Top down economics does not work. If we give more money to the wealthy, or big
business, they are not going to immediately turn around and hire more people, nor
will they immediately spend it. They may
spend some of it, but they will choose to save or invest a significant portion
of it. Why is this? Because the wealthy have most everything they
could want or need. Money that is being ‘saved’
does not grow the economy. Companies do
not hire people simply because they can afford to; companies will hire people
when they feel they can no longer meet their customer demand with their
existing workforce, and therefore decide hiring more people would increase
their income. Companies like making
money. They will not hire more employees
for no reason. It’s all about maximizing
efficiency.
On the other hand, if we have a tax system that gives more
money to the lower and middle class, they will most assuredly spend the vast
majority of it. If I give more money to a
family making $40,000 per year, they might use that money to buy a new car or
appliance. They might also get a gym
membership, or subscribe to cable TV or another service that they couldn’t
previously afford. When they purchase
these goods or services, the companies providing them will see growing
demand. Eventually, the growing demand
will put them in a situation where their existing workforce cannot meet the
demand. When that happens, the companies
will hire more people so that they can continue to grow. This is how we grow the economy. It doesn’t happen overnight, and we have
begun to see progress of this in the past few years. Making changes to our tax code that favor the
wealthy at the expense of the lower/middle class will move us back in the wrong
direction.
Think of it this way.
Imagine that you are a single person with $5,000 per month in after-tax
income, and you’re looking for a place to live.
You have nobody living with you, no pets, and are uncertain what your
income is going to be in 5 years. You
find two places. One is a 5 bedroom, 4
bathroom home for $3,000 per month. The
other is a 2 bedroom, 2 bathroom home for $1,000 per month. Based on your income, you can afford the
$3,000 home. But chances are you will
choose the smaller home. You don’t see
the reason to spend an extra $2,000 per month, for 4 bedrooms and 3 bathrooms
that you will never use. You are
thinking about the future, and so you decide to take the smaller home so that you
have an extra $2,000 per month to play with.
You put $1,000 in savings each month, and use the other $1,000 to buy
some toys for yourself. Companies think
the same way. If they need 20 employees
to complete the work required, they are not going to hire employee number 21
simply because they can. Just like you
won’t upgrade to the 5 bedroom home until you have enough family members to
fill more rooms, the company won’t hire more employees until there’s work for
them to do.
Now let’s look at two people. One makes $1,000,000 per year, and one makes
$30,000 per year. If I increase the
income of the wealthy person to $1,001,000, it is not likely that they will run
out and spend the extra $1,000 each year.
$1,000,000 is plenty to meet his/her needs. If I give an extra $1,000 to the person
making $30,000, however, it is almost guaranteed that it will get spent. When someone is living paycheck to paycheck,
he/she has chosen to forgo certain products or services. That extra $1,000 will enable that person to
purchase something that he/she has been holding off on. That extra spending grows our economy. A wealthy person sitting on another $1,000
does nothing.
On the other hand, making a tax change that hurts the lower/middle class has the opposite effect. If we decrease the take home pay of someone making $31,000 per year by $1,000, that's $1,000 immediately removed from our economy. If we give that $1,000 to a millionaire, there's a good possibility that $1,000 will sit in savings, further shrinking our economy.
Raise the taxes on the wealthy to benefit the less fortunate. In doing so, we will take money that is
sitting idle and give it to people who will spend it. The spending of this money will grow the
economy, and thereby promote job growth.
When people, or businesses, have more money than anyone could possibly
ever need, and choose not to spend it, this cripples our economy. Give the money to those who will use it. Let’s get our economy growing again.
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