Trickle down theory. Supply side economics. Incentivising investment. Punishing small business owners with taxes so they can’t expand their business. The political theory of why rich people deserve lower taxes comes in many guises. The problem with it is: it doesn’t work. Or, at least, it hasn’t in thirty years.
It’s broken in its very concept, sort of like communism. It’s the sort of thing that works fine on paper, kind of, but doesn’t allow for the human element. Let’s start from the top, though. With how economics works.
It’s very basic. Supply and demand.
Great demand and low supply usually means high prices, right? Think Wii when they first came out. Only so many were produced and while most stores stuck with the retail price, entrepreneurs bought many at that given price and sold them on eBay at great profit. This was great for that middle man. Still pretty good for Nintendo, because they were pretty busy. Bad for parents with kids who demanded them. But, this is what capitalism is built on. Those entrepreneurs were capitalists doing what capitalists do. When you say you are for extreme capitalism, that is what you’re saying. If you think that middleman was unfair, you should reconsider how much capitalism is good (this is another rant for another time.)
Having equal supply and demand is the sweet spot in which economies hum. The only reason your supply goes on sale is to attract more customers, but there is always enough supply for the number of people who need the product. Think basic staples like milk or bread. If you have the money for milk or bread, you can get it practically anywhere. There is rarely a shortage of these items and as such, their price is relatively stable. This is where you want your business, or at the point of a little more demand than supply so that you’re always sure to sell everything you produce.
Then there is too much supply. Now, obviously there are many retailers making money off of too much supply. Think about those commercials for Marshalls or TJ Maxx where they mock someone in the fashion industry ordering too many boots. Then Marshall’s shows up and buys those boots at a fraction of the price and sells them to you, the consumer, at a marked down price.
But. Here’s the thing. Someone, somewhere, paid the full wholesale price for those boots. And they sold them at a loss. Their loss is your gain, right? Well, sort of. Because loss of profits doesn’t exist in a vacuum. So to cover their losses, the original retailer ups prices on other items you might want or actually need. This is fair and their business and if you never shop there, maybe you never experience the pain of paying that extra buck or two for a watch.
However, someone will. Someone is buying those watches at that price and demand dictates that something is worth exactly what someone is willing to pay for it. So despite its material worth, prices can be raised or lowered based on customer tolerance.
Okay, yeah boring and how does this explain tax fluctuation?
That’s my point. It doesn’t.
The problem when a politican says, “I can create jobs by lowering taxes” is that it’s not even a lie, it’s a damn lie.
But here’s the theory and how it relates to economics. The theory is, if you throw enough money at wealthy people, they’ll start a business doing something. Or that they’ll invest in new businesses.
But here’s the thing: wealthy people don’t get that way by throwing their money at things. That’s how government does things, not rational human beings. Wealthy people will invest in things that are likely to make them more money. Not pointless ventures. Not unless there’s demand.
SUPPLYING wealthy people with something they already have a surplus of isn’t going to affect their behavior. Whether they have that extra 100k or not, if they see a good business opportunity, they’ll invest. If they don’t, they’ll save it or buy more watches. Or take a more expensive vacation.
What is broken about the economy right now is the lack of DEMAND.
But, wealthy people still have wealth. Should they be buying more? Possibly. But the problem is, the wealthiest Americans are only 2% of the country. They’d have to buy a LOT of damn watches (in America, made by Americans--and good luck with that) to make up for the other 98% of the country who, if they buy a watch at all, would get it at Marshall’s.
Still with me? No? Okay. So 98% of the country is getting by with less than the wealthiest. They’re stretching their dollars to keep buying the milk and bread mentioned above at their relatively stable prices. However, with more retail mess ups like the main retailer in the Marshall’s example, businesses are having to make cutbacks in employees or upcharging other items in order to make up the difference in profits. Profits that go, of course, to the wealthiest 2% of Americans we also want to give unfunded tax cuts to.
So, while the 2% continue to accumulate wealth, the 98% of Americans continue to have to stretch their money. Those who have more money are, seeing the lean times ahead, saving their money. So while they might’ve shopped at the pricey retailer before, they’re doing less so now. Maybe nipping over to Marshall’s. Those in the middle are cutting back on their occasional indulgence. And the poor, well, they’re just trying to get the milk and bread paid for.
So, of these groups--the super wealthy who need for nothing, the mostly wealthy who need for nothing but want for some things, the middle American who need a little and want for a lot, and the poor American who need everything and want everything--who do you think if you gave some cash to would throw money back into the economy?
The poorest Americans cannot afford to take a month long European vacation to spend their tax cut dollars on. Even the much vilified “welfare queens” who bought beauty treatments with their money did so locally. Paying a genuine small businesses in their city. Not ideal when your idea was to stabilize the bread and milk industry, but you can’t dictate to Americans what they spend their money on. We certainly don’t with wealthy people, anyway.
If you want to create demand using government money, it makes the most sense to give it to people who will spend it and spend it in America. Now, some people object to giving anyone money any time. That’s fair enough. But not taking the appropriate amount of taxes from the wealthy is the same as giving them money. Money that’s coming out of someone’s pocket. If the wealthy are a protected species, who do YOU think it’s coming from?