Posts Tagged ‘tax cuts’

Breaking Down Trickle Down: Business Plan 101

Posted by politicalpartypooper on August 18, 2010

The thirty year old Conservative plan for the economy is known by many names; Supply Side, Reaganomics, but my favorite name for it is Trickle-Down economics. In case you don’t follow economic theories, Trickle-Down is the practice of giving advantage to the supply side of our economics system, the corporations, wealthy, and small businesses who create jobs, through tax breaks and incentives. The idea is that wealthy people flush with cash save that cash, and those savings are invested, through some means, back into the economy, which then through various ways, trickles down even to the poorest of Americans, either through innovations and efficiencies that make consumer goods less expensive to own, or through job creation due to increased demand.

Historically, this has been accomplished through tax breaks, especially for corporate America. In fact, about the only solution available to Supply-Siders is reducing taxes.

Thankfully, that’s as complicated as Republicans have made it, which makes my job much simpler.  The idea of cutting taxes for corporate America and small businesses is that they will then use that money to create jobs in their own businesses.  Only we’ve been using Bush’ Trickle-Down tax cuts for nine years, and we’re bleeding jobs.  The best that can be said about Bush’ job creation record was that it was a positive record during his two terms.  He averaged 49,000 jobs created per month.  Economists say we need at least 150,000 to keep up with population growth.  So Bush only fell about 101,000 jobs short per month with his Trickle-Down plan.

So much for tax cuts creating jobs.

Now let’s get to the good stuff, and don’t worry, this is easy.  Business Plan 101.  How to make money running a business.

Business A receives a tax cut and finds itself flush with cash.  Wanting to do their part, they immediately hire several staff.  However, after a few months, they realize that there is no work for these new staffers to do; even though they were flush with cash before they hired the new staff, in the end, there was no demand for those new hires to fulfill.  After a few more months, those hires were laid off, and Business A had less cash than they did before they received the tax cut.

Business B received the same tax cut as Business A.  Instead of hiring new staff, though, Business B researched whether there was actually anything for them to do; in other words, they monitored demand, always at the ready to meet it with new employees if it came to that.  But in this case, the demand for their product was no different from before they received the tax cut, so they didn’t hire anyone.  The tax cut ended up not achieving its goal.

Which business is the smarter business?

Tax cuts mean nothing for job creation without demand.  Absolutely nothing, and that it can be described like this, without using any fancy formulas, completely destroys the myth of Trickle-Down economics.  The effect that tax cuts for the wealthy, or for Corporate America have on our economy are long delayed, at best, and meaningless at worst.

Business planning 101 dictates that you don’t hire unless there is work for them to do.  In other words, if demand is not present, neither should any new hires be.  And this is exactly what ails our economy today.  No good, smart business should ever hire someone just because they received a tax break, and the investments that the wealthy make and the subsequent trickling effect are too delayed and minimal to do any good.

Capitalism starts from the ground up.  No product is sold without a consumer to buy it.  This is simple stuff.  I explain it to my conservative friends all of the time, and then they go watch Fox News or some moronic Republican Senator who repeats all of the old anecdotal “facts” about Supply-Side, and I have to start all over again.

I can make the greatest gadget ever, but if there is no buyer for this gadget, I’ve just lost money.  Capitalism’s history is gorged with start-ups that failed because no one wanted their product or service.  President Obama just visited one that teeters on the brink yesterday, ZBB in Menomonee Falls, Wisconsin.

No matter how you roll the economy, it has a starting place, and that starting place is demand, at the bottom.  Tax cuts have no  significant impact on job creation.     Ω



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Accused Of Being Ignorant Of The Economy, I Make My Case Against Charlie Sykes and Supply-Side

Posted by politicalpartypooper on August 14, 2010

Finally some good economic news!  Sales on Porsches are up!  In July alone, Porsche sales climbed 75% from July of 2009.  However, sales on Ford, Dodge, and GM averaged about a 5% increase, and Honda and Toyota sales are down, meaning the Middle Class isn’t buying as many new cars this year as last year, and last year, they didn’t buy much at all.

Okay, so my good news was a bit tongue-in-cheek.  Yes, the economy rocks for the rich and for Wall Street, but for the Middle Class, according to Newsweek columnist Dan Gross real unemployment remains around16.5%:

That’s the Bureau of Labor’s U6 number, which takes into consideration so-called “discouraged workers” who have given up looking for work, as well as people who are working part-time but would like to be working full-time. Overall, according to Gross, the number means that there is “one out of six adults in this country whose talents and time and skills are not being utilized anywhere near to the extent of their abilities.”

