How do tax increases create jobs?

I have been listening intensely (and I mean that as a opposed to intently) to the debate raging over President Obama's latest creation dealing with the job creation situation in this country. He (the President) calls it the Jobs Act. I like to call it the Tax Our Way to Prosperity Act. He likes to suggest creating Government jobs, I like to suggest creating private sector jobs. His Act does create Government Jobs, my idea creates private sector jobs. S0 what's the difference? His is 160 pages, mine is 1.

Before I get into my brilliant and not all that revolutionary Jobs Act, let me first share my thoughts on why the Tax Our Way to Prosperity Act won't work, and not just won't, but can't.

Under the President's plan increase taxation on the "rich" (which of course is loosely defined at best ranging from $200,000.00 in income to $1,000,000.00 in assets) to create either long term or shorter term government sponsored jobs. This establishes the "job" creation part of the President's Act. The Act is also touted by Obama as helping reduce government spending by providing cuts in programs. But simple math will tell you that increasing revenue by $4 trillion dollars over 10 years vs. reducing spending by $1.5 trillion over the same 10 years is not a reduction in spending.

Let's focus on why this is another unsustainable idea from the Great Evolver ( I names Obama the Great Evolver during his campaign for President as it seemed every time a question came up his press people always said, "his ideas on that are evolving", oddly I hear his current and past Press Secretary are still fond of that term). Let's go through is in three simple steps.

1. Taxes are taken from the rich with the idea being that these government employees will pay taxes as well.

2. These employees are paid out of the tax dollars of others in the private sector. As such, unless they are taxed at 100% of their income, they will not sustain themselves or the cost of themselves on government.

3. Taxes will have to be raised even hire to sustain their employment over time (I take it most of you are aware of the historical precedent I derive this from as government never shrinks no matter what people say). This money will come, like the first pile, out of the private sector thus causing private sector employers to consider additional drag on their economic circumstances when it comes to expansion, private sector employment and of course, potential future tax increases.

You have to admit, if you have any intellectual honesty, that tax paying government employees cannot possibly return to the private sector economy anything near the amount taken from it to create their employment (unless, as stated above, government taxes them at 100%). So if we take from the economy $60.000.00 to pay a Federal Employee and that employee pays 27% in taxes, the government should really record the remaining 73% as a loss. Now I know this individual will spend the rest of his income in the private sector and paying local, state taxes and other fees, but if the idea is to take money and pump it into the nation, why not just let us keep it in the first place. You see the $60,000.00 taken from the economy for that job is not what that person is paid, oh no, the bureaucracy he is hired by has to be fed as well, so he is only making about $50,000.00 that $60K taken out of the economy in the first place. In reality to 73% loss is most like a 45% loss of funds just to hire one person at a lower level government job, not to mention those government job paying over $100K a year because our new government employee has to have a boss, an HR person, government sponsored retirement plan, health care etc.

As you can see, this does not lead to "less spending".

So how DO we create jobs in this country? Well, let's look at the evidence given to us by business leaders throughout the country. Recently the a leader of Silicon Valley was quoted as saying the cost of starting a new plant in the US is $1 billion (yes, billion) more than creating the same plant over seas. Why? Well it isn't the cost of employees who make more than $.75 a day, its regulation from Uncle Sam. The cost of labor is not the defining cost theses days when opening a business, government regulation, permitting costs, fees and taxes and the prospect of new taxes in the form of Obamacare are the primary things leading to business, particularly manufacturing businesses, looking to other places to build plants. These other places go by names like India, China, Pakistan, South Korea, and the whole of South America.

