Taxes on wealth creation are about "social justice," not revenue

There is an old saying, one that people of all philosophical persuasions seem to concur with, that "the more you tax something, the less you get of it." Those who support less government and more economic freedom have argued this for years. That was the reason behind the "supply side" tax cuts that proceeded periods of enormous economic growth. They came in the early 1920s, 1960s, 1980s, and at the beginning of this decade. In each case they resulted in huge increases in revenues and widespread job creation. Although "across the board," these cuts have a more immediate impact on those with higher incomes, because those are the ones who pay more in taxes. Why do these type of cuts increase revenue? The answer to that is simple -- such cuts increases taxable economic activity.

Those on the political left seem to understand the impact taxes have on an economic activity as well. One of the first things Obama did as president was raise taxes on cigarettes for the purpose of both getting revenue to pay for government programs and to discourage smoking. In fact, some in the Administration argued there would be a 10 percent decrease in the consumption of cigarettes after the tax increase. We all know this to be true, the more it costs to do something, the less likely we are to do that activity.

The founders of the US government understood this idea as well. They wrote in Article I, Section 9 of the Constitution that "No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken." This clause prohibited income taxes until the Sixteenth Amendment in the 20th century. These much wiser leaders than today believed that the government has no right to know how much an individual makes and even the sources of revenue. They believed taxes were purely for revenue and not any particular political or agendas, they merely taxed imports and did so at the same levels and at a very low rate (since government was very small in the beginning).

To tax the earnings of individuals, especially in a progressive manner in which the rate gets higher as the income grows, will eventually undermined the desire to earn. This is even more the case with businesses. Higher taxes on their activities makes them work all the harder to be less subject to the tax (rather than on the economic activities that benefits everyone). Businesses are not wood, they function with the same "fight or flight" behaviors as humans. When government causes a massive increase of taxes on those companies with 50 or more employees, like that which will come with Obamacare, they will layoff enough employees to avoid the tax. If the US decides to have one of the highest tax rates on businesses of any industrialized country in the world (it is in a battle for that top spot with Japan), businesses will either downsize or move to countries with friendlier tax environments (which are not hard to find).

Politicians get angry when businesses export these jobs to other countries. Governments know that businesses do not pay taxes, they are merely tax collectors. The government prefers to make the businesses do its dirty work. Now more than ever, businesses do not have to tolerate it and they can easily dispose of the burden by moving their activities to more profitable locations. Journalist Thomas Friedman has noted that "The World is Flat" and business can move capital with more ease and speed than in any time in history. Policy makers in Washington know this and they are casually observing and even supporting the greatest depletion of jobs we have since the Great Depression. Furthermore, as those jobs and businesses disappear, so does the revenue. It is how economies work.

This administration seems blinded by these realities because it is driven by ideas such as "social justice" and not in the creating of a wealthy and free nation. Its excessive taxes on the job creators seems to be far more personal than business. It is not about generating revenues or jobs, it is clearly about punishing those who are successful. It is driven by blind ideology and not common sense. Conspiracy theorists surmise that the Obama administration is in the process of creating more poverty, since the poor are among his primary constituents. After all, if incomes of all Americans increased and we had a significant increase in jobs creation, who would be left to support Obama's agenda? Any party that depends on poverty to succeed is dangerous to a healthy nation. This is the liberals' dilemma. If a political philosophy depends on poor voters for success, you need more poverty.

Now even the most reasonable of individuals are asking, "are these crazy conspiracy theories or painfully obvious truths?" What we know that is true is that Obama's policies are not working, unless the goal is move poverty and less prosperity.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is also host of the Price of Business (M-F at 11 AM on CNN radio). Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

If Obama was serious about Unemployment...

Unemployment is devastating on both people and governments. Not only do people feel the stress of wondering how needs will be met, they often take serious efforts of curtailing spending ,which has a direct impact on consumer spending. Governments suffer too. Local, state, and federal governments find unemployment is a drain on them as they are often unable to collect as much revenue as they could in more prosperous economies and those who are unemployed will often depend on agencies to help through these difficult times.

With that, President Obama recently had a Job Summit and he told those in attendance if there is "anything" the government can do to help increase employment, let him know. With US unemployment at the highest levels in a quarter of a century, "anything" should be taken quite seriously. Our situation has become urgent and steps should be made to act quickly. These include:

• Eliminating barriers between people and jobs. This isn't through temporary government jobs that will run out with the recent bailouts, but through real jobs that create revenue for them to grow in number and in quality. Although I oppose a federal minimum wage, you are not going to make one go away. However, the federal government could mandate the states have a minimum wage law in each state of the union and allow them to set it based on the needs of the people and the cities. This would not cost the federal government a penny, but would spur economic activity immediately. Certain cities, such as Camden (New Jersey), East St. Louis (Illinois), and Detroit each suffer from an unemployment of around 20 percent. they need help like this immediately.


