Ha!
The Tax fairy won't visit us this Christmas because "Tax cuts always pay for themselves [John Kyl]" except, perhaps, when tax cuts are exclusively for working-class income peoples [sic]. Too bad it's provable that adding working class income increases GDP more than for those of 'job-creators' ...
The great Mr Smithy Smoot
Lets say I have $300M in assets, and I earn about $34M / year. I'm a top 0.001%er here. This means a 3% tax-break nets me an extra $1M / year in income. That's real money I can invest. Note, this discussion doesn't apply to corporations, because we're only talking about tax breaks for individuals in congress right now. So what can I, Mr. Smithy Smoot, do with that extra money to help employ that sad little unemployed 9%? (oh, I'm getting chills)
Well firstly, I got my $34M / year salary because, well, I'm Mr Smithy Smoot - come on, the name just eeks with royalties... But really, being that I'm a Smithy, I actually make about $50M / year and have a REALLY good accountant. I'm able to convert $16M of my income into non-taxable entities - municipal bonds, off-shore accounts, corporate-owned assets (like cars, jets, NYC appartments, etc). There's some charitable deductions there too, you know, base-ball-fields are great marketing tools (because giving is the greatest gift, especially when it has ROI).
So, I've acrued $300M over the past 6 years, not because I'm generous, but because I'm smart with my investments. I have short-term/long-term and low-risk/high-risk investments. Plus, I'm a high-roller, so I have the secret harvard handshake that gets me into private-hedge-funds. I own lots of gluttonous inflation-hedging assets like real-estate (that could only ever be sold to another high-roller) and high-end-art. My hedge funds do a lot of day-trading and corporate-life-ruining ventures (short-trading, stock rumor posting (via subtle stock price manipulation techniques), high-speed-trading, etc) - so that's most of my 3rd party common-stock (meaning the ROI of a company is meaningless to me, only the rumor-mill for day-trading purposes). SOME of my money, however, I directly invest.. because.. well, patting my evil kitty Mr. Cotton Willow just gets old after a while.
So now we get to the Republican talking point.. That if I, Mr Smithy Smoot, had that extra $1M tax-break, I MIGHT invest, fostering jobs. But wait.. First, I need to diversify it (don't want to risk it all on one basket - grandmaw wouldn't be proud).. So first, to the art shop.. Then an extra statue for my garden.. My offshore account doesn't get an extra deposit because that was already maxed out in my $16M untaxed portion, but I do add an extra digit to my monthly hedge-fund contribution. So what do we have left for the high risk, long term category.. err.. Maybe $100K. (Remember the US treasury will spend 2.5 times the budget shortfall in long term interest payments for that $1M, so $3.5M of US debt (present value of more like $1.5M) provides $100k of potential direct investment). So one of my 3 businesses gets an extra $100k investment (maybe my mustache waxing widget factory).. Perhaps to the sales, marketing or some good-will portion.. Sure as hell NOT to the manufacturing, engineering, or overhead, because there is no short term projected growth in customer-base.. Why innovate when it's pure overhead. BUT a dollar spent on marketing/sales/good-will does increase the future outlook, all else being equal. Sadly, sales oriented growth is a zero-sum-game.. My 'stolen' customer from bob's mustach-a-roma doesn't end up helping society as a whole. :(
So MAYBE we hire an extra marketing, sales, good-willer employee.. BUT, more than likely, I just offer it as a bonus for extra sales to existing employees (why hire when I can dangle carrots to already overworked employees - that's honestly called efficiency).
We are literally talking about a man that has nothing better to do with an extra dollar, and he wants to gamble.. But AFTER Vegas, and AFTER some stock gambling, he feels what's left over might be entertaining through private-enterprise market-base-growth. (NOT making more widgets for an otherwise constant sized consumer pool).
Note, if I, Mr Smoot saw my inventory approach zero and my laborers were already working 16 hour 6-day weeks, then, I'd kiss the ground and BORROW money to make the capital and labor investments - because I'd LOSE MONEY otherwise.. The cost to borrow now is DAMN cheap. And I, with $300M in assets am the banker's soggy dream. By hiring 1 extra employee that can produce/facilitate 100 extra widgets at $1,000 each (this his high end face-cream people!!), I can both pay for his salary and pay back the measily $3,000 interest I'd have paid to front his $50,000 salary. Why the hell WOULDN'T I borrow? Because I'm over-extended? Hmm.. If that were the case, then I'd take out a personal loan against my Gauguin painting and directly invest.. I'd be able to pay off my loan within a year. Crazy you say? Why risk my snooty painting (err, Smooty painting) when that guy might turn out to be a drug-addict (he has been out of work for 2 years after all). Or what if the market sours? What if I can't sell all 100 of those EXTRA widgets? Well.. Hmm, that is true.. That is kind of scarry.. I mean, if ooonly that $100k came from somewhere like the government.. You know, someone that wouldn't think twice about spending $3.5M in order for me to feel comfortable throwing away as much as $100k. Even though it's a pretty sure deal, or I wouldn't even bother with this thought exercize.
Thank you Republican party for bringing Regan Era supply side genious to us.
What what whaaa?
But.. But, what about common stock? I mean, those hedge funds managing my medium-to-low risk investments - they're buying common-stock usually aren't they. And that helps America right? Common stock is supposed to give liquidity to corporations to raise cash when they need it right?
