The problem with supply-side economics as a theory is that it's too broad.
When dealing with tax rates, there are really two completely different tax
debates. First, you have the individual tax rate. And secondly, you have the
corporate tax rate.
Individual tax rates in the United States are too high at the higher levels.
But I don't believe that lowering this rate would improve the economy in any
noticeable way. Contrary to what Bush thinks, whether the money is in
individuals hands or in the hands of the government, it's still being spent. The
economy is much more affected by consumer confidence than anything else in my
opinion and I would say Bush made a big mistake wrecking the surplus for tax
cuts. Consumer confidence, I suspect, is higher when the government is paying
off its massive debt than a few hundred bucks in tax cuts on a typical
Corporate tax rates, on the other hand, do affect the economy. Every liberal
I know always claims to various degrees how corporations don't pay taxes. But a
simple look at the federal revenue stats show that obviously corporations are
paying taxes. Those billions in tax revenue are coming from somewhere. And I
believe that nearly every penny of that money is harmful to the economy overall.
The companies making the profits are the ones who are obviously the most
effective at managing their resources. So why punish them? In addition, the
federal tax system is...well idiotic. At $49,999 of profit the corporate tax
rate is 15%. At $50,001 it jumps to 25%. And Michigan, where Stardock is based,
has the ridiculous "single business tax" whereby corporations cannot deduct
wages as an expense. Meaning you can lose money and still pay taxes in Michigan.
But it gets worse. At $100,000 in net revenue, companies pay 39% of their net
to the government. Again, a liberal will argue how corporations find "loopholes"
to get out of paying this. Hey, if you think that, then show me the money
because I'd love to hear about specific loopholes. Sure, some companies
manage to make tax deals with state and local governments. But that doesn't
affect their federal taxes. In addition, while you do occasionally hear about
some elaborate shell games being used to keep tax payments down by some fortune
500 company, the fact is that most people are employed by small and medium sized
businesses. I know a lot of business owners and virtually all of them operate
quite transparently from a tax point of view. They simply are trying do what
their business does. That's what we do as well.
Not that that stops me from asking our accountants about these loopholes I
always hear about at dinner parties. My accountants say that most loopholes fall
into the urban legend category.
A company that nets $300,000 in revenue this year is going to pay $117,000 in
taxes on that. The question then comes, who is better at spending that $117,000?
The business that just proved its effectiveness by being so profitable or the
government who wastes money at an incredible rate because no one feels
responsible for it? What would the typical successful small business do
with that? If you listen to some people you will hear something like "The owner
will just buy a boat." People who say that kind of thing have one thing in
common: They've never run a business. Most small business owners would take that
money and give some raises probably to key employees, hire another employee,
improve infrastructure, and perhaps give themselves a reasonable bonus.
The thing to remember though is that bonuses and raises are taxable. So the
government doesn't lose that tax money. Similarly, if the corporation hires more
people, what's happened? More tax payers.
Of course, Bush has done virtually nothing to help businesses,
particularly small businesses. This isn't a Republican vs. Democrat issue as
much as it is a basic misunderstanding of economic forces. We do live in a
society that increasingly tries to demonize the very entities that provide jobs
-- corporations. Cutting corporate tax rates would have virtually no negative
effect and provide great benefits to society in the long run through economic
growth. Instead, we currently punish the most successful companies at the very
time we should be trying to encourage hiring and expansion.