Tuesday, August 3, 2010

Economics 102

The Bush tax cuts are scheduled to expire at years' end. The economy is in dire straights. If you were to ask the average American what should be done, chances are you'd hear the admonition not to raise taxes during a recession/depression. That's just common sense.

So, what are we hearing from this administration concerning tax cuts? It's, um, uh, well, let's just say it's not common sense. Not by a long shot. What we're getting, instead of concrete action that will help our economy regain some steam, is the rhetoric of class warfare.

That's right. All we're getting is words. Just words. And false ones at that.

At the risk of flagellating a deceased equine, I must restate the painfully obvious: economics is no more complicated than balancing a checkbook. Anyone who tells you anything else has either been grossly misinformed or is lying to you on purpose. In a normal world, this knowledge wouldn't even need to be discussed. But this is politics, where reality takes a back seat to power.

As everyone outside of Washington already knows, taxes reduce economic activity. The higher the tax rate, the less activity there is. A fee is any tax paid to any government for any reason, it's just named differently. A fishing license is also a tax. Ditto your vehicle registration. Some of these taxes are right out in the open for you to see while others are hidden, but you pay them anyway.

For example, let's say there's a new tax in a recently passed piece of legislation, like the new healthcare bill, but it's not a consumer tax, it's paid by businesses. Let's say it's a 5% tax. A business has to pay that tax, but it reduces the amount of money that the business will make. Now, let's also assume that the business only makes a 4% total profit. This means that the business will now lose money at the rate of 1%. Since no business can operate at a loss, they must offset the new 5% tax by passing that cost along to the end consumer.

You end up paying the tax anyway. The cost of the product must rise to cover the increased cost to the business, in this case, figure on at least a 6% increase to include the cost of keeping track of the company's compliance with the new tax law. This might even be a bit more than 6% depending on the size of the company.

So, the politicians who levied this tax get to boast that it's not a tax on the middle class, and it's true, but only in a strict technical sense, you are being taxed indirectly. The politicians can claim it's the business who's the bad guy, when it's really the politician who is at fault.

Now let's say, instead of a tax, the EPA wants to require businesses to adopt a new way of disposing of shredded documents. This new regulation requires the use of some new piece of equipment in order to dispose of the documents. This piece of equipment is expensive and also requires much more electricity to operate. The business must now pass along the cost of the new equipment and the increased utility bill to the end consumer.

It doesn't take long to see that an activist government intent upon poking its nose into every facet of life with rules and regulation in addition to taxes has the potential to become very expensive. In the case of the Obama administration, we can argue that the saturation point has been reached. Our economy can no longer afford the demands that a regulation-happy government imposes on it. Something must yield, and so far, it's been the private sector. Many formerly silent business leaders and groups are starting to voice their concern over the stifling policies of this administration.

With his poll numbers heading downward at a rapid pace, President Obama seems intent upon not reversing course and implementing proven solutions to our economic woes, but doubling down on his misguided attacks on the private sector. The same goes for Congress, who should be questioning the results of their policies, but are also engaged in creating even more bills to force upon an unwilling populace, with even more disastrous effects. Even they admit that 10% unemployment is the new normal. It certainly will be as long as they remain in power, taxing and regulating our economy to death. After four years of Democrat control of Congress and eighteen months of a Democrat in the White House, any more cries of "It's all Bush's fault!" will fall on increasingly deaf ears.

There's a gage I use in determining who I'll vote for in any election, and I change it as the situation warrants. Previously, it was a belief in "climate change" and those who were gullible enough to believe in a blatant hoax. Now it's class warfare. Any time I hear the term "tax cuts for the rich", I'll know that the utterer of that phrase is seeking to divide our country in order to gain power for themselves. Such a politician is unfit for office and does not possess the mental attitude of a public servant.

You, armed with nothing more that your checkbook and common sense, already know more about economics than all the so-called experts in Washington.

O/T - Journolist Update! For your derision, here's another list of the Journolistas, courtesy of the Free Republic. Do not forget their active role in the downfall of our nation.


Ima Wurdibitsch said...

Excellent post. I just wish more people understood this.

BackwardsBoy said...

Thanks, Ima. I've seen this firsthand from my years in the manufacturing arena and just feel the need to tell others how it works. It just doesn't seem like anyone in Washington understands basic economics.