1. Reduce regulation on new business and business expansion.

Second part of this mess is corporate taxation. now that Japan has cut corporate taxation by 15% we rank and numero uno in corporate taxation. I don't want to hear about GE and others who paid nothing last year because everything they did was legal to avoid those taxes, but they are the exception not the rule. I've worked for a number of mid-sized companies in the last 20 years ranging form 20 million in sales per year to about 300 million in sales. I can attest to the damage regulation and corporate taxation does to their ability to hire. One company I worked with did about 40 million in sales in a tough market, one dominated by municipality sales, always a tough market. At the end of the year this company had a tax liability of some 7.5 million dollars. This is an effective tax rate of 18.75%. The company actually posted a profit of 1.8 million dollars or just 4.5%. Following along? Good. Now this company had advertising write offs, inventory write interest write offs, employee write offs (yes, they can be an asset come tax time) and operational write downs. In the end the companies overall tax burden was 1.97 million dollars. "Hey Average", you say, "last time I had to do math I seem to remember 1.97 is more than 1.8." Well you would be correct. This company made 4.5 % bottom line, pre-tax, profit. Yet they lost $170,000.00 dollars after paying their tax debt. Now I have to ask, how do you employ more people with a losing business. NEWSFLASH: This the rule these days, not the exception. Hundreds of thousands of mid-sized businesses employing between 100 and 20 employees are dealing with this. The rate of win of loss may vary, losing 200K here or making 200K there, but this is not growth; this is not a return on investment that causes growth.

One other thought, tax those same corporations and companies 50% on revenues that come in from over seas. You don't have to offer any kind of incentive to bring the jobs back here if you do that. Add that to the Tax base and we would have an immediate windfall for about a year. After that they would be clearing those factories out of China and India.

2. Reduce the Corporate Tax Rate.

This last thing is really going to be controversial. I keep hearing people say, "The rich need to pay their fair share." Well, NEWSFLASH: 47% of this country pay zero in income tax. A flat tax or a national sales or consumption tax would eliminate all of that. Everyone would pay "their fair share" according to their use of the nations commons, resources and available energy. Imagine a person with a 10,000 sq. ft. house paying 9% of their energy bill in taxes. Now imagine the person with a 900 sq. ft. apartment paying 9% of his energy in taxes. That is a fair share. Person A buys a $100,000 Mercedes Benz and pays 9% in sales tax while person B buy a $5000 Ford Focus from Bob's House of Solid Autos and pays 9% in sales tax. Again, a fair share. Person A makes $300K a year and pays 9% in income tax and person B makes $35L and pays 9% in income tax. That is a fair share. But each one takes home 91% of their income. No more April 15th (which would also be election day under my plan).

In addition the government would collect 9% of all business done by Corporations regardless of size, whether it's Wal-Mart or MicroSoft or Bob's House of Solid Auto's. One does $2 Billion in sales and pays $180,000,000.00 in taxes and the other does $1 Million in sales and pays $90,000.00 in taxes. That is paying their fair share. Our countries economy is estimated to be $14.78 trillion in 2010 and that would create $1.33 trillion in taxes. This is the size of the Reagan budget for 1988.

Here is something to think about while you ponder that statement.

• 2012 United States federal budget - $3.7 trillion (submitted 2011 by President Obama)
• 2011 United States federal budget - $3.8 trillion (submitted 2010 by President Obama)
• 2010 United States federal budget - $3.6 trillion (submitted 2009 by President Obama)
• 2009 United States federal budget - $3.1 trillion (submitted 2008 by President Bush)
• 2008 United States federal budget - $2.9 trillion (submitted 2007 by President Bush)
• 2007 United States federal budget - $2.8 trillion (submitted 2006 by President Bush)
• 2006 United States federal budget - $2.7 trillion (submitted 2005 by President Bush)
• 2005 United States federal budget - $2.4 trillion (submitted 2004 by President Bush)
• 2004 United States federal budget - $2.3 trillion (submitted 2003 by President Bush)
• 2003 United States federal budget - $2.2 trillion (submitted 2002 by President Bush)
• 2002 United States federal budget - $2.0 trillion (submitted 2001 by President Bush)
• 2001 United States federal budget - $1.9 trillion (submitted 2000 by President Clinton)
• 2000 United States federal budget - $1.8 trillion (submitted 1999 by President Clinton)
• 1999 United States federal budget - $1.7 trillion (submitted 1998 by President Clinton)
• 1998 United States federal budget - $1.7 trillion (submitted 1997 by President Clinton)
• 1997 United States federal budget - $1.6 trillion (submitted 1996 by President Clinton)
• 1996 United States federal budget - $1.6 trillion (submitted 1995 by President Clinton)

