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Not “Trickle Down”, But a Waterfall.

July 17, 2011

Spending programs have been tried, but failed to achieve the stated goals. The public is apprehensive about their economic future. In general, businesses at all levels have no motivation to invest in more assets or personnel. Loans to people who could not afford them led to the current economic problems. Making loans readily available to businesses without providing motivation, and depriving them of the capital with which to make responsible down payments for the loans will achieve nothing good. Allowing the Bush Tax Cuts (particularly the so called “Tax Cuts for the Rich.”) to expire confiscates capital needed for growth.

Extending, or preferably making the Bush Tax Cuts “for the rich” permanent would be most effective in motivating business, while allowing businesses to have the capital for at least making down payments on plant and equipment (or whatever assets are needed for growth of their businesses). Job creators need confidence to invest in businesses that create employment. The claim that allowing such tax cuts to continue would cost the government more than a trillion dollars over the next ten years is bogus when compared to the history of tax cuts and tax increases. After tax rates on dividends (already double taxed) and capital gains were cut in 2003, total federal tax revenue increased by $743 billion from 2003 to 2007. The combined income tax rate of 15% on the after taxed (at 35%) corporate income results in an effective 44.75% tax rate on dividends. The U. S. Treasury receipts from capital gains climbed to an estimated $117.8 billion in 2006 from $49 billion in 2002. Changes in tax rates have short and long term influence on how people make business decisions. When people know they can personally decide how to handle their earnings, rather than losing them to the government, it benefits the economy. When real estate investments are made (and sold), compensation is generated for Realtors, appraisers, title companies, lenders, and escrow companies, etc. Securities investments and sales similarly generate more compensated work for brokers and others. Spending of their taxable earnings benefits their communities. The so called “trickle down” is more of a waterfall.

While Congressmen and Congresswomen may subsequently say something like “we overestimated the tax revenue from expiration of the tax cuts,” you are being forewarned of reality. But the public would suffer long term from such a mistake. For the benefit of all income levels, in more ways than one, the Bush Tax Cuts on dividends and capital gains need to be made permanent.

Published inFederal Tax Information

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