Okay, so last night during the debate, Sen. Obama presented a tax break for 95% of Americans; ones making less than $250k per year. Sen. McCain discussed the need to reduce taxes on businesses (and the wealthy) in order to create jobs.
Look, as citizens, we're not stupid. Not only are we left with a $10 trillion national debt post Bush II, we have the largest budget deficits in history. Hence, although "cutting taxes" for everyone and on businesses makes for a great political speech, it is NOT realistic. The money has to come from somewhere and I'd much prefer higher domestic taxes than continuing to borrow from China, Russia and Saudi Arabia.
So, the debate between McCain and Obama;Republicans and Democrats comes down to: who are you going to tax?
Obama favors taxing the wealthy and businesses. McCain favors tax breaks for the wealthy and businesses which is commonly referred to as "trickle down" economics (made popular during Reagan's term).
In a nutshell, trickle down economics works like this: rich people are the ones who build businesses and create jobs for the common man. Hence, if you give them, and their businesses, a tax break, it will create more jobs and a healthier economy.
Now, I'm not sure how so many smart people can be SO wrong! Let's break down the idiocy of this theory. Here's where they're wrong:
- Rich people and entrepreneurs build business around consumer demand, plain and simple; in other words, if there is a lot of demand for a product, savvy businesspeople will find a way to fulfill that demand and, in the process, will always make profit
- So, let's assume we give a tax break to poor and middle-class. Everyone knows it's the masses (poor/middle class) who drive the economy; if you give them a tax break...what do they do with it? They go out and BUY things. What does this do? It creates demand. So, what do the businesspeople do? They create businesses to meet this demand! Trust me, as an entrepreneur, we have plenty of money to fund great ideas to meet consumer demand. I can promise you, because we pay higher taxes doesn't mean we won't decide to open a business to fulfill consumer demand. There is always profit there.
- Now, let's look at it the other way. Let's assume the wealthy and businesses get the tax break. Guess what? I make more money. What also happens? The masses are struggling to make ends meet and they're not buying things. So, what do I do? Well, since I have this extra money from the tax break, I'll invest it in a foreign market where the economy is growing because the masses are buying things. There is no way in hell I'm ever going to open up a new business to "create more jobs" because there is NO domestic consumer demand. How much simpler can I make this?
To recap: if you give business owners and the rich a tax break, they'll take their 'surplus' and invest it in Swiss bank accounts or in foreign countries with growing economies. However, if you give poor and middle-class the tax break, they'll spend their money in the US and then we'll all be scrambling to open up new businesses to take advantage of it...which...creates more jobs in the US.
Look, I'm not happy that I live in a country where I have to pay close to 40% on the earnings my company makes. However, I'm also not happy that I live in a country with a $10 trillion debt expected to be $50 trillion in twenty years (that will work out to be $400k per each American household!).
I can speak for many other entrepreneurs when I say: give us a strong America, give us a strong economy and we'll figure out how to make money in it. Would we all like to keep more of the money we make? Of course, but, this time, let's really put "Country First" and clean up our country's balance sheet. Then I'll ask for a tax break.
This means business owners and the wealthy who have seen their incomes and net worth significantly rise in the last twenty years are going to share an undue burden in getting our country and our economy back on track. And, I hope they're okay with this. If they're not, they don't understand simple economics.
Don't try to "hold on" to your wealth; "grow" your wealth. And, unless you're investing all your money in foreign countries, you should know the only way for us over the long-term to grow our wealth is to have a growing economy. And a growing economy happens when we give a tax break to the poor and middle-class.
One other thing I need to mention: Republicans love to talk about how a tax break for businesses (mostly big) will drive the economy. I wholeheartedly disagree.
Entrepreneurs and small businesses drive this economy. And who starts small businesses? The middle-class! Hence, if you want to help stimulate the economy, give a tax break to the middle-class along with more incentives to start small businesses and that's when you'll really see the market move.
Honestly, for once and for all, can we please kill the concept of "Trickle Down" economics? It doesn't work. Never has and never will.