Economic Politics - Obama's Revisit to the Carter Years

Well since I've jumped into the political soup, I figure why not tackle the ecomic side of this as well. Since so many people seem to indicate this is the issue that will drive their vote, I find it interesting that they know so little of ecomics principles that they fail to see the obvious fallacies in Obama's message of Hope. Yes, we may need to do some things differently in the next four years, but I don't see how the plans he's proposing will get us where everyone seems to want to be. Here's a little comment I wrote to my mother who had been discussing this issue with her friend and more specifically the weaknesses in the Obama supporter restaurant story where the patron spreads the wealth giving the homeless beggar the tip the waitress was expecting.

The restaurant scenario with the Obama supporters (which is all over the internet and nothing more than humorous satire) is not a serious policy argument, but rather brings to a head the age old "class envy" struggle that fuels socialist/marxist redistribution of wealth philosophies. While in reality, the waitress in the story would likely be a beneficiary of Obama's alleged tax cut (frankly I'll believe it when I see it), it completely discounts the concept of wealth creation and growth of business which definitely would impact the restaurant owner.

In economics, there is a breaking point when the cost of doing business reaches a level that is no longer feasible and/or desirable for a business owner to either expand, hire additional employees or in some cases continue to do business at all. This boundary is not the "break even" point for a business, but rather the profit level that an owner either desires or needs in order to meet his own personal financial obligations, needs and desires.

Although taxes are a necessity to fund necessary functions of government, when the taxes are raised upon the individuals making over $250,000 per year, they in most cases are impacting individuals who either are owners and/or decision makers in businesses whose income is either directly and/or indirectly impacted by an increase in taxes thus reducing their profit. When such an event occurs, they will instinctively cut back and reduce their expenses to maintain the profit and/or income level simply because the increased cost of making "more money" is no longer advantageous to them. In such an event, the ones who were supposedly the beneficiaries of the tax cuts (funded by the increase of tax burden upon the $250K up crowd) will be directly impacted by either having their wages frozen at their current level, not having the opportunity to make over time wages, and possibly in some cases losing their jobs as businesses cut back or in the case of a prospective worker, not being hired in the first place.

In the end, the tax increase on the "rich" will impact us all. The only difference is that the "rich" can better absorb the impact because their already accumulated wealth allows them greater ability to bide their time until economic conditions improve and are more favorable to maximize their income.

The final analysis, its about human nature. No matter how much you give some people, there will be others who through either determination or entrepeneurial acumen will accumulate more. Thus they will consistently be in a better financial position. When they take these steps, they inevitably help others because they recognize that they are able to make more through the efforts of others comined with their own efforts, therefore through jobs they create prosperity for the community as a whole while benefitting themselves through a fair profit. When you take away the incentive to do this, then they withdraw their enterprising efforts until it is a more favorable political climate to do so.

This is of course not a justification or an excuse for outright greed or business interests above all others, but it is a reality that the Trumps, Iaccocas, and Al Copelands of the world are more willing and able to create jobs and prosperity for everyone when they are not gazed upon as "cash cows" who are villified and then saddled with an even larger tax burden than they already shoulder. In the end, they take their toys and they go home, til the rest of us come to our senses and realize that we needed them. The following analysis is a better example of why a tax cut for the "rich" is not always a bad thing.

OUR TAX SYSTEM

>> Suppose that every day, ten men go out for beer and the bill for all ten> comes to $100. If they paid their bill the way we pay our taxes, it would
> go something like this:
>> The first four men (the poorest) would pay nothing.
> The fifth would pay $1.
> The sixth would pay $3.
> The seventh would pay $7.
> The eighth would pay $12.
> The ninth would pay $18.
> The tenth man (the richest) would pay $59.
>> So, that's what they decided to do.
> The ten men drank in the bar every day and seemed quite happy with the
> arrangement, until one day, the owner threw them a curve. 'Since you are
> all such good customers,' he said, 'I'm going to reduce the cost of your
> daily beer by $20.'Drinks for the ten now cost just $80.
>> The group still wanted to pay their bill the way we pay our taxes so the
> first four men were unaffected. They would still drink for free.
> But what about the other six men - the paying customers? How could they
> divide the $20 windfall so that everyone would get his 'fair share?' They
> realized that $20 divided by six is $3.33. But if they subtracted that
> from everybody's share, then the fifth man and the sixth man would each
> end up being paid to drink his beer. So, the bar owner suggested that it
> would be fair to reduce each man's bill by roughly the same amount and he
> proceeded to work out the amounts each should pay.

>> And so:
>> The fifth man, like the first four, now paid nothing (100% savings).
> The sixth now paid $2 instead of $3 (33%savings).
> The seventh now paid $5 instead of $7 (28%savings).
> The eighth now paid $9 instead of $12 (25% savings).
> The ninth now paid $14 instead of $18 (22% savings).
> The tenth now paid $49 instead of $59 (16% savings).
>> Each of the six was better off than before. And the first four continued
> to drink for free. But once outside the restaurant, the men began to
> compare their savings.
>> 'I only got a dollar out of the $20,'declared the sixth man. He pointed
> to the tenth man,' but he got $10!'
> 'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar,
> too.
> It's unfair that he got ten times more than I!'
> 'That's true!!' shouted the seventh man. 'Why should he get $10 back when
> I got only two? The wealthy get all the breaks!'
>> 'Wait a minute,' yelled the first four men in unison. 'We didn't get
> anything at all. The system exploits the poor!'
>> The nine men surrounded the tenth and beat him up.
> The next night the tenth man didn't show up for drinks, so the nine sat
> down and had beers without him. But when it came time to pay the bill,
> they discovered something important. They didn't have enough money
> between all of them for even half of the bill!

>> And that, boys and girls, journalists and college professors, is how our
> tax system works. The people who pay the highest taxes get the most
> benefit from a tax reduction. Tax them too much, attack them for being
> wealthy, and they just may not show up anymore. In fact, they might start
> drinking overseas where the atmosphere is somewhat friendlier.

>> David R. Kamerschen, Ph.D.
> Professor of Economics
> University of Georgia

>> For those who understand, no explanation is needed. For those who do not
> understand, no explanation is possible.

And to think, I use to believe Economics professors were a dull bunch! Haven't verified the author, but I've checked the math. And you wonder what our economy will do when Obama is done "taxing the rich and spreading the wealth"?