Friday, August 31, 2012
Does taxation stifle creativity?
The notion that high taxes on people with more income than they can possibly spend discourages them from any activity that might further increase their incomes is a popular one with many people. A Texas Senator used to say that he didn't know any poor man who might give him a job. The implication was that this Senator had a job working for a rich man. Well, perhaps he did. It's not unheard of for elected officials to work for wealthy benefactors. Mr. X, a very wealthy man, might approach the Senator and offer him a generous campaign contribution in exchange for a special deduction that he could use in preparing his tax return. In that sense, the rich man had "hired" the Senator.
However, the belief that high taxes stifle innovation can not be verified by experience. Innovators are usually young people, men or women, who are filled with energy and ideas but haven't yet made their fortunes. We like to think of such persons as Bill Gates and Steve Jobs as important innovators. They were, of course, and made a lot of money from their innovations. But they had not yet acquired fortunes when they were innovating. The taxes on their incomes didn't stifle them.
Gates' great innovation was the recognition that if nearly everyone were to possess and use a computer they would need a program that would translate the keyboard instructions they could remember and understand into the tedious machine language needed to operate the computer. Such a program is called an Operating System. An engineer whose name I do not know had created an operating system that didn't take up much memory and was well suited to the rather simple computers available at the time. The engineer called the system "QDOS," which stands for Quick and Dirty Operating System. Gates bought it from him and changed the name to "DOS" or Disc Operating System. He peddled a version of it to IBM for use on the early IBM personal computers. The rest is history.
This belief that high taxes stifle innovation is used to thwart attempts to make the super-rich pay a larger share than they do in the cost of governing. In the case of our own federal government, the result is that the super-rich do in fact contribute a large share of the income, but not in taxes. Their contribution is to purchase government bonds. The result is almost the same as taxing them, except that the bonds eventually have to be repaid with interest. The government is thus forced into a kind of shell game or Ponzi Scheme simply to acquire the income needed to provide all the services that we citizens receive.
Another part of the myth is that our government spends too much money anyway. It should do less and spend less. It acts as a drag on the economy because it sucks so much money into itself. This part of the belief also fails the test of experience. There's a simple question: what does the government do with the money? It hires people to perform various functions and services. The money goes right back into the economy. A question for study is, is it better for the economy for the government to spend a certain amount of money, or is it better for private individuals and firms to spend it? It depends on the specific project on which the money is spent. A number of super-rich men are taxed, say a billion dollars, to pay for building a bridge across a river. The bridge enables goods to be transported across the river cheaply and the resulting economic activity adds, say, a hundred million dollars to the economy. The government has invested the money in a facility that provides a rate of return of ten percent. If the super-rich men had been allowed to keep the money, would they have invested it in something equally worth while? Maybe, maybe not. Of course, not all decisions by government officials and employees are as valuable as the decision to build the bridge. Government has been known to build bridges to nowhere just to please the constituents of an important Senator.
I welcome any comments, discussion, criticism, even castigation of my opinions. You can post them here if you have a Google account. In any event, you can send them to me by e-mail.
However, the belief that high taxes stifle innovation can not be verified by experience. Innovators are usually young people, men or women, who are filled with energy and ideas but haven't yet made their fortunes. We like to think of such persons as Bill Gates and Steve Jobs as important innovators. They were, of course, and made a lot of money from their innovations. But they had not yet acquired fortunes when they were innovating. The taxes on their incomes didn't stifle them.
Gates' great innovation was the recognition that if nearly everyone were to possess and use a computer they would need a program that would translate the keyboard instructions they could remember and understand into the tedious machine language needed to operate the computer. Such a program is called an Operating System. An engineer whose name I do not know had created an operating system that didn't take up much memory and was well suited to the rather simple computers available at the time. The engineer called the system "QDOS," which stands for Quick and Dirty Operating System. Gates bought it from him and changed the name to "DOS" or Disc Operating System. He peddled a version of it to IBM for use on the early IBM personal computers. The rest is history.
This belief that high taxes stifle innovation is used to thwart attempts to make the super-rich pay a larger share than they do in the cost of governing. In the case of our own federal government, the result is that the super-rich do in fact contribute a large share of the income, but not in taxes. Their contribution is to purchase government bonds. The result is almost the same as taxing them, except that the bonds eventually have to be repaid with interest. The government is thus forced into a kind of shell game or Ponzi Scheme simply to acquire the income needed to provide all the services that we citizens receive.
