We are constantly being told that reducing taxes for wealthy “job creators” will result in more jobs. Yet our experience with 30 years of tax cuts tells us that the opposite is true. Why is that?
Here is what politicians gloss over: Personal income taxes only apply to the money that a business owner takes out of his business.
Imagine a business that has just earned $1.2 million in profit. Suppose the owner pays himself a salary of $200,000. What happens to the remaining $1 million?
The owner could choose to reinvest that money into growing the business. This results in more jobs, higher salaries for his existing workers or both.
The owner could also decide to keep the money. If tax rates for this additional $1 million are low, say 15 percent, the owner would get to keep $850,000. If tax rates are high, say 50 percent, he keeps only $500,000.
It’s fairly obvious that he is more likely to choose to reinvest the money when his tax rate is higher, and keep the money when his tax rate is lower.
The Republicans have this issue exactly wrong. If we want to create more jobs, we need to raise the personal income taxes of the rich. I can understand why rich people don’t want to pay more taxes. What I can’t understand is why the GOP, at a time when the middle class is hurting and the rich are thriving, wants to enact policies that will make the situation worse.
Back in the 1960s, I remember watching Walt Disney open an episode of “The Wonderful World of Color” by sorting a stack of money into three piles. As he counted, he would say, “One for me, one for her and three for Uncle Sam.”
Tax rates for the wealthiest Americans were much higher in those days. Walt made his point, but he never whined about class warfare. Instead, he built Disney World.
— Bill Myers, Buffalo Grove