Taxes and Incentive
A cranky opinion for
CRANKY OPINION SATURDAY
The following is the opinion of a
cranky old man with no expertise on the topic opined. Opposing opinions are welcome, but they are
wrong. As always, please, no name
calling, and that means you, you big stupid-head!
I studied
Economics about 50 years ago. I am not
an economic expert, I barely passed my final exams. I have never used my economic degree since
graduation, and yet I have no problem spouting economic opinions. To paraphrase the famous TV quick draw artist
Bob Ross, “It’s my blog I can post
opinions when I want to.”
There will soon
be much discussion about changing the US tax code. There will be statistics and claims from many
different perspectives.
Some will tell
us that we are running a huge deficit and reducing taxes now would be CATASTROPHIC!
Some will tell
us that any tax cut to the rich (defined as anyone who has more money than you
do) will cause DRACONIAN costs to
the poor (defined as everyone who doesn’t pay taxes.)
Some will tell
us that cuts will benefit the middle class (defined as everyone except
Gates, Buffet and the homeless.)
Some will tell
us that reducing taxes will increase revenues because people will work harder
and longer and rising incomes will increase revenue.
Some will say we need to increase taxes, but only on the rich, in order to provide more services and to reduce the deficit.
There will
be experts and statistics to prove each and every claim from all perspectives. Who is correct? As long as the economy is a political
football we will never know. The
politicians are more interested in a position which helps them win their next election
than they are at designing the best code for the well-being of the country.
We need a
tax code that is not static, but adjusts automatically to changing indicators. The best tax is one that maximizes revenue
while still encouraging investment and discouraging bad behavior (smoking, drinking,
cheating at cards, bad breath, etc. etc.).
A tax is similar
to price of any good or service.
Increase the tax (price) and revenues will rise as long as people can
pay it. Raise the tax too high and
revenues will fall.
If a banana
costs a dollar to produce and you sell it for a dollar your profit is
zero. Sell it for fifty cents and you
run a deficit. Sell it for 2 dollars and
you are revenue positive. Sell it for
ten dollars and you end up with unsold rotten bananas.
Point being,
raising taxes is not always a revenue producer and lowering them can increase
revenues, or vice versa. Taxes need to
be adjusted periodically just as produce prices are adjusted based on varying
factors.
RAISING OR LOWERING TAXES IS NOT A REPUBLICAN OR DEMOCRAT POSITION. EITHER IS SOMETIMES VERY SMART AND SOMETIMES VERY STUPID. IT SHOULD DEPEND ON AN ECONOMIC ENVIRONMENT, NOT A POLITICAL IDEOLOGY!!!
To make my
point let’s set taxes at ridiculous rates:
Tax the rich
99% of income and give the poor a tax rebate for zero income that reduces as
income rises. I don’t believe any
thinking person would say this a good idea.
Tax the rich
nothing, and tax the middle class 99% of their income. I don’t believe any thinking person would say
this a good idea.
Clearly any
tax rate should be set somewhere in between these ridiculous examples, if only
it were not politicians to make that decision.
Perhaps the
most powerful economic stimulus is incentive and the biggest incentive crushers in the economy are high taxes and low competition.
We used to
have one telephone company in the country.
There was no competition and government decided what prices were fair
for that company to charge. In sixty
years, innovations in the phone industry was from operator assisted calls, to a
rotary dial system and at its peak, push button dialing.
Better
phones would not increase revenues, why develop them? Improved service would not improve the bottom
line, and lower costs would lower prices that government set. The result was in sixty years we had pretty
much the same telephone service; mediocre and fairly expensive.
When the
telephone company was broken up and competition allowed, we had an explosion of
technology and phone service. People
went from one phone homes to multiple phone homes and currently a cell phone
for almost every person. Long distance
calls used to be prohibitively expensive.
You talked to great aunt Tilly for maybe a minute and then had to hang
up or go broke. Does the term long
distance call even exist today?
The tax code
is a major determiner of incentive. It
should be designed to be as high as possible or needed while low enough to
stimulate incentive for investment and greater profits.
Maximum
revenue while maintaining incentive for investment and profits should be the
goal that will be best for all, the rich, the poor, and the middle.
Unfortunately,
politics will dictate the direction of any tax code changes.
The preceding was the
opinion of a cranky old man and not necessarily that of management…Mrs. Cranky.