Another part of the myth is that our government spends too much money anyway. It should do less and spend less. It acts as a drag on the economy because it sucks so much money into itself. This part of the belief also fails the test of experience. There's a simple question: what does the government do with the money? It hires people to perform various functions and services. The money goes right back into the economy. A question for study is, is it better for the economy for the government to spend a certain amount of money, or is it better for private individuals and firms to spend it? It depends on the specific project on which the money is spent. A number of super-rich men are taxed, say a billion dollars, to pay for building a bridge across a river. The bridge enables goods to be transported across the river cheaply and the resulting economic activity adds, say, a hundred million dollars to the economy. The government has invested the money in a facility that provides a rate of return of ten percent. If the super-rich men had been allowed to keep the money, would they have invested it in something equally worth while? Maybe, maybe not. Of course, not all decisions by government officials and employees are as valuable as the decision to build the bridge. Government has been known to build bridges to nowhere just to please the constituents of an important Senator.
I welcome any comments, discussion, criticism, even castigation of my opinions. You can post them here if you have a Google account. In any event, you can send them to me by e-mail.
Labels: Bill Gates, do taxes stifle innovation, DOS, Republican superstitious, Steve Jobs, taxing the rich
Sunday, August 19, 2012
It's not jealousy; we need the money
Conservatives, especially rich conservatives, react to proposals to increase the tax rates on high incomes with such responses as "class warfare" and "you're simply jealous of rich people." I assert that these are merely sound bites meant to confuse and mislead the majority of voters. We have in our country some serious problems that arise from the practices of some very rich people in maximizing their incomes. One practice is moving jobs and factories to countries over seas which offer low wage, non-union workers. Unemployment is a consequence of this practice. Unemployment can be dealt with by providing jobs and work for the unemployed According to apologists for the very rich, it is very rich people who have the money to start the businesses and factories that will provide the needed jobs. Therefore, the rich should not be excessively taxed, but instead should be relieved of some of their tax burden so that they will have the money to start the new businesses and factories.
This is a plausible argument, but it isn't happening. I don't see any rush by rich people to start factories to manufacture solar cells, wind turbines, and other new technology devices to provide new, clean sources of energy. If they start new factories at all, they start them in China or other countries with low wage rates.
The US Constitution has a preamble, as follows:
Rich people are not sinful or evil. They are just like the rest of us. We make financial decisions to minimize or expenses and losses and maximize our gains. When we shop for cars, we do our best to pay less than the sticker prices and try to negotiate deals with the car dealers. We buy groceries at grocers that provide the best food at the lowest prices. That's what rich people do with the money they invest. It's more profitable to invest in a factory in China or Mexico than in a factory in the United States because of the labor cost. What government has to do to reverse this trend is to make it more profitable to build and operate a factory in the United States than in a foreign country. This incentive may be a tax break, a no-interest loan, or an outright grant or subsidy.
We need the money.
This is a plausible argument, but it isn't happening. I don't see any rush by rich people to start factories to manufacture solar cells, wind turbines, and other new technology devices to provide new, clean sources of energy. If they start new factories at all, they start them in China or other countries with low wage rates.
The US Constitution has a preamble, as follows:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.It seems to me that the preamble requires and authorizes the federal government to "promote the general Welfare" by encouraging and enabling the establishment of gainful employment of unemployed workers. If the very rich won't create the factories in our country to provide employment, the government should do it, either by directly building the factories and hiring the workers or by providing suitable incentives and help to private entrepreneurs to do so. This support requires money - lots of money. Where is the money to come from? Obviously, from the people who have lots of money and can easily afford an increase in their tax rates. And, what could be fairer than that? Let the rich, many of whom cause the unemployment problem, help pay for the cure.
Rich people are not sinful or evil. They are just like the rest of us. We make financial decisions to minimize or expenses and losses and maximize our gains. When we shop for cars, we do our best to pay less than the sticker prices and try to negotiate deals with the car dealers. We buy groceries at grocers that provide the best food at the lowest prices. That's what rich people do with the money they invest. It's more profitable to invest in a factory in China or Mexico than in a factory in the United States because of the labor cost. What government has to do to reverse this trend is to make it more profitable to build and operate a factory in the United States than in a foreign country. This incentive may be a tax break, a no-interest loan, or an outright grant or subsidy.
We need the money.
Labels: moving jobs overseas, taxing the rich, unemployment
