Last week America’s Treasury Secretary Timothy Geithner said that “tax cuts for the most fortunate 2% – 3% of Americans should be allowed to expire”. On Sunday the Secretary went on to say something that virtually no economist would agree with…..that “raising taxes on the nation’s highest income earners would NOT have a negative effect on growth”. Who is he trying to kid?
First off let me offer a couple of facts. Consumer spending is estimated to account for 65% -70% of GDP. Of that consumer spending, over 30% of it comes from the top 5% of income earners. The reason so few (if any) economists would agree that raising rates for the top tax bracket doesn’t have a negative effect on growth is because it is totally illogical to believe that reducing the discretionary income of those that spend the most wouldn’t reduce overall spending…and thus economic growth.
Secondly and more importantly, what about jobs? Let’s examine Geithner’s quote regarding allowing tax cuts to expire for the most fortunate. (And let’s be clear, allowing tax cuts to expire is the same thing as raising taxes)
What would you think if the term “most fortunate” was replaced by “most productive”? How about replacing the term “most fortunate” with “those that create the most new jobs”?
Many of those “fortunate” people in higher income brackets are the small business owners that everyone agrees create most of the new jobs in this country. How much traction would the federal government get using alternative terminology to discuss the “most fortunate” whilst we are in the middle of a jobs crisis?
For example, what would you think if you heard “We believe tax cuts for the most productive Americans should be allowed to expire”.
Or
“We believe taxes for those Americans that create the most jobs should be raised”.
Does anyone really believe that folks that make it to the top in terms of virtually anything, including income, are in the position they are because they are “fortunate” as opposed to highly skillful, hard working, and risk taking?
America is desperate to restart the engine of job growth. While international Fortune 500 companies are earning huge amounts of money, it is job creating small business owners who are struggling to just to maintain themselves.
Who amongst us really believes that many jobs will be created by people earning $50,000 a year as opposed to those earning over $200,000 a year? Yet Secretary Geithner and the Obama administration want taxes on those individuals earning over $200,000 to soar beginning January 2011.
Don’t you think that removing incentives from the risk takers in our society and penalizing them with higher taxes for their success is going to dampen their “animal spirits” in regard to hiring, expanding, investing, and growing their businesses?
I have preached on this blog that running huge deficits is a pox. While it is understandable during a time of economic contraction/uncertainty for the government to deficit spend…..over the long term overspending it is a recipe for disaster. However, the government’s current plan of borrowing and spending massive amounts of money that mostly flows to public sector government employees…and then raising taxes on the most productive private sector entrepreneurs….makes little sense to me.
Timothy Geithner
I think that if we are to run deficits we should do so in a manner that puts more money into the private sector by way of low taxes. Increasing incentives for those who create jobs….so they can do what they do best…. rather than taking money via taxes from the creative and giving it to the government to redistribute…..simply holds the economic pie stable at best….and shrinks the economic pie at worst.
When my son played soccer the league eliminated the all-star game so as not to hurt the feelings of those who didn’t make the team. It was stupid and fooled nobody. All the kids know who the best players are. And adults know who creates the jobs. It’s not the guys and gals in the middle of the income bracket, it is those at the top. Pretending it otherwise for reasons of politics, or to be politically correct, is foolishness.
At a time when so many in the middle are looking to make an honest day’s wage for an honest day’s work, raising taxes on their entrepreneurial employers simply reduces the overall incentives to hire.
Who are we trying to kid?
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Hello Randy,
Please forgive my naivete, but I’m confused. Aren’t the top two and three percent of earners earning a lot more than $200,000 a year? I always thought the top earners were considered to be the ultra rich, upper class. And aren’t these the same people who send jobs offshore, have maniuplated markets, shorted stocks (the most unAmerican thing in my opinion), and basically pillaged and fleeced America? And with all the creative accounting techniques, are these top earners really paying their fair share of taxes, anyway?
Notwithstanding, if their spending habits affect GDP and jobs so drastically, then I wonder why the tax incentives that are currently in place haven’t done more to stimulate the economy, and create jobs thus far?
Another thing I ponder is if it’s realistic to think that we can have it all: balanced monetary policy, low interest rates, low taxes, low unemployment, national healthcare, two costly wars, and public services. Doesn’t something have to give? Doesn’t the money have to come from somewhere?
The biggest incentives should be given to the middle class. These are the skilled, hard-working, small-business owners who are fighting in the trenches, and providing jobs and making a difference. They are our biggest asset.
Respectfully,
Vanessa
Uh-oh, Randy. I think I may have hijacked this thread. I’m really sorry because this is supposed to be your soapbox, not mine.
So, I’m going to chill after this.
But I was reading in today’s paper that the increase in taxes would average about $1,100 a year. Is that amount big enough to dampen discretionary spending for top earners?
Also, I don’t understand how Congress is willing to increase the deficit to extend these tax cuts, but not willing to extend unemployment benefits to the “99′ers” who are struggling to pay their mortgages, prop taxes, medical premiums, etc. Wouldn’t the latter do much more to help keep the economy afloat and prevent another dire domino effect?
And if Congress really wants to boost the coffers, maybe they should allow another one-time incentive for corporations to repatriate profits from their offshore subsidiaries.
Hi Vanessa, “hijack” away :–)