Guest post by Thom Jones:
The problem with the debt debate is not that there are two sides (increased revenue vs. decreased spending), but rather that within each side, there are philosophical and practical differences which make for unstable partnerships. On the side of decreased spending, there are the “knee jerk” anti-tax crowd that is opposed to taxes in general and the group that believes that taxes are necessary, but that lower taxes on wealthy Americans will result in job creation. On the side of increased revenue, there is one group that believes that increasing governmental involvement will not only alleviate many social ills, but will also create jobs, albeit government jobs, and there is also a group that desires responsible spending practices, coupled with somewhat elevated revenue stemming from increasing taxes on the wealthy.
The latter group among both the decreased spending and increased revenue positions represent spots on the political spectrum just off center, and provide hope for real long-term solutions. At issue, I believe, is the idea of “trickle down” economics, wherein it is posited that decreasing taxes on the wealthy will lead to investment and job creation. This economic theory is fundamentally flawed, but also immensely powerful if altered slightly.
The flaw is in the idea that the wealthy will put their money at risk in hard economic times to create jobs. Everyone becomes more cautious with their money when the economy underperforms, and it is common knowledge that jobs lag behind other indicators in a recovery. It is also faulty to think that if a person owns a small business and makes $500,000 or $1 million per year that they will fire workers if their taxes go up nominally.
So, if this idea of “trickle down” is flawed, how can it be a powerful tool in resolving our economic problems? The trick is that the tax breaks must be contingent on the outcome that fiscal conservatives claim will occur. Quite simply, roll back the tax cuts to the wealthy, with the caveat that if a person does invest in creating new jobs, then they will get the tax breaks. Rather than a pre-emptive tax cut, make it a sizeable tax credit. One drawback that I anticipate to hear is that if a wealthy person is paying higher taxes through payroll or estimated taxes, they will not have cash to invest in job creation. Again, the answer is simple. Allow for a reduction in estimated tax payments if job creation is anticipated. That would free up the cash to invest in new jobs. One other criticism would be that if the jobs were created to get the credit, the business could fire the workers in the new year. Simply make the tax credit contingent on the jobs being in place for a period of time (immigration regulations have had similar requirements for jobs created by people starting a business in the U.S., so it can be done). If the jobs are quickly downsized, the individual or business would pay the difference (some would call it a penalty) the following tax year.
This hybrid of raising taxes on top earners and retaining the benefits of trickle down theory would slice right down the middle between the moderate Republican and Democratic positions, and would scream for a compromise by the two sides whose mainstreams are really not that far apart. The net result would be increased revenue, either from high earners who simply desired to keep their tax breaks in their coffers or, hopefully from a real increase in job creation that will lead to a wider pool of tax payers who will increase revenue by the weight of their numbers. In addition, a real increase in job numbers would reduce the amount of government spending that goes to people who are hard hit by the economic downturn, resulting in a built-in reduction in spending that is passively targeted at those who will no longer need or receive government assistance.
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Thom Jones is a children’s book author and forensic science program creator from Northville, NY. His websites are www.guardiansofelestra.com and www.crimescenecamps.com.
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This guest post was submitted in response to my query about how the best way to deal with the current economic situation. This post does not necessarily reflect my thoughts and feelings.
Your comments and reactions are, of course, appreciated. Just play nice. I have standards. And I don’t want to have to delete you.