Listening to your argument today with John Philips on WLW regarding the need for higher taxes, I became confused by your belief that higher taxes in the name of fairness are good, especially if they help the poor. While I understand your desire to help the less fortunate, your approach is misguided for several reasons, which I will explain.
First, creating tax law in order to acheive "fairness" is dangerous because it tends to favor emotional choices over logical ones. I think we would both agree that some taxes must be collected in order for the government to function. With the need for taxes a given, we must then determine how much revenue is needed, and where it should be gotten. Would you agree that it would be best to create a tax law that obtains the maximum amount of revenue with the least harm done to the economy? This would allow the government to operate, while providing the most opportunity to ALL Americans.
The key is to look at taxes logically, approaching it as a business would. When choosing between investment options, a business will always try to invest where it believes it will get the greatest return for its money. The government should do the same, though with taxes, it operates in reverse. They should try to leave as much money as possible where it is likely to do the most good.
Now consider who creates jobs. It is business. You may argue that people create demand for goods which drives the job creation, but you must keep in mind the law of supply and demand. If there is more money in the hands of consumers, yet business has been prevented from investing in plant and labor due to higher taxes, then you have higher demand, lower supply and higher prices. On the other hand, if business has invested in producing new wealth, higher supply leads to lower prices, not to mention the jobs created in order to produce the new goods.
One of the arguments raised today regarded the luxury tax on boats, automobiles, furs, etc. Taxes were raised on these items in the name of fairness, though virtually everyone on both sides of the political spectrum now see the gross error that was made. Today you argued that it might have helped because the people that would have bought a Jaguar might now buy a Lincoln. However, you are missing the basic problem with the tax. While anyone purchasing these items would probably be considered wealthy, most still must budget for such a purchase. For example, suppose someone could afford to spend $100,000 on a new boat. Before the tax, all $100,000 would go to the boating industry. After the tax, the same person still spends $100,000 but only 90,900 goes to the boating industry, while $9,100 goes to the government. In effect you have instantly cut the boating industries revenues by nearly 10 percent.
Whenever industry revenues are down this much, wage cuts or layoffs almost always follow. This hurts not the boat buyers, but the boat builders. Making matters worse is that the laid-off workers no longer pay income taxes, wiping out the government's gain from the luxury tax. Unemployment claims from these workers drive up the deficit further. Add in the ripple effect as these laid-off workers put off purchasing new cars, appliances, etc., and it's not long before the entire economy is in a recession. This is exactly what happened in 1990, all in the name of fairness.
You mentioned that you would favor a flat tax, where everyone pays the same percentage, yet at the same time you favor higher taxes on the rich. The rich now pay a higher percentage than lesser paid people. A flat tax rate would require a tax cut for the wealthy rather than a tax increase. I would like to know how you reconcile such diametrically opposed concepts.
Another thing you said that confused me was that you believe government can invest (spend) money more wisely than private investors, yet at the same time you explain wasteful pork spending as the result of politicians making the spending decisions. You sounded as though you could not trust congressman with handling our money wisely because their decisions are based upon political rather than economic factors. This being the way you believe, how can you think that government can make wise spending decisions. You seemed to think that congressional spending is separate from government spending. I would like to hear your clarification of this as well.
I know you get irritated with people who write to you rather than call, but I rarely have the time to call you. However, I would love to discuss this issue with you. I would ask that you consider what I have outlined and develop your own coherent response, at which point I will be more than happy to call you. I look forward to speaking.
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