Sunday, February 17, 2008

Tax Cuts for the Rich...Remembering 1990?

Today, Hillary Clinton and Barack Obama, both lawyers and politicians and not business people, consistently hammered the Bush Administration and the Republicans on the issue of tax cuts for the rich. It appears that the "left" of this country just can't get it through their heads that the Bush tax cuts have created jobs with a 95% rate of employment. The tax cuts have strengthened and created a record economy that the Clinton-exiting recession of 2000 and the compounding events 9/11 had all but destroyed. And, despite the high cost of two wars, Afghanistan and Iraq, those tax cuts have produced record tax revenues which have resulted in a more rapidly-than-expected lowering of deficit spending.

Instead, the Democrats point to "slow" salary growth in this country during the Bush Administration. At the same time, they point to the fact that CEO's are getting mammoth benefits and salary packages. They don't seem to understand that slow "salary" growth in this country is a result of being "in" an ever-increasing global economy. There is a heavy influence being exerted on wages in this country by the minimally paid workers in places like Indonesia, China, and India. And, those low wages overseas, force workers in this country to accept no and lower wage increases for fear that their remaining jobs will just move overseas.

Further, they can't seem to understand that, after seeing "fat" CEO salaries, the average wage should, somehow, be driven from the top, down. The reality is that wages are driven from the bottom up. They always have been and they always will be. And, I wouldn't expect a couple of lawyers like Hillary Clinton and Barack Obama to understand this. That is because they've never managed people or a business or ever had to hire someone to fill open job positions within a competitive corporate or business structure. The fact is, most Democrats are lawyers and they know absolutely nothing about business and job creation. Wages are determined by the economic law of supply and demand. If you can fill a job for $5 an hour; you would be a fool to do so for $7 an hour. But, if you can't find anyone to work for $5, you will pay the $7 to get the job done. And, once this happens, every job above that job level will see wage pressure, or those employees will seek employment elsewhere in order to keep pace. That is basic economics and how wages are increased; all the way "up" the line. Not down the line!

Finally, if you have more than 20 million illegal workers in this country who are content with undercutting the normal process of "supply and demand" for jobs, you are going to have tamped-down and stagnated wages. Illegal workers in this country aren't just taking jobs that Americans won't fill. They are working in construction, manufacturing, services, and other elements of our economy. They are willing to work for less and there are employers who are willing to hire them (for less) in order for their businesses to survive. And, this eliminates wage pressures from the bottom up.

Rather than try and prove that the Bush Tax cuts (on the rich) actually work, I would prefer to take you back to the year 1990 when a Democratic Congress passed a veto-proof "Luxury Tax" in the United States. That tax specifically targeted the rich by imposing a 10% tax against expensive furs, boats, cars, and jewelry. And, like today, it was "a tax on the rich" message that played well to the blue-collar union workers and the working poor of this country. A message that we hear consistently, today, from almost all the Democrats.

But, that luxury tax seriously backfired. It had to be "quietly" repealed after only 3-1/2 years by Bill Clinton and the Democratic Congress that created it. It is estimated that more than 16,000 highly-skilled workers in the United States boating industry, alone, lost their jobs as a result of this tax. Other jobs were hit equally as hard in the areas of luxury cars, jewelry and furs. It was a "liberal" disaster of the highest magnitude. It created no new revenues and it seriously hurt one of the key elements of the Democratic base: the union worker.

What the foolish Democrats failed to understand was that the rich are highly mobile and have purchasing power that is far beyond the borders of this country. When a tax was imposed in the United States that was specifically targeted against them, they either didn't buy "or" they went overseas to satisfy their need for luxury items. That left those "United States" businesses, those who made "luxury" products, without any clients. Many famous and historically old boat companies went under; letting their highly-skilled workers go. And, those companies have never been revived and those highly-skilled manufacturing jobs are gone forever. Similar disasters occurred in the realm of auto dealerships, furriers, and in the jewelry industry. I find this interesting because the Democrats always claim that it is the Republicans like Bush, who cause manufacturing jobs to disappear in this country.

As a country, we are consistently losing jobs overseas. Part of the problem is that we have the highest Corporate and small and medium business tax rates in the industrialized world. At a time when a most European countries are lowering taxes on their rich and on their Corporations to try and stimulate and save their economies, the Democrats want to raise taxes even higher. When taxes are too high, jobs just go overseas and the rich move their money to offshore locations like Bermuda in order to avoid paying those high taxes. Sometimes, the rich and businesses will just move themselves elsewhere in the world after being fed up with taxation. When jobs move overseas, we lose both the income tax on the worker and the taxes that would be paid on the manufactured and assembled products. When the rich and businesses move, we lose them as part of our tax base. We lose their business investment in this country. And, specific to the rich who move overseas, we lose their charitable giving which places more and more burden on the rest of us to take care of the poor and "less-advantaged" in this country. The fact is, our system of taxes in this country keeps reducing the size of the "taxable base". And, when the the "taxable base" keeps shrinking, with less American workers and businesses in it, those of us that are remaining in that "base" have to pay more and more in order to do the same amount of things that we expect from our Government; like education, road building, defense spending, etc.

If we really want to pay for all the things that we expect out of our government, we need to "change" the system of taxation in this country. Increasingly, the taxable jobs and businesses, that we relied on before, keep moving overseas. And, those of us that remain here, are left "holding the bag" for an ever-increasing tax bill against a shrinking base to pay it. We need to recapture taxes that have been lost for the jobs and products that have moved offshore. And, in my mind, we can do this by switching from an income-based system of taxation to a finished-product or sales-based system of taxation, such as a national sales tax or a similar system called the "fair tax".

A sales-based tax system would recapture the taxes that were lost for products and jobs that had moved overseas. Salaries could be lowered while retaining the same purchasing power, as before, because personal income taxes would be gone. Business would pay no income tax. As a result, the cost of their products would be lowered. We would regain competitiveness against products made elsewhere. Jobs would eventually come back to this country. And, in essence, a national sales tax system would have the same benefit as imposing "import taxes" on all products made elsewhere. And, it would do so without looking unfair and without creating "tariff" wars between us and the other countries we trade with.

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