By John F. Di Leo -
When a new tax cut plan is announced, there are three common responses:
- From the Left, it’s about class envy: How much more money will the rich get to keep?
- From the press, it’s about the deficit: In this world of (an imaginary) zero sum game, how much will this reduction in tax revenue cause the deficit to grow?
- And from the typical American citizen, it’s about our own personal tax returns: How much money will this save me, personally, on April 15?
It’s not that one or two of these are wrong questions… it’s that all three are.
The Left practices the philosophy of hate – “if someone else has more money, he must be stealing it from you… so vote for us!”
The press practices the economics of the zero sum game – “though we know from experience that tax rate cuts create economic growth, which we all secretly know will more than make up for the expected revenue loss, we will deny the reality of the Laffer Curve, and pretend to oppose it out of budget-consciousness, since it helps our case as allies of the Democratic Party.”
But the surprise here may be that the typical citizen is also wrong, because in fact, the real goal of a tax rate reduction shouldn’t be so much to reduce your tax bite, but rather, to increase your true income.
If the crafters of the bill understand economics, then their design will create opportunities for the taxpayers, so that their very salaries will grow. We shouldn’t be aiming to save each taxpayer a few hundred dollars a year on their tax returns; we should be aiming to enable hard-working taxpayers to earn tens of thousands more, through not only raises but opportunities for promotions and job changes.
Career Paths in a Flat Economy
In every economy, there are jobs. Of course.
There are entry level jobs, and middle management jobs, and senior executive roles. There are consultants and small proprietors and small businesses that grow to become mid-sized businesses, and big businesses that consolidate to become even bigger.
All these businesses employ people at every level, so people can start out in their careers, and climb the ladder. Some will do very well, others will get by… but many are left behind because, while there are jobs, there aren’t enough of them to go around… there aren’t enough to make it “a seller’s market” for good employees. So the people who are fantastic will skyrocket to success, but other employees, even good ones, may take years to get anywhere, not because they’re bad employees, but just because there’s no place to go.
Picture a purchasing department of six buyers and a manager. Three may be fine where they are, while three might be qualified to be purchasing managers themselves. In a sluggish economy, those three will have to wait their turn… until the boss retires or leaves… then one moves up, and the other two must wait even longer.
Talented people – often extremely talented people – must wait for years for a position to open up, at the current place, or at the business across the street, or across town.
Worse, in a flat economy, businesses must concentrate on cutting costs, so they look for acquisition and merger opportunities. What happens when two businesses combine? Where there were two sales VPs, now there is one. Where there were two purchasing managers, now there is one. Where there were two CFOs, only one remains.
And advancement opportunities take the biggest hit. You may be an excellent buyer, or salesman, or engineer, or manager, but if there aren’t opportunities for advancement, you’re limited to those 2.5% annual raises for years and years straight.
Career Paths in a Boom Economy
By contrast, in a growth economy – say, a move from 1 to 2 percent annual growth up to a range of 3 to 5 percent, as it ought to be – we see a reduction in those mergers-of-necessity. We see expansion of existing businesses. We see fast-growing startups that hire and promote, hire and promote, hire and promote. We see an age of competition for good talent.
In a boom economy, our purchasing department of seven is no longer a dead end. That manager will be hired away to become the procurement director at the business across town; he’ll steal his last top man to be his deputy at the new place… one of the other great ones will be promoted to manager… and one of the other great ones will take a newly created opening at yet another growing or expanding business down the road. To keep the three buyers who remain, their employer knows he’ll have to boost those raises this year, well beyond the cost-of-living increase. And they’ll be able to afford to, because in a boom economy, there’s more business now, more revenue to go around.
The same goes for every job, in every industry that participates in the economic boom. Whether employers want to be generous or not, they have no choice; you have to compete for good employees when they have other places to go!
And that’s the goal of a successful tax cut: helping more American workers get better salaries, either in their existing jobs or through promotions and moves to new and better ones. Even if your personal tax rate isn’t cut at all, you’ll benefit if a change in policy gets you a serious salary hike!