• Eliminating taxes on corporations because they do not pay taxes, they are only tax collectors (through higher prices). Taxes are simply a fixed cost for doing business, plain and simple. If taxes are too high, businesses have no choice, but move to other countries where the rate is less so they can lower prices and be more competitive. Businesses do not take this actions because they are not patriotic. In the words of The Godfather, "it isn't personal, it's just business." This action would have a profound impact on high quality job creation. This policy would also encourage an increase in productivity and soften the blow of inflation.


• Ending taxes on wealth creation and replace income tax with a sales tax. This would eliminate the economic genocide against job creators we are seeing today and would more fairly spread the financial burden of government on all economic groups. If every economic group shared the burden of funding the government, that would encourage all groups to make government fiscally accountable.

Our situation is dire, the answers to our problems are in the market place and not in the halls of government or in job creation summits. These type of actions would have the government give the type of "stimulus" the nation really needs.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Economic Agenda based on Realities

After a few weeks of euphoria in which it appeared that the economy was on an up turn we are receiving reports that unemployment has seen a remarkable increase. AFP reports that "US jobless claims in surprise jump for second week." The article goes on to point out that "The Labor Department said that initial jobless claims increased by 15,000 to 576,000 in the week to August 15, which happens to be the survey week for the monthly non-farm payrolls report, seen as one of the best indicators of economic momentum."

While the President and his Administration are making health care the single most important, millions of Americans are trying to figure out how to make the next payment on their home, their car, or their meal. Do they think health care is important? Maybe, but they think a job is imperative.

The largest unemployment rate in recent history. Forget about the 9.5 percent touted by the Obama Administration, economists on both the right and left say it is more, much more. Many

economists are projecting an unemployment as much as double of that when you factor in the untold numbers who have given up on the idea of finding a job.

It appears this Administration believes that the best way to solve our unemployment problem is by excessively taxing those who create jobs.. The majority of jobs comes from people who make $250,000 a year or more, yet this group is being singled out to pay more taxes. It has never been easier to move capital and with US tax rates the second highest among industrialized countries in the world, you can expect a flight of capital and jobs that comes with such.

Obama should distance himself from the fantasy that people are pounding the doors for socialized medicine when there are millions pounding the pavement for health care.

The Obama Administration should reduce barriers between people and jobs. This isn't through temporary government jobs that will run out with the subsidies, but through real jobs that create revenue for them to grow in number and in quality. The federal government should mandate the states to have a minimum wage law in each state of the union and allow them to set them based on the needs of the people and the cities. This would not cost the federal government a penny, but would spur economic activity immediately.

We should restore the competitiveness of US businesses and eliminate any temptation for jobs to be exported by relieving corporations of the burden of being a tax collector. Taxes are a fixed cost for doing business, plain and simple. If taxes are too high, businesses have no choice but move to places where the rate is less so they can lower prices and be competitive. This alone would have a profound impact on the creation of jobs. This policy would also encourage an increase in productivity and soften the blow of inflation.

The word "crisis" is often over used, but seems very appropriate in light of our current situation.

Obama is a modern version Nero, playing his fiddle of health care while the nation is in flames over unemployment.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

It is time for Economic Triage

You know medical triage, the idea of a procedure used in emergency rooms to determine who gets treated first. When Barack Obama was running for President and, shortly after he was elected, we were daily lectured about the urgency of the situation facing our economy.

What we have seen is a massive subsidy primarily benefitting the richest corporations in America passed first by Bush in the fall of last year and part 2 (arguably worse) in January of 2009. It was interesting that the very liberal and very conservative Members of Congress voted against this legislation. The left clearly saw the corporate welfare involved and the right saw both that and the obvious disregard of the Constitution. We were told that action was needed "now!" If not, we were looking at unemployment of around 8.5 percent in 2009. We have that unemployment rate and more with "stimulus" and the situation is getting worse.

There are several serious challenges facing Americans today:

• The largest unemployment rate in recent history. Forget about the 9.5 percent touted by the Obama Administration, economists on both the right and left say it is more, much more. Bill Clinton's former Secretary of Labor and a huge fan of Obama, Robert Reich, says the actual uemployment is closer to 15 percent.


• Excessive taxation of the job creators. The vast majority of jobs comes from people who make $250,000 a year or more, yet this group is being singled out to pay more taxes as a form of economic genocide. It has never been easier to move capital and with US tax rates the second highest among industrial countries in the world, you can expect a flight of capital and jobs that comes with such.