Well.. So that company's board-of-directors is supposed to minimize how much common-stock is issued so it doesn't dilute existing stock-holder-value. So it can only do so when it's in the interest of stock holders - namely if there is perceived future ROI. So, issuing $500K (my hedge-fund extra contribution) in extra common-stock to throw at the sales department during a resession may or may not be the wisest use of funds. Further, if the hedge fund only owns 15% of total common stock for a corp.. And if the rest is in 401k-funds or trust-funds who were NOT given a 3% corresponding tax-break. Then the corporation may see no material rise in market-capitalization and thus would have no 'free cash' from which to cash-out in terms of stock-issuance. So that 3% tax-break is pebbles in an ocean so far as capital-investment goes.
So, in short, I Mr Smithy Smooth GREATLY thank may grand congressmen, willing to spend $3.5M in US debt so I can employ 1, 2 MAYBE even 3 people (but most likely just pay out bonuses).
And now for crodgy old people
Now, lets look at the 2% S.S. tax cut also on the table. That's approximately $1k per working head. Note this is even better than a general-tax reduction - because this is 2% of PRE-TAX, so your clever deductions or low-income near-zero-effective-tax don't detract from your real take-home from this tax-reduction. It also is better than a lump-sum payment of $300 because you don't blow it all at once (avoiding changing long term spending habits).
MOST of it would go towards debt repayment :(. So that kind of sucks. Pay down 36% credit-card debt.. Buut. that does guard slightly against future insolvency which would have taken the family out of the consumer pool. ($1k @ 36%/year is $6k in less than 6 years - that's MUCH better ROI than a 401k.. even with taxes). So for the heavily debt-burdened, this is like a massive multiplier on S.S.
Ok, not everybody is in CreditCard super-suck-mode. Some are merely at 10% interest rates. That would take 19 years to turn into $6k.. Still better ROI than S.S. or 401k. What about people with only 5% car loans or mortgages (converted to 4.7% after tax deductions)? Well, 4.7% is better than CDs and the 3% S.S. standard growth, so we're still doing O.K.
But lets assume some small percentage of the population DOESN'T put every penny into debt-repayment. Lets be conservative and call it $52.. Or $1 each week. Namely $2 each pay-check. So of the $38 in each paycheck, you throw $36 into debt and feel free to 'burn' an extra $2. Actually, freedom has nothing to do with it.. You look at your ATM and see $142 (instead of $140) and so you mentally only take the account down to $100 (your breath-holding minimum), and thus have an extra $2 in your pocket.. And just before the wallet is empty, you've burned an extra $2 on stupid little US-central impulse purchases (that ironically makes our economy thrive).
That might just be an extra cup of starbucks. An extra muffin. An extra gum-ball (the big juicy ones).. An extra DVD rental at red-box. An extra dollar-meal cheese burger. An extra 1/2 gallon of gas (meaning maybe an extra trip to the park with the kids).
Multiply this by 250,000,000 and you have real domestic spending on directly employable items (maybe not so much the gas).
This employment spurs demand for more burger making billable hours.. An extra table-buffer or two. Maybe 1 or 2 more truck deliveries of gum-balls. Maybe 3 or 4 more shipments of pseudo-meat. Small potatoes, to be sure. But notice the TYPE of employment that's being encouraged.. We have MAYBE an extra marketing / sales person being employed by supply-side tax-breaks.. And maybe some burger flippers / truck-drivers getting more employement in wage-oriented tax-breaks direction (low-skilled labor).
Now look at the unemployed - they can't find work, because house-flipping and business-plan-web-site jobs just aren't comming back anytime soon. But straight-out-of-college wanna-be actors NEED burger flipping jobs.
To be sure, NEITHER top-down nor bottom-up tax cuts are getting the government much immediate ROI. Though arguably, the long term return of social-well-being is better when alleviating lower-class debt.
Honestly, neither tax-cut is really any good. But the point here is that the classical Republican argument of supply-side-economics is complete rubbish.
And now for something completely different...
If, instead, EVERYBODY paid an extra 2% in local taxes, here's what we COULD get:
- extra electric rail/busses, providing greater availability of 'cheap' commute costs (could reduce the number of cars per household and MASSIVELY reduce national foreign account-trade imbalance due to energy related purchases). Reduced car-overhead means more money in pocket - to spend on other consumer goods.
- extra higher-speed cargo rail capacity. Reduces structural cost of shipments.
- grow number of colleges - reduces cost of colleges through competition, increases number of teaching positions (possibly employing formerly 'useful' working highly skilled workers)
- grow number of publicly subsidized hospitals and state-subsidized hospital staff - potentially reduces cost of emergency care and general-practice care.
- grow number of parks and biking / walking paths - increases likelihood of exercise / outdoor activities, reduces long term health costs
Sadly .. States can't print money... BUUUT.. A 2% nation-wide federal tax coupled with additional debt-spending, distributed proportionately to states in ear-marked 'block grants' might...
The Zeus that had no clothes
The MYTH of our grand-children paying off our debts irritates me more than anything else.. We WILL print money to pay our short-term interest payments 30 years from now. Why the F* would the US government default on debt instead of inflating money? This is beyond insulting to common-sense. States can't do this.. Greece is failing because IT CAN'T do this today. But Italy with the $100M lyra to $1 USD was able to because that government use to be able to print it's own money. Debt is not the enemy of a government. Lack of domestic productivity is..
And that's why they call it the blues...
