"For many successful Americans, over half of all they earn is now
taken by government. And reading The New York Times' year-end editorial,
these may soon be seen as the good old days."
~Pat Buchanon (from his most recent column)
Imagine
a small business owner doing pretty well for himself. At the end of
the year, he has made a few hundred thousand. His business is running well, and
he feels like he has the time to expand the business into another area
or open another business.
Because of his income, he is taxed at the maximum rate from dollar one. This
certainly will influence negatively his decision whether or not to
invest the money, energy ad time it takes to start or expand a business.
If you don't believe me, I would venture to guess you've never played poker.
Poker
decisions are typically made as follows: The player counts the number
of outs (winning cards) remaining in the deck and then uses
that information to calculate his odds of having the winning hand. He then uses
the amount of the bet and the size of the pot to calculate the return on his investment should one of
his card hits. From there, he factors for uncertainty....his
outs might not be outs in the first place and he may lose even if one of his cards hits. Nobody knows for sure what his opponent holds.
In the end, our player looks at what it costs him to play, his odds of winning and how much money he will make if he does win. Using those three pieces of information he decides whether to call or fold.
But
imagine if Uncle Sam was standing next to him and going to take 50% of
that pot should he win. Suddenly, the pot is half the size. The
math changes completely and a call that may have been super easy before now becomes a
certain fold.
Using that analogy, it seems to me that these tax rates are costing us jobs. There are certainly producers in our economy currently considering expanding or opening a business and thereby creating economic activity. These men and women are considering buying equipment, hiring employees, leasing office space, purchasing inventory, hiring tradesmen, traveling and doing all sorts of things that create jobs and grow the economy.....
And every single one of them is also considering that the payoff is only half of what they earn.
As we make decisions regarding taxation, we need to keep this in mind.
