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Many Republicans believe in Reagan’s trickle down theory. They believe that by offering businesses a tax break, they will use the money to hire more people.
You don’t improve the economy by paying people to sit around and not work. You improve the economy by lowering taxes so small businesses will create more jobs.
- Representative John Linder Georgia Republican
How this frequently parroted sentiment is so popular is understandable, but… does anyone else see the problem with this argument?
If you give businesses tax breaks, they are going to horde it because they know that consumers aren’t going to have any money for them to earn.
However, if you give consumers and families a tax break, it encourages businesses to produce more, likely hiring more people in the process because that’s where the money is. Individuals and families also pay a higher tax rate than corporations that like to:
- Deduct everything as a business expense or low capital gains tax. Like personal business laptops and cars.
- Hide it in tax haven states or countries like Ikea and Walmart
- Use it to boost company stock which can be cashed out at a rock-bottom 15% capital gains tax, the same tax rate as someone earning a paltry $8,026-32,550 in 2008.
Potential Rebuttals
- But individuals will also horde money!
Individuals cannot horde as much as a corporation. Individuals need to pay rent or land tax at the minimum. A business could essentially exist without paying anything but rent.
On top of that, a “business” owner could deduct part of the cost of his own home from tax if s/he claims it was being used for business purposes.
- But businesses also spend money!
While this may be true, b2b (business selling to businesses) cannot survive without b2c (business selling to consumers). You could argue that businesses could just always be exchanging goods/currency to other businesses, but someone has to provide necessary services like water, food, and shelter to individuals.
Actually, a purely b2b society would be possible. But it would consist of businesses doling out bundles of basic living needs to individuals, effectively becoming a mini-government to employees who don’t have any voting rights (unless they own a considerable amount of stock), and could usually be fired on a whim.
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