I promise I am not going to turn this into a full-time political blog, but I find that lately it seems to be the only thoughts I have that I feel are worth writing about. There are two "myths" I want to talk about, although "political spin" is probably a more apt term for these.
Myth #1: Republicans are the America First party, and Democrats are the Blame America First party.
This is a quick one. It's definitely true that Democrats and liberals (not necessarily the same thing) show up in force to protest a whole lot of things; from wars to Wall Street abuses to animal cruelty to union strikes. But the right is certainly no stranger to protesting the "injustices" of America, whether it's holding tea party or NRA rallies or putting up giant, horrific anti-abortion posters in the Loop. And as much as the left likes to bitch and moan about things, you know what they don't do?
File petitions to secede from the U.S. How one party attempts to be the "Party of Patriotism" and the "Party of Secession" at the same time is a level of bi-polarism that is so stunning to me that I'm almost impressed. Rest assured that the next Republican who tries to slap the "un-american" tag on a liberal idea is going to get this thrown directly in their face.
Myth #2: Republicans were ready and willing to work with President Obama in his first term, but he failed to bring them to the table.
It doesn't surprise me in the least to hear Republicans saying this one, especially around election time, but I was surprised to hear it said by many Democrats and pundits as well. These people all have very short memories. Let's just review a couple choice examples of the "goodwill" Obama faced in the first couple months:
From an e-mail from RNC chairman Mike Duncan on Wednesday, November 12th 2008 (note this is 2 months before Obama is even sworn in):
"There are three seats in the House and two in the Senate that still
hang in the balance. Winning these races and strengthening our
Republican numbers in both chambers of Congress is critical to blocking
Barack Obama’s left-wing agenda . . .The Obama-Biden Democrats and their
liberal special interest allies are trying to steal these election
victories from Republicans. . .Harry Reid and Nancy Pelosi are hoping to
add more seats to the Democrats’ Senate and House majorities so they
can steamroll our opposition to their extreme, ultraliberal schemes. . .
Every Republican vote we can add now will help our Party stop the Obama
Democrats’ leftist policies in the U.S. Congress. "
On January 19th, 2009 Rush Limbaugh summed up his hope for the Obama presidency in 4 words: "
I hope he fails."
In February of 2009, the first of many
national tea party protests were held.
On May 10th, 2009 (i.e. 110 days after Obama took office) Dick Cheney goes on Meet the Press to tell the country that
the U.S. is less safe under Obama.
A veritable love-fest yes? These are the examples I was able to dig up in less than 5 minutes, although I have every confidence I could come up with about a dozen more in short order. The fact is that the first example of bi-partisanship Obama was offered by Republicans was in John McCain's concession speech on election night 2008, and the next was in Mitt Romney's concession speeh in 2012.
Myth #3: A tax increase directly leads to higher unemployment.
This is the one I really wanted to talk about. It really surprises me that this is not common knowledge but either people are not well-versed in how our taxes are calculated or (more likely) they have opted to remain willfully ignorant.
The key to understanding this is in understanding what is taxed: profits. Again, that sounds extremely simple (and it is) but this is where people fail to connect the dots. Profit, in its simplest form, is revenue minus expenses. All employee wages, including those of the CEO and board members, are fully deductible as expenses. The only thing which is affected is retained earnings (i.e. where dividends and additional bonuses are paid from).
Let's work through a quick, simple example: suppose you have a business making $100 million annually. They also have a total of $80 million in expenses (of which employee wages and associated payroll tax comprise $40 million). That leaves the company with a total profit of $20 million, which is subject to tax. So, at a 15% tax rate that would be $3 million, which would leave $17 million going into retained earnings (or distributed via dividends) after taxes.
So now let's say the tax rate increases to 20%. Given the same facts as above, the business is now left with 80% of their $20 million profit, or $16 million. So the difference in these two scenarios is an additional cost of $1 million to the business.
How do they make up for the $1 million hit? The first question is, why do they need to? The increase in taxation had absolutely no effect on whether or not the company was profitable. The only effect was the amount available to go into retained earnings or to be paid in dividends.
But let's say that, for whatever reason, they
need after-tax income to be at least $17 million. That means you have to cut wages, right? Hardly. Presumably, the individuals you employ actually, you know, do something right? If you cut your sales force by $1 million, how much will your revenue drop by? If it drops by more than $1 million, than you have just cost yourself even more money by cutting wages. More importantly, if it drops by less than $1 million, that means they are currently costing you more money than they are bringing in and
you should lay them off anyway, regardless of the tax structure.
Let's say that instead of cutting your sales force, you want to save the money by cutting from support staff like HR or IT. Again, the same principle applies. You will still need those functions, so if you can meet your company's needs either by utilizing less staff or by outsourcing the function, then you should do so regardless of the tax structure.
Please also keep in mind that everything I'm talking about above applies to an increase to the corporate tax rate. I thought it went without saying that an increase to personal tax rates would have no impact on employment decisions, but that is the connection a lot of these CEOs tried to make during this election cycle.
So am I trying to suggest that an increase to the corporate tax rate has no negative effects? Definitely not. As I mentioned, the impact is to retained earnings and that is what is used to pay out dividends. That means that if, in the aggregate, retained earnings decrease there will be less overall dividends paid out and that will lower the rate of return on investments. That means a direct hit to the bottom lines of investment banks as well as to 401(k)s. Retained earnings is also what a corporation uses to make large purchases (like another company) or to expand their business. Thus you can certainly make the argument that an increase to corporate taxes negatively affects business investment and lower GDP growth, which in turn will lower the rate at which new jobs are created. But saying "less new jobs will be created" is a far cry from "existing jobs will be eliminated." And as with most things, it appears that politically we'd rather throw around sound bites and argue about false problems than have a real dialogue about the true consequences of our decisions.