Tuesday, July 10, 2012

Obama plan to let temporary Bush II tax cuts expire but keep cuts for others will help weak economy.

By Marc Jampole

We start with the fact that we have both a weak economy and a heavy debt burden.  It would be great to reduce the debt, but…

If we let the temporary tax cuts of the Bush II Administration taxes end, people will have less money to spend, so the economy will shrink.

If we cut government programs which pump money into the economy, people will have less money to spend, so the economy will shrink.

How then to pay off some of our enormous national debt? 

The key to my mind is to let the Bush II tax breaks expire on money that does not create jobs. Two examples:

·        Any investment in the secondary market, which means, the buying and selling of stocks and bonds that do not result in additional funds for job-creating corporations. When you buy an initial offering of stock, the money goes to the company, but from then on, buying or selling that stock does not create any jobs, only transfers wealth between buyers and sellers.
·        The purchase of fine art and those luxury items for which high quality but less expensive substitutes are available. For example, producing a pair of luxury blue jeans costs about the same in materials and labor (including marketing) as producing a pair of quality jeans you can buy in a department store. It’s not the profit, but the costs to produce and sell that create new jobs. The enormous profit that the luxury item commands represents an exchange of wealth between the wealthy person buying the jeans and the wealthy people who own the company, but no additional jobs.

My point is that the more money you make, the more of what you make gets put into assets that do not create jobs or create relatively few jobs for the money spent. Virtually everything that the poor and the near poor make goes right back into the economy, as does most of what the middle class makes. It is only the wealthy and near wealthy who can keep much of their money out of the job-producing economy.

That’s why President Obama is absolutely spot on to propose letting the Bush II cuts expire, but only on those with incomes of more than $250,000.  As the President said earlier this week, “These tax cuts for the wealthiest Americans are also the tax cuts that are least likely to promote growth.”

As with any proposal to increase regulation or raise taxes on the wealthy or near wealthy, a major thrust of the Republican reaction is to invoke “small business.”  And as always, Democrats fall for it, hook, line and sinker and thereby let Republicans control the terms of the debate. This week, for example, there have been dueling versions of how many small business owners would have to start paying the additional taxes if the Bush II cuts expire for those earning more than $250,000: The President’s people say it’s a mere 3% who will have their taxes return to what they were before Bush II and Congress went “bat-Cantor crazy”; whereas the Republicans (purposely misunderstanding a detail of a non-partisan report) aver that it’s 50%. The very definition of small business is up for question: for Small Business Administration purposes, it covers businesses that have as many as 1,500employees and sell as much as $21.5 million a year. Sounds pretty big to me.

The entire small business argument is nothing more than a smoke screen. Whether one owns a small business, is a high-powered attorney, plays a professional sport or runs a public company, does it really matter how the money is earned? $250,000 is a lot of money to earn in one year, more than 98% of the population makes.  In our troubled time, it’s not too much to ask people to pay in taxes what they used to pay before the disastrous Bush II Administration.