If you remember the movie Animal House you remember Bluto. John Belushi’s character. In one scene he exhorts his glum fraternity pals.
He gives an emotional and rousing pep talk. And orders them to follow him. He flings his fist in the air. He rends the air with a banshee rallying cry. And charges out of the room.
Okay. Here is a rallying cry: Let’s cut taxes on big business! Let’s cut taxes on small business! We slash them big time! Hurrahs all around!!!! All in favor raise your… I said all in favor… Wait a minute. Hello. Hello. Is anybody awake out there?
Nobody is much interested. Well, a few business guys are. Some diehard free marketers are. All those filthy capitalists, they like the idea. But the good ol’ suffering folks in the middle-class? Nah.
Here is why they don’t like the idea. And here is why they should love it.
They don’t like it because median family income in the U.S. is the same as it was in 2000. No gains for the average family. The average worker and family are treading water. They figure they are not gaining. So why give a break to business?
You can fling buckets of figures at them. They don’t care. Look at this trend line. Look how savage the recession was. Blah, blah, blah. Their answer is: We are treading water. We’re the ones who need the tax cut.
Here is why they should love the idea of a tax cut for business. It is a tax cut for them. It is a chance of a raise for them.
How can this be? It is because companies don’t pay taxes. Employees and customers pay them. They pay the taxes levied on companies.
How do they pay them? Companies simply pass them on. By holding a lid on salaries. By trimming benefits. By hiring fewer. Or by laying off more. Or by raising prices. Or by cutting services. Or by all of the above.
It truly is as simple as that. Imagine a grocery store in your town. Tonight the city council levies a ten percent tax on all the profits for the store. That store will stay open all night. So that workers can raise the prices on every item before morning.
So theoretically the store pays the tax. But in reality you the customer pay it. And you the employee pay it, when the store cuts your hours. Cuts your hours because the higher prices slow down sales.
You see Larry Kudlow on TV. Or you read his columns. When it comes to our economy he is as clear-headed as you will find. He says our middle class has suffered because our economy grows too slowly.
Since 2000 it has averaged 2 percent growth per year. Not enough. From 1950 to 2000 it averaged 3.5 percent. If the economy had grown at 3.5 percent the last 14 years, average household income would have soared. Instead of soured.
To him the solution is simple: Cut corporate taxes to 15 percent. For large and small companies. Let companies deduct right away every penny they invest for growth. (Now they have to spread the deduction over many years.) And cut taxes on profits companies stash overseas. To make it easy for them to bring the money back to the U.S.
Kudlow argues that this will stimulate the economy more than anything else. I believe he is right. Because it is a middle-class tax cut. Per what I wrote above.
The economy needs to grow more rapidly to help the middle-class. Folks in the middle-class need such a tax cut for business. Whether or not they realize it directly helps them.
When companies pay taxes it is we who pay them. Through higher prices and lower pay and benefits. When companies get tax-cuts it is we who get them. Through lower prices and more pay and benefits. And through companies expanding.
The time is ripe for tax cuts for business. Because those cuts are for us.
From Tom...as in Morgan.