President Obama said we are on the verge of making history. The history he refers to is the prospect of signing his name to the Health Care Reform Act and making it law. History making will cost money. So, heads up! Taxpayers of America you are on tap! Forget the Obama campaign promises of tax relief for 90% of the people and a tax threshold beginning at $250 thousand. If you are earning money or have income of any kind, the federal government will have an Internal Revenue Service form for you. Congress will be very reluctant to increase taxes with an election coming in November, so there will be some very crafty moves with the tax targets in the range of something under $200 thousand--still close enough to fudge on the Obama campaign promise. The spin from the Congress and the presidency will be these people can afford to pay and there will be no adverse affects upon the nation’s economy and job outlook. Many people disagree, and say there will be adverse affects. Economist Arthur Laffer says there will be. Business owner and investor Steve Forbes says taxes are job killers. An article of faith of Conservative people across the country is the belief that taxes take wealth from the economy, weakens its vitality and hinders job growth. This is a concept shared by many Republicans and a few Democrats.
Will raising the taxes on incomes of people have an adverse affect on the economy? One of the first areas affected is a direct loss of jobs and the slowing of job growth. The reasoning and conclusion follows. Money (income) taken from high earners in the form of taxes is felt by them as a loss of purchasing power which is the same as a loss of income. These are higher income persons who are very much aware of their living needs and aspirations. A closer look at these people will show they are educated, experienced, skilled, ambitious, creative, achievers--they are in most cases key employees in their workplace as owners, managers, or directors of successful enterprises. How do they respond to a loss of purchasing power? If they own the business they will respond by raising their own pay to make up for it. If they are key employees as defined above, say an engineer in a small manufacturing firm, they will ask for more pay and likely get it--the company cannot afford to lose the talent. If they are in an enterprise where technical skill is in short supply they will get a pay raise. The response to the tax increase will be quite predictable; key employees will demand more pay, they will get more, and the resultant cost of doing business will go up because the cost of employees will go up. That is not all there is to it. There is a ripple effect.
The enterprises described above will have little choice but to increase pay and or benefits in order to keep their key employees. But most employers and companies do not have an unlimited source of money, so as they pay more in salaries (costs go up) they will look for ways to maintain profit for the company in order to survive (reduce costs elsewhere). Cutting costs is the hard part. All areas of the business will come under scrutiny for cost reduction, and one of the obvious places will be the payroll of non-critical employees. People who can be let go without noticeable reduction in product or services--people on the loading dock, the clean-up crew, support people, drivers, etc. There may be layoffs or terminations which will be loss of jobs for real people. In some companies the employers may be able to keep all their non-critical workforce on the payroll, but it is likely they will not get pay raises this time around. It will be these people at the lower levels of earnings who will take the brunt of the “high end” tax increase. They will hear the bad news from the boss, “Sorry, we have to let you go. Sorry, no raises for awhile due to tough times”. And finally, if the business does improve and begins to grow there will be no allowances for new employees. There will be no new jobs created at most companies during the unsettling climate of tax increases.
Many of the politicians in Congress and the administration do not understand how business and industry and the economy works. Their view seems to be that taxes levied on business and industry are paid by that enterprise, perhaps out of some pot of money each has in the backroom that is magically refilled every once-in-awhile. These enterprises are viewed as an inexhaustible source of revenue for the government and need to be tapped for the public good. If the money were left to the greedy entrepreneurs they would just squirrel it away, unused, in some secret place. Politicians are not alone in this view; many of the liberal writers, educators, and intellectuals are of this same mind as they see enterprises as a source of tax money, and they ignore the obvious connection that it is the consumers who really pay the tax. And they certainly do not see that it is the lower levels of workers who pay the highest price of all; the people who get laid-off or fired when taxes force businesses into hard cost-cutting decisions.
So, the question is, “Who is going to pay”? There is no getting around the predicament our country is in--we are deep in debt and getting deeper every day. Our congress and president cannot and will not curtail the spending even as they see the revenue coming in is inadequate, the frightening deficits grow, and the national debt balloons to predicted levels of 13 or 14 trillion dollars by year’s end. In spite of all that the Democrat majority, driven by their progressive members, have not given up on the agenda they came into Washington to do; that is they intend to pass into law one of the biggest entitlement (spending) programs ever in U.S. history called Health Care Reform. Never mind that the country is in recession, people are unemployed at levels not seen since the Great Depression, and the nation is trillions of dollars in debt. They are planning to do it. President Obama has said that we are on the verge of making history. Over the coming years we will find is the cost of “History”.
Hal is a ND native who grew up near McClusky. A Korean war veteran who served in the U.S. Navy from 1951 to 1955. Hal and his wife Lois have four children and eight grand children. Hal volunteers at the Bismarck Public Library doing book repair and restoration.