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Archive for 15. December 2010

Some Bad Theories on Tax Cuts

Let’s be honest and admit we just don’t want to pay for anything!

 

Theory is pretty much the bread and butter of sociology. Sociologists live, eat and breathe theory. Because of the nature of our interests, strong theories are necessary for keeping our ideas grounded (eh…at least that’s the goal). So when a bad theory is proposed to explain a phenomenon sociologists can sniff it out like a hound on a sausage link. This often makes us unpopular as there are some cherished theories out there which many people would rather not subject to analysis. No topic exemplifies this better than the minimal debate on the Bush Tax Cuts (BTCs).

Of course, the first bad theory represents the very premise of the initial BTCs ten years ago and again in 2003. Now we get to revisit these old St. Reagan themes ad nauseum despite the profound dearth of evidence. This is the fabled “reducing revenue will increase revenue” nonsense that George H. W. Bush himself aptly labeled “voodoo economics.” The Reaganomic myth goes something like this. If you reduce taxes, especially taxes for the wealthiest people and corporations, then that money will be invested in jobs. With more people working you will have more people paying taxes and, thus, you will have increased revenue. A discerning analysis would suggest that this claim is only true if said wealthy were willing to spend over 75% more on hiring than they received from the tax breaks. That’s an unlikely scenario. More likely is our beloved wealthy will pocket the tax breaks or, at best, invest it in the stock market where the money would benefit mostly other wealthy people. A bad theory, right from the get-go. You need no more proof than the 186% increase in the deficit at the end of the Reagan years. Before it was over the Gipper himself had to raise taxes, including one of the largest increases on corporate taxes in American history, just to settle the markets.

The next theory is just as ridiculous, only not as grand. This one is being promoted by advocates of the BTCs who rely on the conservative and even centrist talking heads for their version of the news. This is the claim that small businesses are just waiting for the tax cuts to be approved before they start hiring. According to this theory the tax system is so anti-business and so uncertain that small businesses are afraid to hire. But we are assured that once the BTCs are extended the hiring will begin! Don’t hold your breath on this one, folks. The first myth related to this is the whole Democrats are tax and spend, anti-business socialists claim. Democrats in congress and the Obama Administration included twenty-five tax cuts in the reviled stimulus package, eleven of which were targeted for business and six specifically for small business. Obama then proposed another tax cut targeted at small businesses in September. So the whole “anti-business” claim is a wash from the start.

But the claim that the BTCs will lead to a flurry of small business hiring is about as leaky as a wicker tea-kettle. According to the Joint Committee on Taxation, a very successful small business owner who net’s $100,000 will receive a whopping $1871 in tax cuts. For the record, the same businessman would receive $1900 from the Democratic plan, but why quibble over less than thirty bucks. Either way, that businessman is not going to run out with his eighteen-hundred dollars and hire anyone. At best he might do some minor remodeling contracting, but that’s about it. Even a business making as much as a million dollars would only get a tax cut of just over $17,000…not nearly enough to provide a meaningful salary for even one low level employee. The only group in a hiring position based on the BTCs is millionaires, raking in over $100,000. Perhaps they could hire five low level employees, but we already know what they’ll do instead. Yet another bad theory down the drain.

Of course, one of the dumbest theories offered in this tax cut debate comes from the Bush Administration. Their theory is not to justify the tax cuts, which are non justifiable, but rather to explain why they threw in the towel…again. This one’s just classic! According to the Obama Administration since the tax cuts won’t work the Republicans will be forced to defend the tax cuts in 2012, which they won’t be able to do. So we’ve really pulled one over on them! And it only cost us $900 billion! Are you kidding me? Tax cuts haven’t worked in thirty years. These specific tax cuts didn’t work ten years ago under less trying times. Yet Republicans continue to sell the premise that tax cuts stimulate the economy. What makes you think they won’t be able to do it again in 2012? Then there’s the problem on betting against the economy improving in order to improve your election possibilities. This is not just inaccurate, but immoral. Are Democrats setting up themselves up to not vote for effective legislation in order to keep Republicans from claiming that the tax cuts worked? And are Democrats assuming that a continued slump in the economy won’t work against them in 2012 despite the truism that bad economies are bad for the party in charge? And how do we justify spending almost a trillion dollars on such a gambit? This is a Brooklyn Bridge type sale for which the Obama Administration seems quite proud. Yeah! We own a bridge!

Yet, I must admit that I’m not immune to postulating bad theories myself. During a discussion on this issue I offered that small business owners are blindly buying into the conservative fear mongering without actually checking the facts. They are scared to hire because they truly believe that the situation is unstable and antithetical to business needs. So they are creating their own reality. Yes, I offered the Thomas Theorem to explain the BTC mythology above. I would now like to publicly rescind that suggestion (which one of my friends stated was insulting to small business owners). I fell into the same trap that often entangles the sociologists. I over-thought the phenomenon.

I now accept a simpler, and probably truer, explanation. We just want the tax cuts because we don’t like paying taxes. We don’t care about the deficit. We don’t care about the economy. We don’t really care about the future of our children. All we care about is getting a little more pocket change.