President Trump has produced an ambitious tax plan that has people with more knowledge about economics than I scratching their heads as to how in the world he is going to pay such dramatic tax cuts. For those like me who do not understand all the nuances of economics, the logic behind Trump’s plan is simple: lower taxes mean that businesses can hold onto more money and expand, thereby increasing their overall wealth and growing the economy and therefore the tax income. It is not a stupid plan if your plan is to grow the economy and it makes sound sense.
What it depends on, however, is businesses taking those tax cuts and using them for growth. For example, let’s say company x receives an extra $1,000,000 from the tax cuts. Now, suppose they could also hire more people and open a second location thereby adding $500,000 to their yearly revenues. On the other hand, with that bump in income, they are taxed $100,000 more. So the natural thing to do if you are a business that will, in the long run, make you more money, is to not grow.
Think about it: if you choose not to grow, you get $1,000,000 more than you were making before. But if you grow, you not only spend that money, but you will actually end up losing that tax break. My wife and I recently did our taxes and found that, had we made a little less money last year i.e. not worked as hard and not grown, we would have gotten a better return. The business operates on the same principle. By not investing in growth and pocketing the money instead, they come out ahead.
There are plenty of reasons besides that for a business not to grow. For the small sandwich shop that has no aspirations of growing larger, a tax break just means greater income from the business you currently have. In fact, a small business owner is less likely to expand because it involves more risk to do it. Therefore, the sensible small businessman will pocket the extra money, not raise wages, and not hire any more staff, while increasing his profits.
This catastrophic inertness occurred recently in Kansas. The state made massive cuts to taxes. The result was massive budget shortfalls and minimal to no growth. The Kansas legislature believed that lower corporate, property, and private taxes would increase economic activity. When it didn’t–because trying to expand a business in a state with more cows than people is insane unless you are in the grain business–government institutions like schools and public assistance suffered. Thus, businesses became wealthy on the backs of children and the poor. Kansas is now trying to fix that mess with tax hikes that are–surprise, surprise–unpopular.
Like the Marxist Materialists in the Democrat Party, the Randian Materialists in the Republican Party following the Orange Emperor are promising a materialistic paradise that they cannot make good on. We need economic approaches that focus on man and his nature, not his wealth or the wealth of other men. Unless we order our economy and tax policy to serve man rather than exploit him, then we will head to financial ruin whether the Marxists or the Randians are in charge.
The American Solidarity Party seeks to do just that. The first thing we need to do is incrementally abolish the income tax. First of all, the Federal government has no business meddling in the lives of the individual citizens; all its dealings should be with the several states in accordance with the principle of subsidiarity. A policy that focuses on taxing real property rather than liquid assets like income would be more just naturally as it would be progressive and distributed based on each person’s economic situation rather than setting up arbitrary brackets.
This is only one proposal as there may be others more suitable. The fundamental principle, however, is to meet the demands of justice and thereby protect the private property rights of each person and protect the right to acquire property, especially that of the poor. It worked for Poland.