choice of their profession? The approximate salaries of those professions are known and factored into the decision and probably weighed against the other benefits, such as more family time for teachers, pensions for police officers and so forth. So why should those who chose a profession that makes more money necessarily pay more than those who *chose* a lower paying profession?
I read a really good quote by Abraham Lincoln on the subject "Property is the fruit of labor...property is desirable...is a positive good in the world. That some should be rich shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself, thus by example assuring that his own shall be safe from violence when built." -- March 21, 1864 - Reply to New York Workingmen's Democratic Republican Association".
And I'll leave it at that. To all those Obama fans out there, I hope we can still be friends.
9 comments:
We can still be friends and agree to completely and totally disagree :) Can't wait to see you guys in 2 weeks! I have already told Jeremy no politics while I am in the house, I don't want to hear it ;)
If one's profession were simply a matter of choice then you are right that it would be unfair for those who chose a profession that pays more to pay more taxes. The fact is, however, that we all have different strengths or talents. We can try to develop abilities outside our core strengths but we will obtain maximum benefit by developing those core strengths as much as possible. That said, I believe that the choice of a profession has more to do with our core strengths than with anything else (you should read "Now, Discover Your Strengths"). So my question is why should somebody be rewarded more in a higher-paying profession simply because they have different talents, and if it were simply a matter of choice than why didn't you "choose" to be an actor or professional football player or a stock broker? The problem is that a person's value in our society is largely based on how much they contribute to the bottom line of the next person up the chain rather than how hard they work or how much they contribute to society. Our economy is driven by greed and selfishness and until we as a society can overcome that flaw then there will be no justice or fairness in taxes or compensation.
jeremy, i don't know you, but i liked your comment.
karen, you know we never discussed politics at home because we knew it would get ugly. i won't begin to think the blogosphere would be any different, so i won't breach it. =)
you can't tell me, though, that obama's speech on tuesday didn't touch you, just a little. i will completely admit that mccain's touched me. had he been that sincere throughout the campaign, i probably wouldn't have hated the poo out of him (i'm censoring, there may by children present).
here's hoping our new president will make good on his promises and make a believer outta ya.
oh, and i still think we can be bff's.
i almost forgot. sarah palin? tell me she didn't remind you of a female ashley.
Karen, you are an economics genius. Absolutely government must not take away people's incentive to better themselves. They must not discourage talented doctors, for instance, from borrowing huge sums of money to go to medical school knowing that their high salaries will still mean they are paying off student loans for the life of their career. Do not tax corporations or they'll go overseas where they pay no taxes. Do not take from the hardworking and give to dropouts. We have free education up through 12th grade, then very cheap education for the next two years. Anyone in America can be anything if they stay in school and work hard and they should not be punished by high taxes to redistribute to those who don't work hard. It took Reaganomics 6 years to show that Reagan was right about business and Bush inherited the falacies of the tax and spend administration before him. Sadly, he didn't lead Congress in keeping sound fiscal sanity that Reagan had started. So he allowed Congress to force banks to make loans to people who shouldn't have been borrowing in the first place. Big mistake. We'll all suffer and Obama can't fix it with taxes.
We do run a big risk these days. The democratic platform does move more and more towards a socialized society. Furthermore, there's a current obsession with equality and civil rights. Although that's not bad in any way, it does breed this fear of difference. That involves economic difference. The continual homogenization of our society does effectually spill over into the economy.
I do, however, have a few defenses on Obama's part.
1. He's left of center. During campaign season, political matters are grossly intensified. It's generally to serve the part of persuasion and to urge American's to be partisan. However history has proven that after the presidency is filled, many opinions and matters neutralize a bit more. Your average American is highly moderate. They see the benefits of governmental aid, but also want to have the freedom to grow. I don't think Americans are ready to let a president socialize that much, no matter what media seems to push and tell you.
2. He may not represent everything America needs, but he does represent some things that America REALLY needs right now.
It's silly to vote for a president assuming that he'll accomplish everything he says. Obama has 4 years to put out some serious fires... will we ever get around to handling half of the platforms he argued for... more than likely not.
I have never seen in my life a political leader generate so much pride and positive outlook as he does. No matter the reasons behind it, it's critical. It's critical to regaining allies internationally. It's critical to the markets. Most importantly, it's critical to the health of the political system. Americans are more anxiously engaged in public discourse than I've ever seen. That's a HUGE deal.
There are policies that I don't agree with. But I really feel like, now, people are going to get involved in them. America is going to try harder to love the country, love its government, and love the idea of being a force of good in the world. As long as we can solve our international problems and issues with security, I think we can make it.
