Thursday, June 9, 2011

You keep using that word. I do not think it means what you think it means

This is a political post.

Inigo Montoya by Brian Stelfreeze...

Ingio : You keep using that word. I do not think it means what you think it means.
- in the Princess Bride

On every political talk show, rounded up in the talking points of some of our leaders, is the continuing push from one side of the apparently rock solid contention that cutting taxes on businesses creates jobs. The way it is presented, time and time again, a listener might take away that the supposition that there is somehow a one to one ratio. That's it automatic.

The logic is that companies can't be profitable under these harsh taxes, and until they can turn a profit the economy won't recover.

This is hammered again and again, despite that looming, almost imposing evidence that the previous tax cuts, remember ...the Bush tax cuts that were extended last year, have failed to magically create those jobs the collapse of the housing bubble sucked away. Wait, didn't the collapse of the economy happen during the period of lowering taxes? And now, with taxes the lowest in a generation, even comparatively lower than those under conservative Saint Regan, using the logic that these talking points foist upon us, jobs should be plentiful. Technically, considering the number of firms that have paid little or no taxes, and that are indicating literally RECORD profits for their shareholders, job recruiters should be tackling people in the street. Instead, Phd's are lining up for work as cashiers at Target.

Lowering taxes to create jobs lacks any credible foundation. The company's have profits now, but they're not hiring. This mounting evidence shows that the given viewpoint is, and should be characterized as, almost child-like in its hopefulness. Politically this idea should be regarded for the most part as a confirmation bias with no basis.

And yet the idea is stills shouted from the rooftops, with zest and vigor.

Let me be clear : Lowering taxes to increase company profits do not make companies hire people.

Consider what you, the reader, already knows. Perhaps your own place of employ has "right sized" in the past year. And after the layoff, the remaining workers are expected to pick up the slack. And if those employees can handle it...why would a company bring in someone else just to add to their expenditures? The oil companies are making multi-billion dollar profits per quarter. Per quarter. By the conservative logic those firms alone should have sucked up the pool of unemployed. But this hasn't occurred.

Because the simplistic model being espoused seems to forget that extra people don't guarantee extra income, meaning why hire extra people to make more profit, when you can just work the hell out of the ones you have. Right now, if a company has a million dollars in profit, it keeps it in cash reserves (holding money out of the market) or in some cases distributes that to the shareholders (but paid dividends are a rarity).

On the other hand, properly structured taxes tend to encourage companies to make capital expenditures, which in turn drive the economy.

In other words, that company with a million dollar profit would have choice: buy something you can benefit from or the government wants a cut. A big cut. The company then usually gets new assets, the shareholders maintain value, the money goes back into the economy, everybody wins. Sure their cash cushion is gone and they might have to do some actual whatchamacallit,, management. In a worst case scenario, if something goes wrong, like bad management, the company goes out of business instead of getting bailed out. And then, forty little replacement companies pop up to fill the void, lower prices and increase innovation as they fight for market share. Which is the American way.

Taxes, to wit, create jobs.

Profits just tend to drive wealth accumulation.

The reality is that the vast majority of jobs aren't created by the big companies lobbying for lower taxes. Jobs are created by the small companies too busy trying to stay one step ahead of the competition to worry about 3% here or 5% there. That's where the change in thinking will have to happen. That level of company can do without higher taxes. It's the guy in suits on Wall Street that need to be "shook down".

We've been told lowering taxes cures everything from corruption to the heartbreak of psoriasis, that they pay for themselves (they don't), that they stimulate growth (they don't) and I think they might even cure athlete's foot. And all it's done is ...lower taxes.

I think it's time we move on.

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