Economics - The Stimulus & tax raises

I have read a fair amount on the stimulus. This recession and the discussion about how to prevent a depression has renewed my enthusiasm for economic theory. Politicians generally gloss over economics and pretend to understand its dynamics. They make broad predictions about the effect their policies will have on the economy and assume that citizens will believe in those predictions because they want to believe in those predictions, not because they make sense. The economy is an extremely hard thing to predict, especially in the long term, but it is fun to speculate. Politicians must be having a blast.

Government spending in large doses, such as this stimulus bill, will generally have a positive effect on the economy in the short-term. In this case, it may not mean that our economy turns around, just that the economic free fall reduces its speed. In the short-term, it doesn't really matter where the government spends its money, but in the long-term it is crucial. Much of the stimulus argument centered around not whether to spend, but where to spend. If the spending had been on the military and accompanied by tax cuts, the Republicans could not have lined up fast enough. Instead, the spending went to Democratic interest groups, which is understandable since the Democrats control our government currently. I disagree with some of the outlets that were chosen for the money as they will not do much to assist the economy in the long-term. However, we can leave the details of that discussion for another time. In general terms, Obama and the Democrats gave the money to the middle class and poor along with some constituency groups.

It is very debatable whether stimulus helps the economy in the long run. The economy has it own cyclical motions, so it is hard to determine what effect government action has had. One thing is for sure, the economy is more like a tractor trailer than a sports car. It takes wide turns, can take a long time to get going and is hard to slow down. With this in consideration, my biggest criticism of the stimulus is the rushed manner in which it was done as if a day would make a difference. I would much prefer no stimulus than an unopposed stimulus bill with little discussion. Add in the fact that the Democrats used the stimulus to alter policy to their constituency and in a manner that does not seem all that stimulating, and I cannot support the measure.

Obama also now plans to attack the ever growing, ever burdensome deficit. He plans to do that through tax increases on business and the wealthy while cutting back on military spending, particularly in Iraq. I find no fault with the latter choice; it is well past time for America to reconsider playing the hero all over the world while our own balance sheet suggests that bankruptcy may soon be our undoing. The former, however, when added to all the benefits the working class and unemployed receive is a swift shift towards socialism, not that we weren't already falling into the principles of that economic theory that is doomed to fail.

The blame that Obama and the Democrats continually seem to place on businesses and the wealthy have me more concerned about our future than anything else. The tone is continually negative. I, as a Christian, am fully aware of the great virtue of helping those in need and the satisfaction one can receive from making a difference in the lives of others. There is no virtue in forcibly taking money from one person and handing it to another. That is stealing. However, everyone loves the story of Robin Hood and enjoys painting the rich as the villain and the poor as the victim. Throughout the history of the world that was generally the case as the rich demanded production from the poor for little to no pay for their own benefit, whether it was through slaves or serfs or through the nobility class structure enforced. America was different. America allowed business owners to keep their profit. America encouraged hard work, risk taking, talent, and creative thinking. The poor could become rich and the rich could become poor. America thrived.

Now politicians are to make us believe that the rich are guilty by definition and the poor innocent in a similar way. We are to tax the rich as much as possible to make them pay for their guilt and give it to the poor who deserve it. Barack Obama is playing Robin Hood and is receiving a hero's welcome. Yet, there are several problems with these ideals in the long-term.

The first issue is that the wealthy should not be, by definition, the villain. I admit that I have met several selfish, greedy rich people in my day that I wished were more generous with their wealth. On the other hand, many wealthy individuals worked very hard for their wealth and do share it. Bill Gates and Oprah Winfrey are both large philanthropists. Even if one chooses not to share his wealth, I think we should be careful in labeling these people the villain of our economic story. The successful entrepreneurs of this country have taken the risk and some have made massive amounts of money. The ones that have grown their companies have employed many people, purchased many supplies and services from other companies, paid a great deal of taxes, and, thus, greatly helped our country's economic condition. We should be careful of chastising and penalizing these individuals. We may not like them, we do not have to socialize with them or even enter into business with them if we do not like, but as long as they are making money within the legal boundaries of this country, we should applaud their effort, not revile it.
Take Exxon for example. Each quarter I have heard about "record profits" (I suppose this has or soon will come to an end) and the slant of the story is that they are evil for making so much money. I don't pretend to know the workings of oil and gas companies, but as long as they are not breaking any laws through price control collusion or otherwise, I don't see why they should be scorned for making money. Isn't that the objective?

The second problem is that taking from the rich and giving to the poor in an open and free economic country will eventually lead to the much worse things for the poor and middle class. Many will become impoverished. There is great risk and work in starting and owning a company. I have often thought of starting my own business, but these factors have and probably will prevent me from doing so. People take these risks for different reasons, but a key factor is the hope that they could become wealthy. If the government's tax structure penalizes income too severely, man will not be willing to take the risk. Those already in business may choose not to expand as the risk doesn't meet the reward that has been greatly diminished through taxation. Combine Obama's suggested new rate (39%) along with an average state income tax rate and Medicare (I'll leave out SS because it is capped, but this too could be changed), and for every additional dollar a successful businessman earns, the government will take about half. That is a factor in deciding to create or expand a business. If the business leaders of the future decide that the tax burden diminishes the reward too much to take the risk, our economy will not grow, it will decline. Where will the jobs be for the middle class? How could the poor hope to find a good job?

An example of this worked its way through General Motors. The union was very strong. It pushed for better pay and benefits for its workers as hard as it could. The workers loved the union. Why? Because the union was able to negotiate more pay than they could have received anywhere else, pay that was over the market value of the employee. In my town, it was probably the best jobs one could have if he did not have a college education. GM gave in many times on the pension benefits, pushing the cost down the road. They have struggled along and finally reached the end that for which they were destined, bankruptcy or government subsidy. GM cannot compete with foreign auto makers who have lower labor costs. The union helped the workers of the that day as the owners took less profit, but eventually the company failed and the workers now will be out of jobs or taking less wages. Such is the path of our socialist agenda, help everyone we can now and leave the future generations to suffer the consequences. Nothing in life is free, the cost will eventually be paid in full.

What of the government jobs? Who do you think pays for those government jobs? It's taxpayer money, and who pays the taxes? The top 10% bear an extremely high percentage of the tax burden. If they refuse to expand and create, then they refuse to pay, and if they refuse to pay the Federal government will be in serious trouble even more quickly. One, even a world super power, cannot borrow forever without showing some ability to repay its loans. The US is sending warning signs that they will never repay their debts. If the national debt were divided evenly, each household in America would be responsible for about $100,000 of the national debt. Yet we spend more and give more out in "entitlements" as if it doens't matter, falling deeper into that hole while President Obama is discouraging those who can produce and those whose production could trim away at the national debt from producing.

One final statistical point. Over the history of our country, the amount of tax revenue has not been correlated to the highest tax rate imposed. Conversely, it has been closely correlated to our GDP. There are various reasons for this, but the evidence suggests that Obama's tax hike on the rich will do nothing to raise tax revenue, it may actually do the opposite as our GDP shrinks. President Obama is an extremely intelligent man, I would hope he is aware of this data. If so, there are only two reasons to raise taxes on the wealthy in the midst of a serious economic downturn - to satisfy his constituency and/or to punish income/success. Neither is noble or acceptable.