• Hyperinflation. On one day, the federal government pumped $1.4 trillion in the money supply in order to pay some of its recent bills and to "jump start" the economy. This type of policy leads to hyperinflation as too much money chases too few goods.

Obama should approach our situation with these realities in mind, and as a doctor in triage, he should be driven by the mandate to "do no harm."

• Eliminate barriers between people and jobs. This isn't through temporary government jobs that will run out with the subsidies, but through real jobs that create revenue for them to grow in number and in quality. The federal government should mandate the states to have a minimum wage law in each state of the union and allow them to set them based on the needs of the people and the cities. This would not cost the federal government a penny, but would spur economic activity immediately.


• Eliminate taxes on corporations because they do not pay taxes, they are tax collectors. Taxes are a fixed cost for doing business, plain and simple. If taxes are too high, businesses have no choice, but move to places where the rate is less so they can lower prices and be competitive. This would have a profound impact on high quality job creation. This policy would also encourage an increase in productivity and soften the blow of inflation.


• They should end taxes on wealth creation and replace income tax with a sales tax. This would eliminate the economic genocide against job creators and would more fairly spread the financial burden of government on all economic groups.

Our situation is dire, the answers to our problems are in the market place and not in the halls of government. These kind of actions would encourage problem solving where it belongs -- in the hands of the people.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

Consumer Confidence Jump May Show that Ignorance is Bliss

Bloomberg reported this morning that "Confidence among U.S. consumers jumped in May by the most in six years, fueling speculation the economy will recover later this year. The Conference Board’s sentiment index surged to 54.9, higher than forecast, according to figures from the New York- based research group today."

To say that this "confidence" is optimistic is to put it light. Consumers do know that over the last several months many things have taken place on the political and economic front. There is this hope among these people that "doing something" has to be a good thing.

What is interesting is that Wall Street seems to be thinking in similar terms to consumers and may be drinking from the same drink, Bloomberg notes "Stocks climbed for the first time in five days on speculation a lifting of the gloom surrounding the worst recession in half a century may spur consumers, who account for 70 percent of the economy, to spend. Still, rising unemployment and falling real estate values underscore that it will take time to establish a sustained rebound. " I think the key word in this paragraph is "speculation."

I believe that this optimism is based only on perceptions and not substance. Once the American people begin to see the policies that are going into effect, they will likely lose a great deal of that confidence.

For example, when the $1.4 trillion dollars that was pumped into the economy on one day earlier this year to help satisfy some of our expenses, we will begin to see a significant jump in prices (which never makes consumers feel confident), a likely decline in economic activity due to the instability that will create, and have a punishing effect on job creation. What will also hurt consumer confidence is the direct attack the Obama Administration is waging on employment, by focusing on raising taxes on job creators.

Obama also wants to double tax businesses with operations both here and in other countries, which will certainly chase capital to other parts of the world. The vast majority of the jobs created in this country are from those who make over $250,000 a year, yet, according the National Taxpayers Union, those who make $153,542 or more already pay more than 60 percent of the total tax bill. Thinking that this is a viable source for more money will only translate for greater economic difficulties.

When the fact that the US has increased its debt annually over the next ten years with the Obama budget and when the additional strain that will bring on the economy finally sinks in, "confidence" is not the word that comes to mind.

The biggest concern that even the most casual observer of our economy and politics should have, is the apparent huge lack of understanding of the consequences of public policy by the American people (including the geniuses on Wall Street), when it comes to the choices being made by the Obama Administration. Optimism is one thing, but the upswing in consumer confidence seen this recently is pure fantasy.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. Eric Bolling of Fox News and Fox Business says that Price’s Blog “is very influential and moves the blogosphere.” Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

If a Policy is Bad in a Good Economy...

On my radio show today I interviewed one of my favorite economists, Steve Moore of the Wall Street Journal. He was on to discuss his latest book, The End of Prosperity, and it is must reading. In a very simple and straight forward manner, Moore and co-authors Arthur B. Laffer and Peter Tanous explain what works and doesn't work in our economic system.

One of the areas Moore and I discussed was the fact that government entertains things they would do when the economy is healthy, but would never do when it is weak. If there is a time that such a policy is harmful at all, isn't it safe to conclude that the policy is not in the economy's best interest ever?

