RUTHFULLY YOURS

PETER HUESSY: THE WEALTH OF NATIONS

Posted By Ruth King on October 30th, 2014

http://www.familysecuritymatters.org/publications/detail/the-wealth-of-nations

The former Secretary of State and New York Senator, Mrs. Hillary Clinton, has informed the American people that businesses do not create jobs.

In providing Americans with a rather interesting economic perspective of how people get hired, the former First Lady then went on to let Americans know that “trickle-down economics” not only doesn’t work, but it has failed spectacularly. I suppose this is meant to mean there is somehow a connection between the policy of trickle-down economics and how jobs are either created or not created. That’s important as there are 20-24 million Americans that need full-time jobs.

It is unclear to what era of American economic life she was referencing, but as far back as America under President Calvin Coolidge we had unemployment below 3%, a balanced budget, growing personal income, and in fact the generation of budget surpluses with a top tax rate on income that had been reduced to 28%.

Maybe the answer to Mrs. Clinton’s riddle lies elsewhere.

Under President John F. Kennedy, the top tax rate was reduced from over 90% to 70%, and subsequently, in the years following, as the President then said before a Detroit audience at the prestigious Economic Club  “a rising tide lifts all boats” as millions of new jobs were created.

That does look like a failure.

What about President Ronald Reagan? He reduced top tax rates from 70% to first 50% and then in 1986 to 28%. Both tax rate reductions were part of an across the board tax rate reduction and reform which grew the US economy between 1983-89 by some 18+ million new jobs.

And between 1993-2000, the US economy grew by another 21 million jobs, with capital gains taxes being reduced in 1996 along with companion legislation calling for a balanced budget and welfare reform.

What failed?

The former Secretary of State then references President William Clinton’s administration by saying the former President had a secret–he brought arithmetic to Washington as opposed to apparently all other administrations.

But between 2003-7, supposedly the bad Bush years, revenue to Uncle Sam zoomed upward by $800 billion a year from $1.8 to $2.6 trillion, after tax rate cuts fully kicked in around mid-2003. And about 8 million jobs were created.

Under Ronald Reagan, revenue in 1989 hit $1 trillion compared to barely $600 billion in 1983 when the Reagan recovery began. And that was with a much smaller economy than the past 5 years and 9 months between January 2009 to October 2014 when revenue is up $400 billion.

Did President Clinton say balancing the budget would be dangerous because it was just trickle down policy? Did it fail spectacularly–this idea from Republican Senator Domenici and Representative Kasich? What arithmetic does opposition to a balanced budget represent?

And was welfare reform wrong and evidence of a lack of compassion? Just another version of trickle down?

Wasn’t Speaker Gingrich just going to throw children into the street, starve grandma, and leave everyone to a dog eat dog existence? And the 8 million people, taken off the welfare rolls and put into jobs–was that “trickle down”?

And cutting capital gains taxes in 1996 was for what purpose–along with a balanced budget agreement and welfare reform–that the Republican Congress was pushing? Trickle-down economics again??

Why then would President Clinton sign this stuff into law if it had always previously failed? Remember, President Clinton did initially oppose all of this. All of it. He vetoed welfare reform not once but twice.

But he finally signed the bills. Did President Clinton finally buy into the idea of “trickle-down”? The 1996 capital gain tax rate cut really did help boom the stock market. Was that trickle-down too?

Apparently, the former Senator and Secretary of State needs some remedial economics lessons. First, trickledown economics is the sneering theory of the left that believes conservatives like extra profits and lower taxes. They then justify such perfidious policies because they then claim–in theory–that the rich will spend the money and along the way hire the middle class as a result–the carpenters will build yachts, the architects will design a bigger house, and artisans will make some new baubles for the Mrs. At least some of them will.

But trickle down is utter bunk–no one describes tax policy that way. Tax reform is the tide that lifts all boats. Coolidge, Kennedy, Reagan and Bush (43) prove it. Of course if you put more money in peoples pay checks they will spend it and the economy will benefit including some people will get new jobs. But just lowering tax rates for upper income folks–“tax cuts for the rich”–is not the economic growth philosophy of the Republican Party or of conservatives in general.

Real tax reform–lowering the corporate tax rate to attract business to America and ending the double taxation on overseas income, and lowering individual tax rates for everyone, and ending the tax on dividends and capital gains—(think Hong Kong) is what needs to pursued so new investment occurs in a big way. Simply put, simplify the tax code and make it investment and family friendly. And that, again, includes lowering tax rates for everyone. In 1983-5 in the first three years of the Reagan recovery increased business investment by nearly $550 billion annually.

And it is the resulting new investment, and its associated risk taking, that starts new companies and thus new jobs.

A sound tax system will free up literally trillions in new business capital which is just waiting to be invested.

We now have 24 million under and unemployed Americans. Whether a doctor’s office putting out a shingle, a carpenter putting out flyers, or a lady seeking work as a care giver on-line, every entrepreneur that starts a new business hires either people to help them or hires themselves.

And the folks that start and create the new companies pay their employees first because if he or she doesn’t they do not come to work–try not paying your employees and keeping a new restaurant open!! The boss gets paid last. And only if the business is a success.

New investment equals new jobs. That requires new companies.

Maybe all those new jobs are just an expansion of existing companies? But if that is true then business does indeed create jobs.

And what about the jobs created between 1993-2000? Does the former Senator think all the jobs during the Clinton administration’s 8 years were created by the government? Or space aliens? By government spending?

Where does she think a new company and new jobs come from?

Women now start nearly two-thirds of all the new companies in America and also hire most of the new people. So maybe we ought to think of high tax rates as a “war on women”?!

Maybe the former Senator thinks the government can stimulate the economy by just spending more money. But new customers with new government checks cannot provide the income to a new business until the new business is created. Where does the money come from then to start a new business–which are after all the engine of economic growth.

Again, new customers with their new government money can only help a new store or business AFTER it opens, not BEFORE. A new store or business does not open its doors after customers line up–the customers can only show up after the business has been set up and opens its doors.

So again to explain, expanded consumer spending—government stimulus for example, otherwise known as the trickle up theory of economics, can only help OLD businesses to hire extra employees.

But that government stimulus or new spending has to run out. If the funds comes from new taxes, it reduces consumption of those taxed by an equal amount of those that get new government spending. If borrowed, someone has to pay it back which comes from taxes too. So less consumption is the result. Government stimulus is a wash–always!!

It is true investing your savings or capital in a new business means it cannot also be simultaneously used for that new car, a bigger house, a private jet or some new stereo equipment. But it does hire designers and contractors to build or remodel a building for a restaurant, for example. And a van to pick-up the food supplies. And you spend your capital buying equipment. And paying for the permits and taxes. And paying the lease. You then hope folks walk in and like your food.

And the 40 people you hire are–this is important Senator Clinton—in brand NEW JOBS. They get paid and spend their paychecks and that grows the economy. And grows revenue to the government. If the new hires previously had jobs, those jobs are now vacant and others, including unemployed folks, will now fill those jobs. That grows the economy and the Middle Class and reduces unemployment.

Its called free enterprise, entrepreneurship, something Adam Smith wrote about in 1776 in a book called The Wealth of Nations. Maybe the lady from Arkansas might read it.

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