Three Republican Untruths

I’m really unhappy with both Presidential candidates.  I think Romney is slightly less horrid, but I’m not inspired.  But both the Republicans and the Democrats have their tidy assertions for dealing with the world, some of which turn out to be untrue.  Herewith three things that Republicans say that, well, don’t add up.

Tax Cuts Create Jobs:  It’s true that nobody likes to pay taxes, and everyone likes tax cuts.  But the one point that everyone overlooks is that, when running a business, wages and benefits paid to employees represent a tax deduction.  One could argue that the government subsidizes employment through the tax deduction, in the same way that home ownership is subsidized through the deduction on mortgage interest.  If tax rates for businesses are lowered the value of this deduction is diminished, and the incentive is provided to cut employee costs by reducing staff and lowering wages.  Moreover, all the plans to ‘cut taxes’ are incremental.  If you cut taxes by half, it might make a difference, but a change of 10-15% won’t do much.  Certainly, there is no vast pool of jobs waiting to be brought on the market when tax rates are cut by, say, 10%.

Cutting regulation creates jobs:  To some extent this is true: regulation promotes entrenched big business at the expense of new upstarts.  But compliance and enforcement of regulation is an industry in itself, entailing millions of jobs and billions of dollars, in both the public and private sectors.  Cutting regulation would allow some new companies to take the field, at the cost of broader unemployment elsewhere.

If we can just drill more, all our energy problems will be over:  We like to believe that the energy companies are in the business of supplying us with energy.  They are, like all other businesses these days, interested in making profits now at the expense of everything else.  They’re more than happy with the current supply, and the market system that creates occasional hiccups that drive up the price without changing their operating costs.  If restrictions on drilling and energy exploration were relaxed, there would be little difference after ten years: we’d still have a cantankerous supply, dependent on countries that don’t like us, with occasional events that drive up the price just for kicks.

4 thoughts on “Three Republican Untruths”

  1. I get so upset when the whole tax issue comes up because neither party has it right. I have no issue with giving companies tax breaks to keep jobs here and make sure they stay here. In fact in Illinois our idiot governor decided to raise taxes on all the companies and many have fled with others planning to. This is dangerous. However the Republicans want to go beyond companies and give tax breaks to the rich. Contrary to what many think not all rich people are involved in companies, some were born rich and have no experience building companies. I have seen one of the tax plans the Republicans want to push and this one will make the middle class pay more while the rich pay less. Fair? I don’t think so.

    With regulation while I will agree some is unneeded others really are, like equal pay. If we had no regulation jobs would even be worse.

  2. People “create jobs” when there is money to be made or some other benefit for doing so. I hired a mason to drill a hole through the wall of my house to install a vent for my clothes dryer. Despite the fact that the house is 65 years old, this had never been done. Odds are that the former owners just opened the window to let out the heat. I could have done this myself, but I would have had to buy or rent an impact drill, and by the time that I finished the job, it would have cost me about what I paid the mason,who had the right tools. It made sense to hire someone because I had never done this before.

    We still have a progressive income tax code. We have been brainwashed about the value of tax deductions. They are deductions from income, NOT TAX CREDITS. In a low tax rate environment, deductions are not worth what we think that they are. My property tax bill of about $600 a year has a net after-tax cost to me of about $400 when I consider state and federal tax. One of the better things that was done under Reagan was to index income tax brackets to inflation so that we didn’t have “bracket creep” and experience a tax increase just because we got an inflation-adjustment on our pay.

    We can argue about the correct inflation index to use. My opinion is that the government’s inflation index, which has excluded the cost of housing since the 1970’s, has consistently understated the inflation rate by about 200 basis point, or 2%, annually. This is great is you want to avoid payment increases that are linked to inflation, like Social Security. Long term, productivity increases are a deflationary force. If I can produce twice as much per unit time, I should be paid more. I might not get all of my productivity increase reflected in my pay, but I should get a substantial piece of it. More production per unit time leads to lower cost per unit, even when the worker is paid better for being more productive.

    We have also seen incredible cheapening of goods to hold the line on price. Hedonic adjustments are taken to reflect improvement in computers, but not in the fact that much of the clothing that is available to buy is shot in a single season.

    Needing to borrow money for what you want to do drives up costs beause you will have to pay interest on the money that you borrow. Currently, interest rates do not reflect the risk of default in any sector. We are not adequately compensated for the risk that we take in lending. We forget that our bank deposits are immediately lent out, and that our deposits are liabilities to the bank.

    Regulation creates jobs, not kills them. I work in a chemical plant that is inspected by the CDC, the state department for environmental quality, and about eight other different agencies. The amount of oversight that we get would make your head spin.

  3. NWP: You’ve touched an important point. A state can ‘create’ jobs within its borders by lowering taxes. But in reality, the jobs are displaced into the state from elsewhere.

    I’m troubled by the idea that, if you’re a big enough business, taxes are negotiable. When I lived near Pittsburgh in the late 1980s, Pennsylvania was very proud of the Volkswagen plant that was being built with the help of a state tax abatement. When the tax abatement ran out… the plant closed. Last fall, I was on assignment in South Carolina. Amazon wanted to build a distribution center there, but required, as a condition for building it, that legislature deem that their facility did not constitute a ‘physical presence’ and therefore they would not have to collect sales tax on shipments to South Carolinians. Amazon ultimately prevailed, and the facility is under construction.

    Madness: We nominally have a progressive tax code. But there is a giant loophole: if you can get your income to be defined as ‘capital gains,’ like Mitt Romney, then you only pay half. Once upon a time, the capital gains exemption was intended to encourage investment in productive enterprise. But since so much investment is in unproductive enterprise (like the 54,076th flavor of mortgage-backed securities) it may be time to revisit this provision of the tax code.

    And you’re right about regulation creating more jobs than it destroys. I have a story about that, for another day.

  4. The corporate tax increase in Illinois really comes at a bad time for this state. Many things are happening, not the least of which is the increase of people moving here just for our generous welfare system (which ironically is mostly for parents and some disabled and elderly). Because of this, instead of cutting benefits the governor decided to raise taxes for corporations and everyone. Most of the neighboring states have lower taxes so the companies are going there. With less taxes the governor decides to cut programs benefitting the elderly and disabled instead of everyone else (now you know why I call him moron and idiot he really is one). So now people have to pay even more in taxes so him raising them on corporations in the first place hurts everyone.

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