Friday, October 24, 2008

Beneficial Effects of Tax Cuts 101 or The Parable of the Stairs

FRIDAY: An Obama market panic? Should we fear Obama's tax and regulation policies and are the markets factoring this in now?

Yesterday I posted a little parable on how Obama's government redistribution of wealth plan works in simple terms. Greg Cotham at The End Zone came along, commented and called our attention to another little parable that James Lileks wrote four years ago on what he had done with his tax cut by building a new staircase. It highlights the economic realities of how tax cuts help individuals and the economy. Lileks tells the story of a childish Kerry campaign worker who knocked on his door with no grasp whatsoever of how the economy really works.

Here's Lileks post which I'll call....


"A minor political note, if you’re interested in such things. The other day a young girl came to the door to solicit my support for her presidential candidate. I asked her why I should vote for this man. She was very nice and earnest, but if you got her off the talking points she was utterly unprepared to argue anything, because she didn’t know what she was talking about. She had bullet points, and she believed that any reasonable person would see the importance of these issues and naturally fall in line.

"But she could not support any of her assertions. Her final selling point: Kerry would roll back the tax cuts.

"Then came my Parable of the Stairs, my tiresome, shopworn, oft-told tale, a piece of unsupportable meaningless anecdotal drivel about how I turned my tax cut into a nice staircase that replaced a crumbling eyesore, hired a few people and injected money far and wide - from the guys who demolished the old stairs, the guys who built the new one, the family firm that sold the stone, the other firm that rented the Bobcats, the entrepreneur who fabricated the railings in his garage, and the guy who did the landscaping. Also the company that sold him the plants. And the light fixtures. It’s called economic activity.

"What’s more, home improvements added to the value of this pile, which mean that my assessment would increase, bumping up my property taxes. To say nothing of the general beautification of the neighborhood.

"Next year, if my taxes didn’t shoot up, I had another project planned. Raise my taxes, and it won’t happen – I won’t hire anyone, and they won’t hire anyone, rent anything, buy anything. You see?" I said.

“Well, it’s a philosophical difference,” she sniffed. She had pegged me as a form of life last seen clicking the leash off a dog at Abu Ghraib. “I think the money should have gone straight to those people instead of trickling down.” Those last two words were said with an edge. “But then I wouldn’t have hired them,” I said. “I wouldn’t have new steps. And they wouldn’t have done any work to get the money.”

“Well, what did you do?” she snapped. “What do you mean?” I said. “Why should the government have given you the money in the first place?” “They didn’t give it to me. They just took less in taxes of the money I earned. Then I turned around and invested it in a home improvement project that provided work and income to others.”


What an embarrassing, ignorant and childish demonstration of the economic realities of freedom and capitalism this woman shows--all too commonly seen in voters today. She actually thinks capitalism is the enemy. Capitalism frees people from all manner of bondages. Two important points I'd like to note again:

First, the men who were hired by Lileks to build and supply materials for the new stairs all received income from the project which they in turned were taxed on. So in the end, there were more tax revenues than there would have been had there been no tax cut.

1.TAX CUTS INCREASE RATHER DECREASE TAX REVENUES FOR STATE AND FEDERAL GOVERNMENTS. What part of this don't the likes of Barack Obama, John Kerry and Nancy Pelosi understand? It's the way wealth is really spread around to help people and society.

Second, government doesn't create jobs or wealth. Prosperity happens outside government in the free markets of society and businesses 100% of the time.


Steve Forbes writes on how capitalism can and will save our economy.....if we let it. Well informed readers will want to know and read the whole thing.


Susan Kaye said...

I remember reading this Lileks' post when it was fresh and new. It is still a favorite. Here is a recent post from the Barrister at Maggie's Farm with the same gravitational economics lesson at its heart. Hey Barak, I'm Rich ...

Like the site, by-the-bye.

Webutante said...

Susan thank you. Just read your link and will print it on my front page soon. It's one of the best examples of the slow down that will indeed happen in our economy if Obama is elected and raises taxes or lets the current tax cuts expire. When will voters see the complete folly of electing such a liberal/socialist?

Come back often and please let me know if you'd like to write anything for my front page. Best wishes.

hg said...

I see Obama having nothing to do with the slow down in the economy. It's a reflection of the Bush deregulation and the turmoil in the world markets in general. The tax Obama is talking about on personal incomes over $250,000 will have zero effect on business investment. Repeat, this is a personal tax, not a business tax. If a small businessman or woman can clear $250,000, good for them and then belly up to the bar.

Webutante said...

Bush dereglation? Of what praytell?

As for the other, please go back and read the above post. If that's the kind of economic de-activity you pine for then pull that level for an Obamanation and help yourself.

Jet Beagle said...

hg: "The tax Obama is talking about on personal incomes over $250,000 will have zero effect on business investment."

Not sure where you learned economics, but here's what I learned at Wharton:

When the government takes money out of the economy, it always spends it less efficiently than would the private sector. Always.

Sometimes the private sector uses its disposable after-tax income to purchase goods and services. Those personal purchases drive businesses to make further investment in productive capacity and in inventory.

Sometimes the private sector uses its disposable after-tax income to purchase stocks and bonds of businesses. Those personal investment purchases fund business investment.

The level of personal taxes hugely affect business investment.

John Dewey

gcotharn said...

Thanks so much for the fun blogging, the link, and for trying to put my name: Greg Cotharn, in your post. I plan, Janet[wink], to return the favor soon.

Webutante said...

I am profoundly sorry, Greg....and fyi can mangle and misspell the shortest name and even the most obvious word in the dictionary. Will try to get it right from here on. And am rather glad that I was astute enough to get at lease two letters---"G" and "R" in my attempt. Hope you'll hold my feet to the fire on this in the just a small town, country girl.

staghounds said...

1. It isn't panic to rush for the lifeboats when you see the torpedo coming.

2. The very best thing about the stair parable? Everything in it was voluntary.

gcotharn said...

I meant to tease you about "just a small town, country girl". Whenever someone says that, I know I'm about to get took. The good thing is: there's a decent chance I will enjoy it. But, enjoy it or not, either way, I'm about to get took, as I likely do not possess the cleverness to avoid such a fate. I know my chromasomal limitations.

Webutante said...

Now that's funny. Actually very damn funny, G, GR, GRE, GREG! Yeah!

And let's face it. Every itty bitty teensy weeny little laugh helps these days. Humor is getting a bit harder to come by on the planet where I now live. All kidding aside, I didn't say that just to take you (well maybe a little). Sometimes it's just a way to amuse my forlorn little self as I pack to move to Australia.