On today's show we discussed the fact that Barack Obama is discussing reversing his position on raising taxes on the top five percent because that could make our weakening economy worse. Obama is finally conceding that jobs are made by that top 5 percent and the country simply can't afford more loses. Yet what jobs have we already lost with an economy that has the top one percent paying 27 percent of the revenue? What is more the top twenty percent pays 67 percent. Obama seems to be admitting that adding any more pressure on this group is harmful, but what of the damage already done? It would be interesting if Obama's tax cut discussion was spread to the job creating highest income group. Am I advocating the end of taxes for the rich? Absolutely not, just a fair tax or flat tax that encourages everyone to want to become richer.

Congress is also talking about slowing down the move towards increasing CAFE standards, which are designed to lower fuel consumption. Because of the dire straights of the Big Three automakers, policy makers are reconsidering because of the potential of further damage. Instead of trying incentives to move towards better fuel standards, they seem to be able to use their complete lack of imagination for either increasing regulations to the automakers demise or do nothing at all. They are considering the latter at this point.

Then there is the minimum wage increase which went up just a few months ago (July 24). Since that time we have seen a dramatic jump in unemployment -- the largest increase in 16 years. Minimum wage increases are not even included in the current economic discussion, but there is no doubt among economists that this artificial increase in wages is weakening job creation. Although there is no discussion about reversing this increase, there may be a growing debate about postponing the massive jump scheduled for July of 2009. Again, if the policy is harmful in a weak economy, why is the policy ever beneficial? Furthermore, if such increases cause no harm (as Democrats often argue), why nickle and dime with a dollar here or fifty cents there? Everyone knows that a twenty dollar an hour minimum wage would put a fork in this economy, so how does one justify a minimum wage at all?

Many cities in the US -- Camden, NJ; East St. Louis, MO; and Detroit, MI are in perennial recessions. How can the federal government determine what is best for these cities when it comes to wages? I have long argued that if we must have a minimum wage (a standard practice today), it should be done by cities and states, not by the federal government.

But the larger principle remains. If these policies do harm in bad economies, how are they beneficial at all? Steve Moore summed it up best, "that is a debate that the left doesn't want to have."

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Neither McCain Nor Obama Understand Taxes

Barack Obama has been on the campaign trail reminding voters that John McCain opposed the tax cuts of George Bush because it was an "irresponsible" policy. Furthermore, McCain is now only supporting the idea of cutting taxes because he is trying to get elected, Obama argues. Looking at the history of McCain's views, Obama is probably right.

Neither McCain nor Obama understand tax policy. You can see this in several areas:

• McCain opposed the Bush cuts because spending was out of control at that time. The reality is, the Bush tax cuts generated a massive amount of revenue (arguably far more than could have been garnered through increased taxes). The reason for this is simple and is seen every day at Walmart. Walmart makes less per product of virtually any company in the world. They shave their profit margins to extremely low level in order to make sure consumers buy as much as possible. In the same way, the lower the taxes on wealth creators (be it businesses or investors), the greater the stimulation on the economy, and the higher the revenue.



• Obama's opposition to the Bush tax cuts were based on ideology. Obama believes in class warfare. He could care less how beneficial tax cuts for the affluent can be on the poor (in the form of job creation), he just cannot stand the rich getting richer. Typical of a person who said he supports tax policies that "benefit work" but not "wealth." In free market countries, the two are inseparable.



• I wish both sides would understand that companies simply don't pay taxes. If politicians were serious about wanting to stop jobs from going to foreign countries, they would end the taxation of all businesses. Businesses collect taxes, they don't pay them. When a business is taxed, they pass the cost on to consumers in the form of lower quality products, higher prices, or both. If the taxes get too high where they are no longer competitive, they either go out of business or relocate to a more tax friendly environment. That is how we lose them to foreign countries. The US has the second highest tax rates of any industrialized country in the world. Raising taxes promises to make our situation worse. Furthermore, since businesses don't vote, cowardly politicians use taxation on business as a way to get companies to do their dirty work.
  

Daniel Webster said that “An unlimited power to tax involves, necessarily, a power to destroy." With that in mind, the government should be very selective in how it taxes and keep its destructive nature as limited as possible. A few possibilities include:

• Stop taxing corporations. For the obvious reasons above.



• Stop taxing wealth creation. Capital Gains taxes should be brought to a complete halt in this country as well as taxation on individuals.



• Tax consumption instead of wealth creation.



• If you insist on taxing individuals, make the tax flat (I don't like it, but it is better than the alternative). That would mean an equal percentage for all.

The bottom line is that we need to see taxation purely as a vehicle to effectively raise revenue. It isn't for social engineering, "spreading the wealth," or making up for past wrongs. It is about raising revenue. The best way of reaching that goal is by keeping taxes as low as possible, to generate the most economic activity, which generates the most revenue. We should stop punishing the engine of our prosperity.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.