Friday, November 12, 2010

Rivera and Steele: You're Missing the Point

In keeping with my rule to blog only when my thought isn't yesterday's news, memo to Geraldo Rivera and Michael Steele:  your argument on whether to raise taxes on the "rich" completely misses the point.  (Some would say you're accepting their premise, but that's not my point, either.)

This isn't about philosophy; it's about economics.  Philosophically, we can argue all day about whether the "rich" can "afford" to pay more, and where the line should be drawn.  Wrong argument.  Cutting taxes on the middle class increases demand, because they'll spend the money (or so the theory goes).  Ditto for cutting taxes on the poor. (Oops, they don't pay income taxes.  Withdrawn.)  Cutting taxes on the "rich" increases investment.  And, no, I don't mean, "Let's go buy some stock."  I mean capital investment, as in, "I think I'll open that new store this year.  I think I'll buy that new machine this year.  I think I'll invest in Bob's new idea.  I hope there's labor available, because we'll need five more workers."

It's an old saw, but I really never have seen a poor person create a job.  You need "extra" money for capital investment--you have to pay your rent, pay your employees, pay yourself, and pay your taxes.  Then, if you have some income left over, you can expand--and create jobs.

Republicans haven't made this argument yet, but they need to.  When the President says, "We can't afford to give this money to the rich!" they need to cut them off with economics, not ideology.  The ideological response is, "Mr. President, it's not your money.  It's theirs.  You're not giving them anything; you're choosing not to take it.  Let's cut spending, instead."  Good answer, but not the winning one.  The correct, winning response is, "We can't afford not to.  Your idea, sir, is that government spending will create jobs.  We've tried that.  It failed (again).  The only way to create jobs is for the private sector to do it--and they can't do it if you take away their capital."