Creating a Boom Economy
This has been the aim of the conservative movement for decades. Middle class wages have not been growing, have not even been flat, but rather, have been falling for decades, primarily because the tax burden – both personal and corporate – has been physically depressing the economy.
When Ireland has an effective corporate tax rate in the teens, and the USA has an effective corporate tax rate in the high thirties, which country do you think a business is going to choose to incorporate in?
We have seen large companies flee our shores for foreign lands for generations… and with those companies’ departure, we have seen jobs, promotions, and life opportunities disappear along with them. If we can only find a way to stop that bleeding… to not only stop people from fleeing, but encourage startups and expansions again… then we will at last be able to solve the pain of this long-too-sluggish economy.
For decades now, every day, from coast to coast, American factories have had to study their operations: which line do we have to shut down, which assembly line do we need to move to our China plant, which line do we need to outsource to an unrelated vendor overseas? Every day, American companies have been bleeding… all because of our oppressive tax and regulatory structure.
The goal of the tax-wizards in Washington right now is – and must be – to replace this toxic tax system and get America growing again.
We must remember that the truly important aspect of a tax cut is not the direct impact on voters’ tax bite, it’s whether or not the cut is significant enough to spur the passive economic growth our nation so desperately needs. We must learn not to care whether the bill cuts our taxes, but rather, to care whether the bill enables us to have five job offers to juggle rather than being so desperate we accept the one job offer we get. Yes, that IS what’s at stake here!
There are three primary challenges:
- If we only reduce the corporate rates, we give big business an unfair edge against small business, so we must concurrently reduce the rates for all those small businesses that pay taxes on the personal tax code. This is a challenge because when we reduce the rates for those small businessmen, the Left calls it a gift to the rich, trusting that lots of voters won’t be economically sophisticated enough to see that these are in fact employers too, who need the same breaks the big conglomerates get (more so, in fact, since small business provides the best opportunity for the economy by far).
- Second, voters expect to get something themselves, as a reduction in their own tax rates. Even though a small cut in your personal tax rate – such as the idiotic $300 government “stimulus checks” of a few years back – is negligible in comparison to the raise or promotion that a boom economy would provide, voters have been told to oppose any bill that doesn’t have such a direct, tangible number, personal to them.
- Third, the press has convinced a majority of decision-makers that tax changes have to be “revenue-neutral” in the eyes of that fantasy world known as CBO scoring, which looks backward instead of forward, and performs fictional calculations that are not allowed to take growth into account, even when massive growth is the very point of the bill.
How do we get past these three challenges?
There is no easy answer. In a nation where academia, the press, and the opposition party are all economically ignorant, even the best pro-growth policy proposals have an uphill fight in the court of public opinion.
It’s tempting to weaken the proposal by mixing in sops to the opponents – sops that may weaken the positive effect of the plan itself… out of fear that if they don’t, the very positive primary goal of the corporate tax cut will be politically dead-on-arrival.
For there is a fourth challenge: the fecklessness of the Republican party… the inability of our majority party to communicate to the public on policy matters.
Unfortunately, this may be our only chance. The Republican party needs to speak to America about economics, and make the case for rational policy in the same way that Ronald Reagan did 37 years ago, as John F. Kennedy did, twenty years before him. We must cut taxes now, or there may never be another chance.
Our nation’s salvation is dependent on the ability of the GOP to communicate. It doesn’t look good for us, does it?
Copyright 2017 John F. Di Leo
John F. Di Leo is a Chicagoland-based trade compliance manager, writer, and actor, currently playing Kris Kringle in the ‘radio play’ version of “Miracle on 34th Street,” with the Elgin Theatre Company, which runs from November 10 through November 19 at 164 Division in downtown Elgin, Illinois.
John Di Leo’s columns are regularly found in Illinois Review. Permission is hereby granted to forward freely, provided it is uncut and the byline and IR URL are included.