Job creators or wealthy people?

By Andrew Justus | 9/28/11 11:58pm

You say potato I say Toh-Mah-Toe, you say Job Creator, I say wealthy person who is no more special than any other Joe (or Jane). The debate that started last December as the Bush tax cuts were set to expire has poked its head around the corner once again. Should people in the top few percent of money makers be revered in the tax code as creators of employment, or should they be treated like everybody else and lose some of their money saving perks?

Some will rise to the defense of these top earners by calling them Job Creators and small businesses, but the majority are not. According to the census bureau, 21.1 million of the 27 million small businesses in America employed nobody beyond the firm’s owners, meaning lower taxes would not enable them nor convince them to hire any employees. For other firms, hiring is not dependent on tax rates; it is contingent on demand for their goods or services. It makes sense, if a place like a sporting goods store was making good money with eight employees and wasn’t overworked why would they add another person to the payroll?

The answer is no, a business or any sensible person would not increase their expenses without justification, regardless of how much extra cash they had laying around in the back office. So why do people seem to think that keeping tax rates for wealthy people far lower than the historical average is a boost to the economy?

The argument that rich folks having more money in their pockets stimulates the economy is flawed. The wealthy spend the lowest fraction of their income on goods and services. Spending by normal middle class people constitutes the largest chunk of the economy. Also, the lower end of the income spectrum spends a greater portion of every dollar they earn, stimulating the economy, while wealthier earners save more of their money.

Increasing tax rates on the top few percent of wage earners not only would bring in much revenue toward paying down the federal debt, it is the most reasonable way to go about such a plan because the rich don’t contribute as much to economic activity as the middle and lower classes and their self created role of Job Creators is largely fictional.

In his op-ed a few weeks ago, Warren Buffett said as a percent of his income he pays a less in taxes than his secretary. Buffett can do this because he earns most of his money through investments that are taxed federally at a 15 percent rate no matter how much he takes in. His secretary on the other hand, likely pays between 25 and 28 percent of her ordinary income to the feds because she earns an ordinary wage subject to the regular tax system. Her tax burden would increase if she earned more money, and could get as high as 35 percent if she somehow became the world’s highest paid secretary.

Some argue that taxes on things like investments have to be kept low for everybody to encourage investment, that higher tax rates would encourage investors to simply stuff dollar bills into their pillows and not create jobs. But investments don’t directly create jobs, on a good day they make money and nothing else. Historically, investment tax rates stayed above 20 percent from 1942 all the way until the Bush Administration. The rates stayed around 25 or 28 percent much of the time for top earners.

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