05 May 2011

Thoughts on the American Economy

First things first: I am not particularly well-versed in economics.  So if I sound like I know what I'm talking about, you should know that I don't.  Let me know what I'm overlooking, don't realize, etc.

A lot of people were outraged when it was reported that General Electric paid virtually no taxes for this past year.  At first it sounded as though G.E. was trying to not actually pay what they owed.  Then I read G.E.'s side of things, where they argued that they simply didn't owe that much because they'd taken advantage of a lot of tax credits.  I haven't really looked into the particulars of the case, to be honest, and in any event it doesn't matter.  But I would like to expand the conversation to a more generalized discussion about business taxes.

The Republican policy believes that there should be virtually (sometimes literally) no taxes.  They would have us believe that the only barriers between our society and prosperity are taxes and regulation.  It sounds obvious, but it doesn't work in reality.  Regulations barring harmful practices are necessary to guard against destructive behavior, and taxes are necessary to generate revenue to fund government projects (and, yes, there are clear areas in which government is best suited to act).  I don't believe that tax cuts themselves are beneficial to the economy at large.  If they were, we would have seen our economy grow each time taxes have been cut, and the truth is that's not what our economics history shows to be true.

I do, of course, agree that there comes a point where taxation becomes so burdensome that it discourages economic growth.  My problem with the current GOP argument is that we know the top 1% has more money than anyone else, ever.  Are we seriously supposed to believe that they feel constrained by the slightest tax increase to the point that they could no longer justify circulating their enormous wealth into our economy?  This mindset says, "I have $250 million, but if you tax me $1 million, I just don't know how I could possibly invest in a business."  "Do more with less" is the admonition from conservatives.  I personally think that's a fine philosophy; I grew up in a working class family with lots of Scottish and Irish heritage.  Doing more with less is a way of life for my people.  I don't agree with the notion that there should be an economic bracket exempt from that, though.  Oh, you're going to be taxed $1 million out of your $250 million and that's the end of the world?  Get real.

Now, someone will argue that I have no right to tell someone how many summer homes and yachts they ought to own.  In theory I would agree.  But lately, we've been hearing an awful lot from the Haves that us Have Nots should accept life without a lot of things and that opens the door for reciprocal scrutiny.  You don't get to tell me I shouldn't be buying Coca-Cola when I could be buying the store generic cola without me getting to tell you that your chihuahua doesn't need a diamond studded collar.  Savvy?

Back to the idea of business taxes.  Here's what I would suggest: Raise taxes, but expand tax credits.  See, tax cuts by themselves do not offer any incentives for businesses to pursue policies that benefit society.  They just let multi-millionaires become billionaires.  There are lots of ways that businesses can behave better but right now there's little incentive.  Regulations are necessary because, left to their own devices, the bean-counters will determine that building in the U.S., hiring American workers and adopting greener practices don't maximize profits.  Tax credits, though, can be the carrot and the stick.  Build a factory in the U.S., adhere to environmental regulations so you're not poisoning those who work there or live in the community where the plant is located, and viola!  Lots of tax credits.  Have your company use dramatically less paper, get a tax credit.

And you know what?  It turns out that businesses like tax credits.  The people at General Electric seem to have taken a particular shine to tax credits (in addition to finding ways of minimizing how much of their profits are even subject to U.S. tax laws).  They feel clever for taking advantage of them, but we get something out of it as a society.  A factory opens here, employing our own people and injecting new blood into a community.  Now there are factory workers who will eat lunch at local restaurants. So even if you don't work at that factory, your community can still benefit from its presence.  A bank offers to let their clients go paperless, receiving their statements online.  The bank gets a tax credit, appeasing their shareholders, but there's now dramatically less wasted paper.  Good for the trees we don't need to destroy, good for the landfills (because you know lots of people aren't recycling yet).

Contrary to what the perception may be about being liberal, I'm not abject in the least to someone being filthy rich.  I'm not out to punish anyone for being successful.  I also don't believe in punishing anyone for being less fortunate, which is what the so-called "Path to Prosperity" does by attempting to severely weaken--if not outright destroy--many of the government programs that millions of Americans have been forced to resort to because their own life plans have fallen apart, or never materialized in the first place.  If you want to responsibly make a serious reduction in the use of those programs, then the only solution is to get people back to work.  Tax credits can be instrumental in spurring businesses to become more aggressive about creating jobs.  If the millionaires and billionaires really want to pay lower taxes, then I suspect they'll make the effort to qualify for tax credits.

You know what they say: Give a billionaire a tax cut, and he'll have a ton of money. Teach a billionaire to earn a tax credit, and he'll have done something beneficial to society.


  1. I agree with just about everything you've said here. That's a shock isn't it? I think that the idea of tax credit would work very well, but I do think we would have to be careful of what qualifies to get a tax credit. My suggestion would be to have multiple levels for the credits. Say for the environmental credits, for each amount that you go above the set regulations, you get X amount of credit, that would allow different companies to get at least some credit for exceeding the environmental policies even if the were financially unable to upgrade their factories or whatever to be even greener.

    And now something a bit off topic, but what would be your solution for personal taxes?

  2. Actually, the shock isn't that you agree with me; you're a reasonable guy. Rather, the shock is that my arguments appear reasonable! Always nice to have that kind of validation. ;)

    Tiered tax credits make perfect sense to me. I think of professional sports, where it's common for contracts to come with tiered bonuses. A pitcher wins X games or strikes out X batters, he gets a bonus. He makes the All-Star team, he gets a bonus. The team wins the World Series, every player gets a bonus. Now, being paid ridiculous sums of money to play a game for a living sounds like it should be sufficient motivation to the rest of us, but it turns out that even multi-millionaires need incentives to keep them focused. If it works there, why shouldn't it work elsewhere?

    Someone reading that will argue that a tax credit isn't the same thing as a bonus; that a tax credit takes less of your earnings, whereas a bonus adds to them. It's a legitimate distinction to make, but I would counter with these two points:

    1) We as a society cannot, and should not, add to your earnings. There's no template for offering bonuses to individuals or businesses who perform at a certain level. A tax credit is the next-best thing, and that's what we have to offer.

    2) The net effect is still the same: You get to take home more money by making choices more favorable to the society that has enabled your success in the first place.

    There's a mindset that objects to this as a form of extortion, telling people that whatever they start with, the big, bad government is threatening to take away more of it unless they play ball.

    My response to that is that our government is of, by and for the people. It's not a third party imposing its agenda on anyone; it's a manifestation of the will of the people. The people of America want businesses who put them to work, don't make employees second class citizens based on gender, ethnicity, sexual orientation, etc. and who aren't destructive of the environment in their community. Those are not unreasonable requests, and every regulation on the books is there to guard against business practices that have to actually be barred by law because otherwise owners and managers will, in fact, not hire American workers, will discriminate and create second-class citizens, and will poison our air and water. Tax credits are a way of saying, "You went above and beyond to do things that satisfy the American people; we're satisfied that you've taken care of enough needs that you shouldn't be held responsible for other things."

    The strange part is that the argument against a tax credit system effectively is, "I don't want to even meet minimum standards, and I view not meeting higher standards to earn a tax credit as unfair punishment." That sentiment violates every tenet of what most of us were raised to believe constitutes fair-minded, responsible and respectful behavior.

    As for personal taxes, I'll get to those later. There's a lot more going on than is generally acknowledged in the national discussion.