The Argument for Tax Breaks…. Or Not

I am becoming more skeptical about the argument over higher taxes for the “rich”. While it is encouraging to see and hear our so-called leaders apparently debating anything in the open, rather than behind their typical closed doors, it is starting to look like another dead-end media driven diversion designed to accomplish nothing in the end except more pre-election posturing by our politicos. Partisan gridlock is alive and well!

The real issue for the average American, and the economy as a whole, is not whether the rich should pay more taxes on their income (above $200,000 / yr for a single payer), but the uncertainty around that ultimate decision, and any effect it might have on the economy. It is this uncertainty, created by both the debate and the gridlock that inhibits the investment and spending needed to turn our economy around. Ultimately such uncertainty has a much more deleterious effect on business than any incremental increase in income taxes at the high end might have. Unfortunately it is that very uncertainty that our political leaders depend on to foster their personal agendas of power and greed, and it is little wonder that the debate continues to rage.

Higher taxes in a recession are not a good idea; most if not all economists would tend to agree. But the argument that higher income taxes on the highest marginal income brackets of small business owners will take capital away from them that would otherwise be invested to create jobs is unrealistic.

In the first place, “income” taxes are paid by individual owners of companies (and some corporations) who have been successful in creating profits, generally from the activities of employees and machinery. Small companies that invest capital to buy equipment or facilities do so with the intent that doing so will increase revenue and profits. Companies that hire new workers also do so only with the intent that each new worker will add incrementally to their net profits. If there is no profit to be gained from investing or hiring another employee no amount of tax savings will encourage such activity. If either action provides a reward in the form of increased profits, it seems unlikely that the thought of paying another five to ten cents on an additional dollar of profits really serves as a deterrent to prudent investment or hiring. In the worst case scenario the cost of ill-conceived hiring and investment serves as a deduction, and in effect, an income tax reducer, and very few entrepreneurs or small companies pay taxes at the higher income tax brackets if they are struggling to make ends meet.

A successful business owner that I know reminds me on occasion, “I love to pay taxes. It means I’m making lots of money”. While that may be a slightly frivolous statement, since no one really likes paying taxes (especially to a government that wastes them), it is indicative of the fact that “income” taxes are probably the least detrimental of all the many taxes to small and even BIG business activity and investment. Rather than reducing “income” taxes we need to reduce the impediments to making money, and develop incentives (tax credits or otherwise) to encourage investment and hiring that will in effect increase profits and income tax revenues.

This is not to say that higher “income” taxes on the wealthy should be encouraged in general, since at some point “high” marginal tax rates will encourage investors and business to go elsewhere to earn money. But that said, “income” tax has probably the least effect on business investment and hiring decisions of all taxes imposed by our government. If our politicos want to create a more favorable environment for business growth and hiring they should focus on reducing those taxes and bureaucratic expenses that have a more direct and deleterious effect on the cost of doing business and generating profits.

It wouldn’t hurt to get a grip on our inefficient and ineffective government spending as well to reduce the voracious appetite for our tax dollars in general, and more importantly reduce our increasing government debt with its arguably, though increasingly, more apparent negative effect on our economy and GDP.

It’s time for our political pundits to get off their special interest asses and stop their ineffectual partisan posturing, of which this dead-locked income tax debate is only one example.

More insanity from The Edge….. Thanks for your input.

James McV


About James McV

Writer - Sailor - Adventurer - Philosopher - Idealist - Realist.... After a twenty + year career in the outdoor recreation and marina business I took off some years ago to sail around the world and re-create myself..... Now I'm back and in the process of writing two books, and paying attention once again to the world around me.
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