This is why the Republicans harp on tax reductions....because that's the only way to inject more capital into the economy that doesn't increase the economy's dependence upon federal spending.
But tax reductions carry the seeds of another issue with them. Tax reductions are essentially unequal. A small percentage discount puts millions more in the hands of a very few while giving the vast majority of the people a minuscule and useless emolument that disappears without a trace into the general economy.
The illusion of the trickle down theory is that if we give more money to business, business will create more product and therefore create more jobs.
That might have been true once, a long time ago, but automation has made it possible to increase or decrease production without significantly increasing or decreasing staffing patterns on the production lines.
Note that the greatest number of jobs being created now are in low-paying service occupations. Temporary, seasonal positions at The Home Depot may make the jobless numbers look better, but that is obviously only a temporary solution. Within a year’s time, those temporary workers will be looking for work again.
Rich people spend approximately the same per capita on their immediate personal needs on a pro rata basis. They may buy more expensive items but they buy approximately the same number of items because even if the rich have more closet space than the poor, they are still limited in their purchases to the sizes of their closets.
When you give tax breaks to the rich, they spend their tax breaks on more expensive toys, but those toys don’t add significant numbers of jobs to the economy and sometimes none at all. Expensive art and antique purchases, jewelry, and even homes, don’t add large numbers of jobs to the economy, and some add none at all.
The idea that tax reductions will result in business investment is laughable. Personal tax reductions cannot be directly injected into publicly traded firms and small businesses, contrary what you have read elsewhere, contribute an annual increase of approximately 31,600 per year to the economy.
The Small Business Administration estimates that, in 2008, there were 627,200 small business start-ups and 595,600 small business failures, for a net gain of 31,600 busineses. If each of those businesses employed 500 people – the maximum for a business defined as small – they would generate 15.8 million new jobs. More than 52% of those small businesses were actually home-based businesses, which employed an average of three people each, which means that 16,500 small businesses provided employment for less than 50,000 people. The remaining 15,200 businesses employed anywhere from three to 500 workers. Since very few businesses start up with 500 employees all at once, let’s use the median of 251employees per business: that 48% of the new “larger” small busineses actually provided employment for 3.8 million workers.
But the vast majority of the new businesses created each year don't have that average number of workers. According to statistics from 2004, there were a total of 5,066,703 small businesses incorporated businesses in America.
Of these, 55% had one to four employees, including the owner, 21% had 5 to 9 employees, 13% had 1o to 19 employees, 10% had 20 to 99 employees, but only 1.7% had 100 to 499 employees.
Those are disheartening numbers for anyone who thinks that small businesses will save America. The won't.
Now, let’s not forget that a whopping 95% of those new businesses will fail within two years.
Small business isn’t the way out. It’s a dead end myth.
And then, finally, we come to cutting "entitlements" where all of the same caveats apply. Cuts to entitlements will trickle down through the economy causing further economic dislocations.
Cutting Social Security payments, which no one is publicly talking about yet, would have some dire repercussions:
Senior citizens who rely on their social security payments to cover mortgage or rent payments would go into default. Those who don’t go into default will cut back their optional expenses. No more eating out. Eating out is important to seniors because, often, their jaded appetites require the stimulation of unfamiliar foods.
You will hear arguments that if we just shave a few percent off the monthly payments with an across the board reduction that no one would be harmed.
Bullshit. Many seniors have their expenses figured to the last dollar and cent. It is heuristic nonsense for anyone to suppose they know what anyone else’s budget can afford to lose.
Add a three percent reduction in social security payments, which is the number that will eventually be proposed, to the three percent cost annual inflation rate and you get a six percent loss of income power for approximately 59.4 million people who are receiving some form of Social Security, an amount that totaled almost $700 billion in 2010.
Take six percent off that, and the economy will lose some $42 billion a year in spendable dollars…along with untold numbers of hardships for our senior citizens.
All that pain and suffering gains us only a third as much as ending the wars in Afghanistan and Iraq.
Get the picture?
The sour joke is that even if we could reduce the federal tax rate to zero, that would only inject 30% more revenue into the economy (averaging between the lowest and highest tax rates), and that's not nearly enough to generate the economic boost Republican strategists are hoping for when the push for tax cuts.
The ultimate answer is, of course, revaluation of our currency.....and it's also the only answer. Our trading partners don't like that answer because that will dilute the value of their American investments and will adversely impact the value of their exports into the American market.
These are wages the world must pay for the 65 years we have spent keeping the world from falling into a state of perpetual worldwide warfare. Those chickens are coming home to roost now. The Lend Lease debts that were never repaid, the vast expenditure of American treasure expended to beat back the barbarians at the gates in three world wars (Korea was a world war) and a dozen other conflicts, and the incalculable costs to the American psyche is a burden the world must share with us because there is no other alternative.