Wednesday, February 15, 2012

Economics for Corporation Tax-Cut Enthusiats

Say I'm in the business of selling widgets. Normally, we produce five widgets a day and sell five widgets a day, and make a reasonable profit on this. With the economic downturn however, we're now only selling four widgets a day, and our cash flow is starting to run negative. Unfortunately, we have to let go one of our widget-makers to make ends meet.

Republicans see this and give us a tax break to offset our cost. Now thanks to the tax breaks, we have the same positive cash flow as we did before and have enough income to pay our fifth widget-maker again. But why would we hire him back? We're still only selling four widgets a day, so hiring on a fifth worker would only earn us warehouse costs for storing overstock.

Meanwhile, the middle-class starts complaining about their cost of living, and Republicans tell them to pull themselves up by their bootstraps and manage their money better. Stop buying all those unnecessary luxuries like video games, appliances, and widgets.

The middle-class realizes that the Republicans aren't going to help them and tighten their belts. Now we're down to selling three widgets a day, and our cash-flow is going negative again. Our fourth widget-maker is let go. Republicans start flailing and demanding that our company needs an even bigger tax break so that we can keep our workers. But even if we end up paying 0% in taxes, the fact still remains that our company's income comes from the middle class.

Our income troubles are NOT because we are being taxed too heavily, it's because there is no demand for our product because the consumer class who supplies us with our income is being bled dry by the very government claiming to be helping us. Yes, more usable cash allows for us to create jobs but only if that cash comes from an increase in sales, not a decrease in taxes. It's the middle class who needs more free cash flow, not us. Once our consumers have more buying power, the money pumped back into the economy will find its way back to us, and we'll have the incentive to start hiring again.

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