September 17th, 2012 3:34 PM by Gregg Mower
I just saw a poll on MSN asking the question “do you think tax cuts for the rich spur economic growth”. I voted but I will not tell you how I voted you will have to read this a guess. I have to explain that I hold an economics degree so I have studied these theories from both sides of the fence. I will try and plot this out in terms the average guy or gal on the street will understand. First, breaking down the word tax cut, and what taxes are and how they are paid. Taxes are paid on income, social security, sales of goods and services, property both real and personal, excise taxes (those paid on gas, cigarettes, alcohol), payroll, travel, hotels. I am sure I am missing some, so those who respond to the blog go ahead and add taxes to the list. Anyway, you get the idea, most things we consume, or do are taxed in one way or another. So if we are going to define taxes we must include all of them.
Then we have to define the “rich”. I hear this and I think of Bill Gates, Warren Buffet and the like of those folks. The problem with this line of thinking is that in the Government’s definition rich are any families making over $250,000 a year. Yes, that is combined income. This income level in today’s world is still very much attainable for all Americans that work hard, are self-employed or even have some Government jobs. So we have to ask the question of how many American households make over $250,000 a year, I have found the IRS reports that 3.94 million households make this income. That is reportedly only 3% of Americans who file tax returns. OK, I hear some of you out there yelling tax those bastards they deserve it. But do they?
We need to explore some math, don’t stop reading, it will be simple I promise. If you made 10% more money what would you do with it? The median American household income is $46,326 a year. You would get a $4,632 a year raise or $386 a month with a 10% raise. Chances are you would spend the majority of that money paying bills off, going out for 2 or 3 more dinners on the town maybe a movie or two. Just with the average American getting that 10% raise would increase demand for goods and services by huge amounts. What if you made $250,000 a year and you got a 10% raise? Ok that math is easy that is $25,000 year or $2,083 a month. These folks might do the same things you do, but they are probably going to ask their house keeper to come in twice a week instead of once a week, they might employ a Gardner where they did not before, or they may even buy a boat or a car. Is that bad? Actually it is a good thing, the power of just one household making more money in this economy is great but 3.94 million doing this would be awesome. I would say most of us who make more money or are given a good raise are going to feel more comfortable with their finances and are going to spend more money on goods and services where they were not before. The difference is that the more you make the more you spend and the more you spend the more people are employed to provide those goods and services. So the income effect of a “rich” person getting a tax cut is far greater than the average guy getting a tax cut, not to mention most of us are employed by those types, so your company or employer is making more money wouldn’t it be safe to say that you might just get that raise you have been waiting for since the recession started. I know we are all quick to say “The rich can afford to pay higher taxes”, but what we fail to see is the effect of simple math. In reality the “rich” pay more taxes by simple math and if you look at the tax brackets you can see they pay a higher percentage already, 35% of their income goes to pay Federal income taxes, not including all the other taxes they pay on the goods and services, as well as State and local taxes as well as Social security taxes. The tax bracket for the Average income is only 15% , 20% less than the “rich” currently. Is it fair, hell no it is the system we have lived with since the advent of the Internal Revenue System (IRS).
You may have guessed my slant on “Taxing the Rich”, I think they pay enough already. Why should you be penalized for being successful? I was taught you can be whatever you want if you work hard enough to get it, including education. In my almost fifty years on this planet as an American I have never seen so many people jealous of those who work hard and feel that those folks should be punished for their success. Going back to how I began this blog with the MSN poll, I see the numbers of American voting on this poll are at 57% believe that the rich would not spur growth 34% say it would and 9% are undecided. This shows me the lack of education that Americans have or that they are living on a Government program. If the economy was stimulated by all Americans getting a 10% tax cut people are going to buy more goods and services. Oh, and more people would be able to buy more homes and for the record housing accounts for more than half of Gross Domestic product (GDP). Not just the building of the houses and folks that are employed in construction industry, but for those folks that make the air conditioners, washer and dryers, windows, tile, and all the peripheral industries that support home owners with goods and services. The feeling a new home owner has when they move into their new home and start buying those items that make that house a home is priceless. Some new home owners feel so comfortable they have a child and then need to purchase the child goods and services. As for the Government they should figure out how to use the money we are taxed with currently to balance a budget.
As usual please let me know your thoughts, I would love to have someone try and show me some other logic other than sour grapes.