by Ghost of John Brown
Rick Perry announced his tax plan over the last few days. If you haven't read about it, there are some great write ups on The American and RedState. I won't try to out-do the excellent work that these two other authors have completed - go read them for yourselves. A couple of highlights are; an increase in GDP of about $3.5 Trillion by the year 2020 over our current baseline, a simple flat tax option, and corporations are all on the same level playing field. Think about this for a moment. If you want to get money out of politics, which everyone claims they want to, you have to take away the incentives. If we have a flat tax for business, and there is no reason for a lobbyist to try and influence tax code (because it will be close to one line), then why have lobbyist?
What I would like to argue for a moment is the meme that floats around that lowering the corporate tax rate will only let those mean, evil, wicked corporations keep more in profits. Click below the fold to follow me.
I won't claim that I came up with this discussion by myself. I generally try to listen to Michael Barry, a talk show host out of Houston from 5-7 PM. Michael was talking about this yesterday.
The idea that many bubble-headed, OWS types try to throw out is that if we drop from a 35% corporate tax rate to a 20% corporate tax rate, then companies will end up paying less tax and they will just pocket the change (By the way, with Perry's 20% corporate tax, we will get MORE revenue from corporations, not less - individuals will pay less in taxes). Therefore, worthless slobs like you and me will still end up paying the same amount for a product, Washington will get less money (yeah!!!) and the "fat cats" will get fatter.
What most spoiled brats masquerading and aggrieved protesters and 2/3rd of Congress don't realize is that companies do NOT set their own prices. Let that sink in for just a second while I wait.............hmmm, hmmm, hmmmm...........la, la, la.........OK Ready? Companies "offer" a price, we the consumers SET the price. Think of this example.
Most of us have either bought or sold a house. Your realtor told you to sell your house at let's say $250,000. You were all excited about that until it sat on the market for 120 days. A nice couple who would eventually paint over all the nice stenciling that you added to the family room came in and OFFERED $210,000. Both of you agreed to sell the house at $225,000. You didn't SET the price, you OFFERED. The buyer, SET the price.
Now let's get back to those fat cats that sit on the board of a Ghostie's Computers, to use an example. Let's say we at Ghostie's Computers come up with a fancy new laptop and we want to sell it for $3,000. We're all excited because we are dreaming of huge earnings. Trouble is, after shipping 10,000 units, we only sell 50. While we tried to set the price, no one ACCEPTED that price. If we want to stay in business, we are going to figure out where the customer wants to SET the price and we'll get pretty close to that. It's called elastic pricing.
To go back to the tax example. If Ghostie's Computers and Fred's Computers both get a 10% reduction in our corporate taxes we have choices to make. Let's say I pocket the money because I'm a greedy Republican, and Fred lowers his price by 10%, Fred is going to start taking away my market share. If both of us decide to pocket the savings, George is going to start up a computer company and undercut both of us. Either way, the savings from reduced taxes will eventually wind up in the hands of the consumer, because THEY set the price, not the companies.
Back to Governor Perry to close out. What the Perry plan does is to both lower the corporate tax rate AND make it even across the board. What some of the examples above don't reflect because of the simplification is that Government takes away the market's elastic pricing because of their meddling. If Ghostie's Computers has a great lobbyist, and Fred doesn't, Ghostie's Computers will end up getting a nice little tax loophole put into the tax code. So, both Fred and I will sell our computers at the same price, but I get to pay less in taxes than Fred. THAT is the way that corporations get to pocket the savings. While Fred may have a reason to innovate and become better, Ghostie's Computers really don't, because I'm already making 10% more profit than Fred via my sweet tax loopholes. Think about General Electric, their army of lobbyists and the fact that last year they paid no corporate tax.
If we want to grow our economy, then we have to spur innovation and make companies more dynamic. A tax code that is simple, puts everyone on the same level playing field and spurs innovation does that. Perhaps that is why Texas has created more jobs over the last few years than the rest of the country combined and it's why Governor Perry would be a great President. He understands what it takes to unleash the free market.
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