The Republican Five Year Plan

Although I resolved to write no blogs while on vacation, watching just part of the Republican debate running up to the New Hampshire primary made my blood boil. Even allowing for the candidates needing to appeal to the most misguided wing of their party, the economic generalship they displayed can only be compared to plans for British mass infantry attacks on German trenches in France during World War I.

The central theme of economic planning, Republican style, is eliminating the taxes the rich pay. The truly rich, the already rich, actually don't worry that much about income taxes. Income taxes are for the working poor and the small class of professionals who get wages or salaries over $100,000 per year. The truly rich get their money from inheritances, capital gains, interest, and dividends. All the Republicans want to reduce taxes on these categories of non-income. Most of the candidates wanted to reduce the rates on these categories to zero. Mitt Romney, the moderate, settled for reasonably near zero. In addition, they want to cut the corporate tax rate.

They gave two rationales, both about as plausible as medieval Catholic tests for witchcraft. One is that these cuts only incidentally help the rich, but they really are aimed at helping the middle class. That might be true if by middle class you mean families with assets between $10 million and $100 million, which would indeed generate capital gains, interest and dividends worth worrying about.

The other is job creation, Want jobs? Stop taxing the rich!

If you believe that you probably also believe that God was so infertile he only could manage one child.

What will rich people and corporations do if their tax rates are lowered?

Oh, sure, they may add a job or two here or there. But mainly they will either spend the money on themselves or play financial games with it.

Rich people spending more money could create a few more jobs, especially for luxury leather goods workers in China (whose work product is labeled as Italian). A few people will upgrade from private prop planes to private jets, which I suppose would require a few more factory workers. More cocaine will have to be ponied into the U.S., which creates jobs. Mansions may be expanded or remodeled, expanding the construction work force by a few tens of thousands.

Let's talk about reality now.

Job creation and destruction is dependent on a large number of variables.Most jobs are created when employers (corporate and individual) think they can make larger profits by adding staff. Jobs of the self-employed type are also created by increased demand for services: if consumers are willing to pay (well) for a service, someone will provide it.

To increase demand, American consumers as a whole need to be able to spend more. This can be because more of them are gainfully employed, or because those that are employed are getting higher wages.

The Republican Five Year Plan, essentially central planning by capitalists to further enrich themselves at the expense of the working class, doe not address generating increased demand.

Jobs, and demand, would be generated naturally (in our mostly-free-market system) by increased employer and consumer confidence. Those rely, in turn, on a stable credit and money supply (the job of the Federal Reserve) and a lack of turmoil in Washington.

While the federal deficit and debt need to be addressed once we have an economic recovery, what we really need now is higher taxes on the rich and a closing of corporate tax loopholes and subsidies. The rich, unlike the poor, love money above all else. Tax them more and they will climb out of their $1000 bottle of wine stupors to make up the difference. To make up the difference, they will need to exploit more workers. To exploit more workers, they will have to hire them.

Higher taxes on inheritance, capital gains, dividends and interest are the best policy for job creation in the United States. The taxes could be set too high, but that is not our problem right now. When Republican President Dwight Eisenhower left office in 1960, during our period of greatest prosperity, the maximum tax rate was 91%. We may not need to go that high again, but rates should certainly be higher than they are now, if we want the U.S. to continue to be an economic leader of the world.