Tax rates on some of those buying Porsches are half of what they were pre-1982, and lower by four to seven percent than in the 1990’s, a period of time marked by low unemployment.  Clearly the top tax rates have diddly squat to do with creating jobs.  It’s been that way all throughout our history in the 20th century and into the first decade of this one.  Anyone who says otherwise is either ignorant, lying, or relies on faith-based economics.  Sadly for them, economics aren’t faith-based.  Just because you believe the economy starts at the top and trickles down doesn’t make it so.  Neither do the actual numbers or consumers, the stuff a real economy is made of.

And what does this current economy tell us?

There aren’t enough consumers spending enough money, despite the glossy Porsche sales reports.  That fact is so blatant, so in-your-face that it’s hard to believe some people can’t see it.  Let me explain.  No matter how many tax breaks you give the top ten percent of earners in the US, there simply aren’t enough of them to make any difference in consumer demand, which drives our economy and job creation.

I was told by Charlie Sykes, talk radio host at WTMJ, Milwaukee, Wisconsin, that I was ignorant of economics.  Yes, he actually replied, briefly and insultingly, to my email of the other day, but he was allowed to be insulting since he took my blog post about him as an insult.  I’m a big boy…I took it with a thumb in my mouth and only a little bit of whining.  Tangent completed.

The reason I bring it up is because Charlie is amongst a large group of people called Conservatives who still believe the economy is driven from the top and trickles down to the Middle Class.  But as I stated earlier, there simply aren’t enough of them to create any real demand.  What’s my proof?

1. If consumer demand were up, jobs would be created.  We’re still losing more jobs than we’re creating.  Demand is down.  From the US Consumer Demand Index:

After a surprisingly strong upswing in May, the CDI for June fell by more than 20 index points and now stands at -27, down from -5 in May as lower demand for clothing and food drags the aggregated index down. However, this is still 10 points up on the all-time low of February 2009. The three-month moving average is also down but less dramatically so, from -13 in May to -18 in June.
Reminding you that the index was set at 100 as an average for the year of 2000, it’s obvious that we are not yet out of the woods. But on the other hand the new data do not convincingly indicate that there is much further to go to reach the bottom, if we have not already reached it.

2. Despite eight years of lowering taxes on corporations and the top ten percent of earners, from 2001 thru 2008, an average of only 49,000 jobs were created per month.  A benchmark of 150,000 jobs is needed each month to accommodate incoming/outgoing workers, to say nothing of actual positive job growth beyond that.  Needless to say, when compared to the benchmark, 49,000 jobs created each month is pathetic.  It also explains why the first Bush Recession was a jobless recovery.

3.  The economy has lost a cumulative total of 3.1 million manufacturing jobs since 2001 according to the U.S. Bureau of Labor Statistics.  That’s 28,703 jobs lost per month.  I think we know where they went, and where they are going…overseas.  But Conservatives like Charlie Sykes and his brethren “believe” that Free Trade is good for American jobs.  Just another case where faith-based economics is completely opposite of reality.  I know you guys really, really want supply-side economics to be true, but the numbers say, undisguisedly, that supply-side economics is a fairy tale, unless the only goal of trickle-down is to enrich a very few people in the United States while everyone else steadily but rapidly sees their standard of living decline, which, mind you, mimics our current reality.

4.  If you still needed evidence that taxes do not affect job creation, this graph says it all.  It breaks down job creation, change in GDP, and change in household net worth by decade.  Remember, corporate tax rates and tax rates on the highest earners were 70% or above until 1982.

Boy, the current decade really sucks, doesn’t it?  Negative job growth, negative household net worth gain, and the lowest GDP since the Great Depression.  President Bush and President Obama must be so proud.  I really do believe they are going to set unbreakable records for economic futility.  Even the 1970’s beats this decade, and we all remember how sucky that decade was. The 70’s didn’t just beat this decade, they kicked its ass; which means Nixon, Viet Nam, the oil embargo, an impeachment, Ford, and Carter did better economically speaking than Bush and Obama.  How’s that for a pathetic record?  A record, I might add, that includes tax rates that are half of what they were during the seventies, when, you know, high  corporate tax rates stagnated job growth…umm, except, from the graph, it looks like taxes didn’t have any effect whatsoever on job growth in the 70’s.  Or in the 60’s, or in the 50’s, or in the 40’s…or ever.

