Monday, November 24, 2008

Stupid Economic Punditry-

Last night (11/23/2008) Fox News was on in the background. The anchor asked Jonathan Hoenig a question concerning taxes and the economy. My ears perked up and I went over to listen. Johnathan responded that that those who earn less than $XXX should not get a tax break as that would promote consumerism, which is what got us into this financial mess. OK so far.

He then went on to say that those who earn more than $XXX should get a tax break as an incentive to create jobs. At this point my jaw dropped in surprise. Economically, there is no difference.

If you give the "poor" a tax break they have money to go out an buy stuff. The "rich" seeing this demand for products hire more people to produce more.

If you give the "rich" a tax break to create more jobs, they hire the "poor" and begin to manufacture more. The "poor" now have more money to buy stuff. So we are back to the consumerism that created the economic meltdown.

Giving tax incentives, especially to the "rich" also ignores a couple economic principals. First, we are supposed to be a capitalistic system. The simplistic mantra of many of our economic pundits is "keep the government out of the private economy". Tax incentives means that the government is involved in the economy. If the mantra of "keep the government out" means anything, then no tax incentives. Furthermore, why would the "rich" need an incentive? If they see an opportunity, as an entrepreneur, they take the risk of investing. Isn't that what capitalism is about?

Paying taxes is not a "black hole". When individuals pay taxes the taxes are used to fund programs for the benefit of society, such as roads. If taxes are reduced then funding for many programs funded by tax dollars decreases. I'll end the tax issue here, otherwise this post will become too long.

Many economic pundits claim that the "rich" need tax incentives to "create" jobs. My viewpoint is that this is backwards. Jobs are created when the consumer has unmet demand for a product and the "rich" seeing that demand hire more workers. After all why would a "rich" person hire someone to produce something if there is no known demand for that product? Capitalism is not a welfare system. The argument that tax incentives are needed distorts the economy and simply becomes "corporate welfare".

1 comment:

Sonya said...

Amen, sister suffragette.
Good job boiling economics down to smaller points. It is not the most comprehensive of topics.