Per the economic issues, I actually totally agree. I'm fiscally VERY conservative. Such tax policies will be painful to the free market system. I don't think it will get too out of hand too fast, though. Americans are too used to forward progress and lofty business achievements that it won't take long for capitalism to remind our government what makes us great.
I, honestly, am not that worried.
Prop 8, that's another story...
Well, at least I have one fan out there. Thanks Mom but I think genius is a little extreme...after all, I'm just applying what I've learned to the current situation - not generating economic theory.
Kim - I am so excited to see you guys too. I've been thinking a lot about pie (I usually do). We should have Seth and Amelia make little tiny pies in those tart tins. I think they would like that.
Jeremy - True, I was oversimplifying a little in that one's career was merely choice. I agree that it is influenced by one's talents and interests but within that intersection of talent and interest for most people I would imagine there is more than one career option and multiple career paths with varying pay scales within the same field. That comment was kind of in response to the little soundbites I kept hearing that made every CEO out to be the bad guy and every union factory worker out to be a hero. But of course, until we can measure a person's work and effort (including what it took to get them to where they are and the amount of risk we are willing to take) we will never have a fair tax system. There is a lot of greed in the world and that has to be tempered, which is why some regulation is good - antitrust laws for instance. But, I don't know that I would classify it as a flaw in the economy. Rather it is serving one's own self interest that is the basis of the free market economy. As Adam Smith (founder of modern economics) said "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest". If greed were the only driving force, we would never see a stay at home mom.
Lauren - I totally miss you and miss not talking about politics with you :) Living on the east coast and having a little baby put a damper on our election night fun. These days I'm usually plumb tuckered out by 10pm which was when the polls closed on the west coast. So, I missed both speeches. I guess Palin didn't remind me of Ashley (how is he anyway). I actually really liked her. Granted she messed up a couple of interviews and needs to work on that but I don't think that makes her dumb. If so I would have to think everyone who ever botched a job interview is dumb. And I don't. But I totally LOVED Tina Fey as her. Hopefully we can come to Seattle next summer to visit so we can still be BFF.
Collin (is it ok to disclose your true identity?) - I totally agree that campaigns are a bunch of rhetoric and only about half of what gets promised actually happens. Plus fiscal policy is super slow to have any effect so I guess what I'm saying is that I'm not that worried either.
You have two fans.
I guess you could classify me as a capitalist as well. Self interest is what keeps the world moving. Most rich people don't behave like scrooge mcduck and keep all their money in a big money pit to swim in in their spare time. Instead, they invest it in other businesses in the hopes of making even more money. In the process, they spread the wealth in a much more efficient manner than government ever could.
Also, teachers who are in fact in the free market (private schools) are compensated very well for their troubles. If we could make the education system a little more capitalist in nature, we might solve that problem. ;-)
I really believe that the left is extremely short-sighted. They want to punish the oil companies for making huge profits by taxing them, but they don't realize that they oil companies will just pass on the tax to the consumer (Or spend less money in R&D that would provide more oil or oil substitutes). They want to tax the rich, filter the money through government, then give it to the poor, when those rich people would have spent or invested that money in a much more efficient manner.
I know I am just repeating things that you said Karen, so I'll shut up now. I just want you to know that I paid attention in Econ 110 (with Kearl) at BYU too.
Have a great day!
I completely agree with this post, and I would add that political rhetoric glosses over economic realities. It makes us feel good to think that we the people (through our government) are helping out the poor and punishing greedy CEOs, but it doesn't usually work out that way. I agree with Karen that corporate taxes will be passed on to consumers and employees, which is pretty much ALL of us. And the "tax cuts" that Obama promised will largely be checks cut to people who already don't pay taxes. I don't see a lot of benefit to the middle class.
We already have a progressive tax system, and the second highest corporate tax rate in the world. We keep complaining about jobs being shipped overseas - that's because of taxes on business. And small business - the largest employer and source of economic growth in our economy - will suffer the most.
Of course politics involves a lot of rhetoric, and we will have to see how it plays out later, but the fundamental idea behind Obama's tax plan is simply reckless in our current economic crisis and counterintuitive to the principles of economic growth. The best way to increase tax revenue is not to tax more, it's to increase the size of the overall pie. As someone who works on economic development in Africa and knows a bit about socialist-oriented policies in Europe, having lived in the UK, I think it would be very dangerous for us to start down that path.
By the way, Obama's win is certainly inspiring, but so far all I hear is hope that he will do a good job and moderate his policy positions, not actual evidence that this is the case. I think our country has made a huge step, but let's not forget part of what makes this country so great - entrepreneurship, innovation, and freedom to pursue happiness, economic and otherwise.
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