Will Charlie, or people like him finally admit the error of their ways?  Will they, at the very least, admit that the numbers don’t look so hot?  If not, why not?  Facts are facts.  You can’t hide from these numbers, they are what they are, and sadly, I used to be a Supply-sider.  Not any more.  Not once I started studying the actual statistics.  And if I can change, I have to believe that Charlie and others can, too.  I was a staunch supporter of trickle down and everything Reagan.  To some extent, I’m still an apologist for Reagan; I just love the guy.  But when you run into the actual numbers, you have to make a choice; will you accept that what you’ve believed for three decades has been false, or will you continue to “believe” in a lie?

And if you continue to believe in that lie, why?  What are you trying to protect?  The numbers of this economy don’t protect the Middle Class; they destroy it.  The last time I checked, most of the people I know are Middle Class, including Charlie and most Conservatives.  So what have you to gain by protecting a faith-based economic system that has never loved you back?

16.5% real unemployment.  9.5% by the government’s count, and over 9% unemployment for eighteen consecutive months.  3.1 Million manufacturing jobs lost.  With a benchmark of 150,000 jobs needed to be created per month to keep pace with population growth, the Bush average of 49,000 fell over 100,000 short per month, amidst the largest corporate tax cut in two decades.  Even the “good” times in the Bush presidency were shockingly bad by every historical standard since the Great Depression, with regards to the Middle Class.

If the Middle Class can’t buy because they don’t earn enough or don’t have a job, demand suffers.  If that condition persists long enough, it becomes chronic, and the hole gets deeper and harder to climb out of with each passing month.  That unemployment persistently remains so high is an indicator of a huge lack of consumer demand, and nothing else.  Some writers report that corporations are hoarding their cash and not hiring even though they have the reserves to do so.  I don’t doubt that, and I won’t blame them.  If there’s no demand, why bother hiring?   Even corporations are showing by their unwillingness to hire that it is demand that drives this economy, and not corporations and wealthy people flush with cash who just want to fling a few chips down to the peasants.  Trickle down is a lie, a fable, nothing more.  American corporations flush with cash but not hiring are proving that fact beyond the shadow of a doubt.

My rule number three of economics applies here.  That corporations are flush with cash and aren’t hiring isn’t a sign that they are leery of the deficit, or of higher taxes.  Rather, it’s the strongest indicator that demand is non-existent.  Because remember, in Capitalism, where there is demand, someone will always meet it.  If you are a corporation that refuses to meet that demand, don’t worry, someone else will.  If there were any actual demand present, these corporations would be hiring, to meet it, or they would be amongst the dumbest of business models ever invented.

If you and Charlie are still inclined to “believe” that supply-side (trickle down, voodoo, call it whatever you want) economics is the only way to make the American economy work for everyone, then might I suggest that you click your heels together three times in rapid succession, and maybe you’ll find yourself in the dream-land where trickle-down really works.

Do you need more statistics?  Do you want more?  I could go on all year if you need me to, if it would make any difference.  But somehow, I think it won’t.  I think Charlie, and those who “believe” in supply-side economics do so because they don’t want to see the truth…they just want to be right, even if being “right” means being ignorant of the facts.

Faith-based economics will not save you, or America.  If you love America, do the one thing for yourself that you still can.  Vote according to your own interests, like corporations do with their lobbyist minions.  But before you vote, you better make damned sure of what’s best for your interests.  For three decades, Republicans have been tooting the supply-side horn.  They’re tooting it louder than ever this year.  But we’ve USED supply-side economics for the last three decades, and look where it’s gotten us?  Even with Obama’s tax increase, corporations and the top earners are paying half of what they did before supply-side hit America.  Half.

And maybe you, or someone you know has been out of work for a long time, or has lost the pension he contributed to for decades, or did everything right…saved twenty percent of his income and invested the way Money Magazine told him to, and all he has left, if he is lucky, is his original investment.  Or maybe you or someone you know lost his job to someone overseas, and the next job he got saw him earning twenty percent less than before.  Maybe your parents paid for your college education, and try as you might, you can see no way of paying for your children’s education.  Perhaps you are nearing retirement, and are worried about what the most recent bear markets did to your chances of financially surviving retirement.

Your interests are the only thing you should be focused on right now.  Any economic plan that focuses on corporations and the wealthy few is, by definition, not focused on you.

Think about that.     Ω


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Basic Rules For Job Creation

Posted by politicalpartypooper on August 2, 2010

Despite Conservatisms’ undying devotion to trickle-down economics, there are really only a few basic rules when it comes to job creation.  Concentrating wealth at the top isn’t one of them.

