This is a flim flam man alert, brought to you by the letter “C” for “care”. Demand to know which taxes and why, when and how!
The Republican benefit to the American people, based upon the words of Mitt Romney and Paul Ryan, rests primarily in the promise of an economic boon for all. This benefit, they claim, will happen because tax cuts will create more jobs. More jobs will be created because business owners can afford to hire more people with any money not paid to the government, or can afford to buy more things from other companies, who, in turn, can use that money to hire more people instead of giving it to the government.
This notion appeals to our common sense and there is even some truth to it. We like simple, believable things. But as we know, common sense is rarely the whole picture.
The claim that Mitt Romney and company repeatedly make is that the majority of people are employed by “small businesses” and these “small businesses” are taxed as the individual who owns those small businesses; most likely a sole proprietorship or a simple Limited Liability Corporation. The misleading part of this argument is that federal taxes are assessed on your profit, not your expenses. You write off all of the money you have paid to employees, along with other valid expenses, and then you are taxed on that amount.
As such, changing this owner’s tax rate does nothing to help him hire more people – he can hire as many as he has income enough to hire, and not pay any taxes on the amount of money he has passed on to his employees. Even if his tax rate were 80% he could still hire as many people as he had gross income to cover, and only be taxed on the amount he personally had left over after he paid them.
So lowering this guy’s tax rate does nothing to help him hire more people, unless you believe that with his personal business profit he took for himself, he would choose to hire someone else for the company, instead of using the company to hire that person. And he would be very stupid to do this, because he already lost some of his profit to taxes – so why not just do it as a company expense before taxes? Of course, if he had enough profit he might want to hire a full-time maid or cook, and that couldn’t be expensed to the business. And in that case, perhaps there is some very minor economic benefit.
But the benefit is, most certainly, minor. When one has a good deal of extra personal money beyond the business, you only spend so much on personal things, putting that money into the economy. Most people will invest this money into stocks or bonds, taking advantage of even more tax breaks, making that money work for themselves.
This is where Mitt Romney’s smoke and mirrors are doing their best work. When Mitt Romney or Paul Ryan talk about cutting taxes, they are not talking about which types of taxes and why it might matter. When you buy stock, you are basically buying a chunk of a company, hoping that company’s value will rise. Well, some people use Wall Street trickery to hope the value decreases instead, but that’s another subject. If you buy enough of that company’s stock, you effectively own that company.
Now, when you buy a company’s stock and hold onto it, you might decide to sell it later for cash. Depending on what people are willing to pay, you might be able to sell your stock shares for more money than you originally paid for them. This money you made – this income – is called capital gains, and it is taxed at a different rate than people’s normal income tax. It is, in fact, taxed at a much lower rate. Right now, it’s 15%.
So if you decide you are going to buy Boeing, for example, and purchase 10,000 shares at $70/share, it will cost you $700,000. Let’s say a year passes, and Boeing’s value has gone up to $80/share, and you decide to sell all 10,000 shares for $80, meaning you get $800,000. That means that you have just made a capital gain of $100,000. You didn’t have to hire anyone to do it, either. You didn’t have to create a single new job. You just made $100,000 and you get taxed at 15%. If you were to make that same $100,000 by working for wages, you would have paid significantly more money.
This is the main way that people with money make more money. They do nothing whatsoever but ride the waves in the changing values of companies. There are companies out there, like Bain Capital, who purchase controlling shares in companies and subsequently do various things to that company to either increase that company’s value, or strip it down in order to help further other interests they might have elsewhere. You don’t give one whit about job creation. You can only care about increasing money for your own investors. Any impact on people can only be seen in terms of money, and if you make more money for your investors by destroying a thousand jobs, that’s what you do.
And the money you’re making for your investors is capital gains, taxed at that very low rate. This is the rate that Mitt Romney is most worried about. Honestly, the income tax on rich people doesn’t matter at all – it could really be 100% and it wouldn’t make any difference because most rich people aren’t being paid normal wages – they’re being paid capital gains at the 15% rate. Dividends count as income, though, which is a good thing – but very few companies even pay dividends any more.
Mitt Romney, Paul Ryan and the Republican party leadership don’t really care at all about income taxes on rich people. I honestly don’t think they care about income taxes on the middle class or poor either, other than they might be able to buy more things. What they do care about is the capital gains tax rate. They want it kept as low as possible because that’s how people with money make most of their money. It’s rich people income. And it’s the lowest tax rate we have.
Remember this when you’re hearing all the obsession on lowering taxes. Lowering taxes is good, especially for people with not a lot of money. But keeping capital gains taxes so low is doing nothing good at all. Now it might, if that vast amount of money was ever spent on things in the economy. But it’s not. It’s only used to buy and sell ownership in companies. It has to be, right? I mean, it’s the lowest tax rate, right? But it doesn’t help the economy. In fact it is the very essence of, if you want to make money, you have to have money first.
What escapes most Republicans, and indeed most people, is that companies – the management and the employees – are the ones doing the hard work, generating value and creating jobs. The people making capital gains are simply harvesting that hard work. Why not siphon out some of that “free money” and put it to work on such things as building our schools into cathedrals, elevating our next generation to levels unimagined? Why not channel that money into even more help in to private sector, who is just starting to reach out into space? Why not channel some of that money into making sure everyone can see a doctor?
It would certainly be a better place to live, here in these United States, using some of that money for our betterment as a whole, rather than giving only the wealthiest amongst us the lowest tax rates of all people, and even with that, allowing them to hide much of it off-shore. How does this demonstrate caring about anything but themselves? How can anyone believe we’re all better off that way?