What would the country do to raise the additional money for the remainder of the budget? They wouldn't. That's what we've got to deal with folks. Now some money could be raised form Tariffs and that might amount to another $700 Billion a year so let's call the US budget $2 Trillion a year and call it a day. Here is another little thing for you to chew on. When I wrote my book Average American Politics (link below) I ran the numbers on all the land available in America. The total land mass of the United States if sold for an average of $2000.00 per acre (this includes million dollars parcels in Manhattan and $200 parcels of swamp land in Alabama would come to just over $14 trillion dollars, if we sold all of it. So we couldn't get out of this $16 Trillion hole if we liquidated America to our creditors. Only by cutting spending in real dollars can we turn this country around.

Don't get me wrong, we all live with debt. Most of us have mortgages, car loans etc. But we borrow those monies and pay them off OVER TIME. Uncle Sam has no plan for paying off those debts over time, NONE. We are having a hard time making the interest payments on these debts. How does this create jobs?

It doesn't. But cutting America loose with 91% of it's income would create jobs and growth in the economy and the result would be even better than it was during Reagan and Kennedy when both cut taxes and the Treasury over flowed with cash. It would also stop the bleeding of debt in this country. The economy could double in size and the Treasury could bring in 3 plus trillion a year in revenue, 2 trillion of that dedicated to running government and the balance paid to our note holders.

But Average, how do we finance Medicare and Social Security? Simple, we mandate ( and I hate that word) that people keep 15% of their income in retirement from the first day they work and they can't touch it for anything, not a first time home purchase, not medical care, nothing until they are 65. And should they die prior to that, their heirs get is it all less 9% of course. This would create wealth in this country on a scale not seem ever, and that would create jobs, everywhere.

3. Cut spending, not increase it.

Ya, that's about it. With the GDP doubling over the next 10 years the country will have $2.6 trillion to run itself on. On top of that we have those tariffs which if all goes according to plan would actually go down over time as more and more manufacturing returns to the states. If these numbers sound too low I want to show you the budgets of China and Russia, both with much larger populations than ours.

China: Budget: revenues: $1.227 trillion
Expenditures: $1.35 trillion (2010 est.)

Russia:Budget: $375Billion

Expenditures: $315 Billion

Ya, I know, scary. Russia has pensions and Social Security of a type all paid by the government. China not so much, but they did increase their military budget by a whopping 12.5% last year making it almost a 1/5th of the amount of ours. We spend $665 Billion on Defense and China spends $91 Billion. Russia, far less today.

We could cut military spending in half (Yes, I'm a Conservative) and still out spend China by 3 times. And we could cut Medicare (also around the $665 Billion a year mark) to nothing and save us almost $1 Trillion, Get rid of the Department of Education and other BS departments and we would be sitting right where we need to be.

It's time to run this nation like a Corporation and get our debt load down to a manageable level and stop the next generation from being dependent on Government to survive. Self funded retirement and jobs is how we do that. By the way one fully intended circumstance of my plan is that it cuts in half the number of Federal Employees.

There is a fine line between being and average American and a government positioned leader, I know this. And I don't have all the answers, I know this too. I also know that this is one incredible country, the grand experiment in self rule, and as such we have collectively accomplished some amazing things. We are a caring people who started some of these programs with the best of intentions to minimize pain and suffering. Most of us never got rich and never will get rich, but most of us require far less than that to be happy. But for those who want it I think they should have every opportunity to have it. I'm sure we can figure out a way. After all we put man on the moon, won the Second World War and have created more wealth than all the greatest historical empires put together. It would be a shame to lose it all now...

But what would I know; I'm just an Average American.