WHY THE REPUBLICAN TAX CUT WON'T WORK
My fellow Conservatives warn that any increase in the minimum wage would, invariably, increase small business failures, and lead to a loss of jobs. Commensurately, “tax cuts” would spur the economy and create more jobs.
First, the Republican “tax cut” proposal being debated in Congress, is an oxymoron. Without a corresponding reduction in government spending, any revenue lost to “tax cuts” must either be absorbed by cuts from other government programs or added to the National Debt - yet again!
Recently, Republican leaders like President Trump and Paul Ryan, have asserted that tax cuts would create jobs. Presidents Kennedy and Reagan cut taxes and the economy soared, say they with brio. GDP growth averaged an impressive 4.95% for the 8 years following the JFK 1961 tax cuts. But then a top personal income tax rate of 91% and corporate rate of 52% would hardly beg an increase, would it?
After the 1981 Reagan tax cuts, the GDP (adjusted) 8-year-average, 3.52%, was hardly ground breaking, but certainly better than the 1.82% of the Bush/Obama years. After the economic disaster of the Carter years, Reagan’s tax cuts were practically a no brainer.
Second, Republicans tell us ‘what’ we need (tax cuts across the board) and ‘why’ we need them (to create jobs), but none has explained ‘how’ that would work exactly. While a big corporation rate reduction from the current top rate should create more jobs, how does a top income tax rate of 25% help small business growth? They currently pay NO income taxes! A fact apparently lost on all 17 candidates during the 2016 Presidential Debates.
Thus, owners of small businesses will get a cut on their Personal Income Taxes, from the current 39% top rate to a proposed 25% rate. While all taxes are unfair if the government spends your tax dollars foolishly, how e.g. would eliminating the ‘death tax’ create jobs? The exemptions on inheritance Tax is $5.5 Million for goodness sake! In their inartistic way, Democrats are onto something when they complain of tax cuts for the rich.
Finally, do we actually need any more ‘small businesses’? Another pizza joint, cupcake shop(pe), 7 - Eleven, Starbucks, Walgreen’s? Before WWII, our largest employer was farming, After WWII, high-paying manufacturing jobs, then construction jobs created the first real American Middle Class. Because the U.S. assessed the highest corporation Income Tax Rate in the World, and because of the acquiescence of cronies from both political parties (remember NAFTA and Trans-Pacific Partnership), manufacturing went overseas, taking the high-paying jobs with them.
Of the G20 member-nations, the U.S. Currently ranks 19th in yearly manufacturing increases!
Now our major employer is the over-saturated, low-paying retail and service sector. Formerly an employer of temporary jobs on the way up the ladder, Sean Hannity, those jobs are too often all that’s left. We need fewer ‘small businesses’, not more! Bring back manufacturing!
If a tax cut to 20% is so wonderful, why not reduce the Corporation Income tax rate to ZERO?
Historically when minimum wage increases were mandated, there have not been commensurate increases in small business failures nor a loss of jobs.
Not long ago, when the economy was booming, one rarely visited, for example, a fast-food restaurant like McDonalds that did not have a "Help Wanted" sign in its window. Then you waited unhappily in line for 15 minutes for your understaffed "fast food" eatery to deliver your Happy Meal - about the time it takes Smith & Wollensky to deliver your $79.00 lunch steak in Manhattan.
So why, you ask, couldn't McDonalds get help? Perhaps because many people, dodn't want to work that hard for minimum wages (chump change). And you wait in line. Kinda defeats the purpose of the fast food restaurant concept, doesn't it ?
Why can't McDonalds pay higher wages and get the help they need? Because McDonalds might have to raise their prices! As Sean Hannity and Rush Limbaugh will tell you, that would put McDonalds out of business.
Hold your horsemeat !
Recently, McDonalds employees have threatened a strike for a minimum wage of $15.00, a whopper of an increase. Hannity and Limbaugh went into orbit, declaiming the demise of McDonalds, or any business that was forced to double its payroll costs. In a recent letter-to-the-editor to our hometown newspaper, the writer, a small business owner, complained that doubling wages would force McDonalds to double their prices. Thus a hypothetical $3.99 Big Smack would price out at $7.98 !
Seriously? In fact if Mac's doubled their payroll, the price of that juicy Big Smack would rise to about $4.75, not $7.98. McDonalds' labor costs are 17% of revenue. The current average hourly wage is $7.50. Ergo; the labor cost of a $3.99 Big Smack is 68 cents. Double the hourly wage to $15.00 per hour, you double the labor costs. Add 68 cents to the cost of a $3.99 Big Smack (and other boring business stuff), and you now pay $4.75 !
It gets even better. If the Government mandates an increase in the Minimum Wage, both McDonalds AND Wendy's will have to raise their prices. If ALL fast food restaurants, perforce, raise their wages, none has an advantage over another. In fact, all restaurants would raise their prices commensurately. Maybe people will purchase fewer fast food meals. Oh ahaha, I amuse myself. I doubt if most men even know the prices of anything at McDonalds. I don’t!
Here's this Conservative's rationale: (A) Subsistance wages are detrimental to a free society, more appropriate to third-world countries. (B) People that work these menial jobs work harder than you and I - don't tell me differently Mr. three-martini-lunch, I've been both places. (C) When my tummy is growling, and your "fast food" line is twenty minutes deep, call security. (D) A substantial increase in a workers wages leads to an increase in that worker's discretionary spending capability, which is good for the economy - good for business - good for you and me and (E) Even though it's a tax on all of us through higher prices, It's all done without government management, higher taxes, or a Trillion Dollar "stimulus package."
My solution: raise the minimum wage to $15.00 per hour. I'll pay another 68 cents for my Big Smack - and maybe I won't have to wait 20 minutes. With more disposable income to spend - voila ! The whole economy benefits without an increase in taxes.
Absent a return of manufacturing jobs, we must decide if we are willing to pay higher prices for higher wages, in exchange for a middle class and less governmental interference.
I agree with the Hillary Clinton quote - even if I do not agree with the mean-spiritedness with which it was delivered (paraphrased) - "I don't know if it is the concern of government to prop up underfunded businesses."
At any rate, people shouldn't own businesses and earn a profit solely by squeezing the help. Better fewer retail stores, paying a decent wage, earning a decent profit.
Better still - more manufacturing jobs! Reduce corporation income taxes to ZERO.