Raising Taxes To Create Jobs

Romney loves to say that lowering taxes on companies will create jobs. This is spoken like some gospel truth. I actually stopped to think this through tonight and came to a much different conclusion. 

I believe that higher taxes can actually encourage increased hiring and investment. Why? Because, as a small biz employer (structured as an S Corp) company profit flows through to my personal taxes. As both candidates regularly note, 90%+ of all businesses are structured this way.

So if you reduce my tax rate then I'm more likely to take money out of the company since the penalty for doing so (taxes), is reduced. Whereas a higher tax rate means I'm incentivized to take a reasonable salary and continually reinvest the profit in the business- new hires, marketing, etc, instead of taking the profit and paying the taxes. This reinvestment will then grow my business. So I hire more people, the economy grows and the value of my business also grows. Everyone wins.

Also, consider what happens to the profit business owners take out of their companies with this lower tax rate. Will they reinvest it here or overseas? Chances are they will do some of both leading to an exodus of cash. 

I am, of course, writing from the small business perspective. An enterprise (think Walmart) business may see this differently but from where I'm sitting: higher taxes=encourage reinvestment=more hiring. Am I missing something obvious here? 

The Case For Redistribution Of Wealth

I love Monopoly. It was my favorite game growing up. Capitalism 101. But there was another lesson I was learning as well- it's no fun to play when you own everything. The end of a Monopoly game is pretty boring. You are just taking turns waiting for your opponents to go bankrupt. So when I was winning I would often "loan" others money just to keep the game going. Yes, I was a tax and spend liberal at a young age.

Redistribution of wealth has gotten a bad rap. The Republican party has done an excellent job of demonizing it. To many observers this is deeply ironic since Republicans have also worked to create tax code (hello Bush tax cuts) that redistributes wealth towards the rich. Fox News recently tried to distract their viewers away from Romney's 47% percent comments with a decade old recording of Obama saying he believed in redistribution of wealth. It was presented as damning evidence- how dare he suggest the government redistribute wealth! In reality, that is one of government's core functions.

I believe that a healthy, diverse economy requires redistribution of wealth.  I also believe that government is the only institution in a position to do this redistribution. When companies and individuals amass huge amounts of wealth they need to be encouraged, or if necessary- forced, to put that money back in play. How this money re-enters the economy is another area where the government comes in. 

Government needs to pick winners and losers. Clean energy, technology, life sciences, local food- these are the future of our economy. Fossil fuels, housing booms, big farm subsidies, processed food- these are the past. Tax code must be written, and often revised, to encourage the industries that will build our future. Too often we see government incentivize mature industries that don't need it- oil being the most obvious example. This is often done in the name of "jobs" but that thinking is incredibly short sighted. The jobs these aging industries create may not survive the coming changes disruptive technologies will bring. So the investment will be lost along with the jobs we could have had from investing in new technologies.

Markets cannot be depended upon to protect our future. They aren't built for it. Our strategic direction, economic and otherwise, needs to come from government and non-profit institutions. Organizations that can step outside of the day to day and consider 5, 10 or 100 years out. Organizations with no other interest than the good of the country or the world. They need to help us answer: how do we prepare for the future? What investments do we need to make? And no matter how you answer that question, redistribution of wealth will be part of the equation. 

Betting On Mitt Romney

I recently took my business coach CJ McClanahan up on an interesting bet. He would have 1 hour to convince me to vote for Mitt Romney and if he failed then he would take me and my wife out to a nice dinner. I'm thinking Late Harvest Kitchen but I don't want to get ahead of myself. He is confident he can convince me to change my allegiances. I seriously doubt it.

It's not that I don't vote for Republicans. I have voted for Mitch Daniels, Dick Lugar and came close to voting for Mayor Ballard in the recent election.  I look for leaders that have a clear, compelling and consistent vision and a track record to back it up- regardless of party. Although I don't buy into many of the comparisons between government and business I do think, like business, that every effective leader follows their own path. This means they wil make decisions others disagree with. So I don't approach politics as much from ideology as practicality- can this person be an effective leader?

I don't see Romney as providing a clear, compelling and consistent vision. He is the quintessential shape shifter and his campaign is remarkably opaque about how he would actually lead. From his track record it appears he may be more moderate than his current positions would suggest. But we are left with the option of voting for someone (Obama) that has been mostly consistent and often compelling (if not always as clear as needed) or a wild card. They both have the experience. At this point you can't seriously argue that Obama is inexperienced. 

The reality is that the Republican party knows this is probably their last chance for a serious power grab. If they don't get control of all three branches of government in this election they may not be able to change the rules of the game to favor their fading base. Every 4 years pushes this country towards a more liberal voting base. Look at the radical shift around gay rights/marriage in the past decade. We will see similar, even greater, shifts in the coming decade as the realities of the new economy and climate change settle in. The GOP's base is, frankly, dying off. It will be hard to convince me to invest in the a political party that is dedicated to returning to a fictional, nostalgic past. But I'll let CJ give it a try. As my Dad says "eat up kid, it's free!".