1.  Consumers create demand.

2. Demand creates jobs.

Simple, right?  Taxes have little to do with job creation, as can be seen by following charts:

From the Tax Policy Center,

From USPolitics.about.com

See all of those years where the top rates were 70% and above?  From 1936 until 1980, top marginal tax rates never fell below 70% in the US.  We didn’t see any higher unemployment figures from 1949 until 1980 than we do today, where tax rates aren’t even half what they used to be.  So what’s all this talk about raising taxes being a job killer?

It’s hog wash!  Taxes don’t create jobs, and tax cuts don’t either, unless the tax cuts go to the people who spend the money, like the poor and the middle class.  Again, it all goes back to the basic rules of economics:  consumers create demand and demand creates the need for more jobs.  Supply Side economics is a fable. Demand is color-blind, class-blind, and tax-blind.  If a person wants and has the money for it, he’ll buy it.  That’s how it works.  The more people who buy it, the more there is demand for that product.  That only and always starts with the lowly consumer.  So, in essence, consumers create jobs.

Got it?  If not, look at those two charts again.  During periods where the Trickle-downers were taxed the most, at or above 70%, unemployment remained unaffected by the actual tax rate.  Consumers create jobs, and if those consumers are jobless, they can’t very well spend money to create more jobs, can they?  Where are the jobs?  Overseas, where the Free Traders wanted them.  And who wanted Free Trade?  The wealthiest Americans and corporate greed.

People, if after seeing these facts, you still believe in Trickle Down economics, then I suggest that your economic theory is based on faith and not on actual fact.  Economics aren’t anecdotal.  The numbers are what they are.  Taxes on the wealthy and even taxes on small businesses do not stifle job creation.  But consumers without money to spend does.  That’s what goes on in America today, like it or not.

The reason there are no jobs in America is because there is no demand.  It feeds on itself, and will only get worse so long as we continue to allow large corporations to ship American jobs overseas.  Don’t applaud the Supply-siders; they are lying to you.  The only thing that matters in a free market economy is demand.  That’s it.  It’s simple.     Ω


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Raise Minimum Wage To $12 / Hr Along With Tax cuts For Job Growth

Posted by politicalpartypooper on January 26, 2010

Fifteen years ago, in 1994, the real Entry Level wage was $12.35/hr.  In 2004, it was $13.00 / hr.  Ten years…sixty-five cents.

Yesterday, President Obama suggested a surgical spending freeze to reign in deficit spending.  This outraged the Left, and the Right has been mostly silent; if not a bit gloating.  There has been some further debate whether we should include with this legislation a direct tax-cut for jobs creation.

While I agree with such a tax cut, I think further hiring without addressing the pathetic state of wages in this nation will have minimal impact on the economy.

I suggest that along with a Surgical Spending Freeze and tax cuts, we also take a gigantic leap with the Federal Minimum Wage, and increase it to $12.00 / hr.  It now sits at $7.25 / hr., which, as I stated, is pathetic.  Stretched out to Full-time employment for a year, $12.00/ hr would earn just under $25,000 / year.  Again, that’s hardly wealth, but it is significant.  Due to the fact that about 1.8 million people earn minimum wage, and many others earn less than $12 /hr., the impact this would have on our economy would be huge.  If we used some of the money we cut out of the budget to help businesses fund this increase to overcome concerns over the loss of jobs, we could potentially stimulate the economy while paying higher wages.

Consider for a moment what a $10,000 increase in wages for a year would mean to a Single mother, or a family of four?  Would it be enough to get one of them off of welfare aid?  Would it allow them to buy health insurance, or to eat better food?  Would it give them hope, and maybe spur them to go to night- school, something they might not have been able to afford previously?  Would it allow college students to borrow less for their education?

There are many things that need to be addressed in this current economy, but I believe that if you are looking for the thing with the biggest bang for your buck, nothing will do it like increasing the minimum wage while subsidizing part of the cost increase.  Getting people off of welfare, or reducing the amount of money being borrowed for college cannot help but have a positive impact on America, now and in the future.  People who earn more will spend more, increasing consumer demand, which, not coincidentally, is one of the roadblocks to job recovery.

$12.00/ hr. is not a wealthy wage, but $7.25 / hr. is a guarantee of poverty.  If this nation truly is a Right – leaning nation, then no excuse is good enough for continuing the growth of poverty, which requires an ever-growing Social Services sector.  Righties believe in a fair wage for a fair days work.  They believe in tax cuts and spurring economic growth through the private sector.  Nothing would accomplish that like a spike in the minimum wage.

There are so many more reasons to raise the minimum wage, and to help businesses pay for it, but the number one reason is to spur the economy while increasing the average wages of a vast number of Americans.

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