Capital is the Workers’ Best Friend: A Primer on Our Free Market System – Part II

In Part I we saw how capital provides jobs for the American worker. In Part II you will see how government spending may cause you to lose your job.

How the Government takes away your job

So now you know why it takes money to make money and how the Rich Guy’s money benefits you. If you don’t, go re-read Part I. The more money investors have the more money they can and will invest. As we showed before, people with money don’t want a one percent return. If a business reported a one percent profit on their quarterly report, you would see its stock price nosedive. Investors set up businesses to make profits. That’s what is known as – Ta Da! – The Profit Motive! And, as we have seen earlier, profits are the money that’s left over after expenses are deducted.

So, we’ve already covered how a business gets and spends its money. To recap, the Rich Guy (investors) set up a business to make a profit. The business produces goods or provides services. It makes money. Expenses are subtracted and the leftover is the profit. The amount of the profits depends on the business’ sales and expenses.

Business expenses can and will vary at different times. Salaries and benefits can increase. The cost of materials can go up or down, both of which affects profits. Just look at the price of oil. In June 2008 oil was over $147 a barrel. It dropped down to $31 a barrel in February 2009 and is now somewhere in the $100-$110 range. When the price goes up a business either has to raise its prices, absorb the cost, which reduces profits (because expenses go up) or if it’s bad enough, close its doors and let the employees go. You know what choices you had to make when gasoline went up to $4.00 a gallon. You know you weren’t going out to eat as much, if at all. Businesses also sometimes have another option. They can negotiate with their suppliers for a better price or go to a new supplier. This isn’t always possible but sometimes both parties will do it to keep things going for all sides. The one expense that isn’t negotiable is Uncle Sam and his nephews, the Little Sams, also known as State and Local government. You can be a tax cheat but you cannot say to IRS that I’ll give you ten percent instead of fifty.

Every dollar that a business spends on taxes decreases the money that a business has available for operating expenses, including employee pay or expansion. Taxes are built into the cost of doing business and the U.S. has the highest business taxes in the world. The Federal corporate tax rate is 35 percent. On top of that, many States impose an additional corporate tax. Iowa, Pennsylvania, Minnesota, Massachusetts, Alaska and Rhode Island all have taxes that put the combined rate to over 41 percent. Only Japan’s combined national and provincial rates come close with a 39.5 percent tax. Only three other industrialized nations, Germany, Canada and France, take more than a third of a business’ income in taxes.

Taxes inflate the cost of a business’ products or services. Both would obviously be cheaper if taxes were not factored into the cost of doing business. But taxes fund government and government will always be with us. Whether you consider government to be a necessary evil or a benefit to the people, it and taxes are here to stay. Taxes become a drag on business when they go up. Since they are not optional or negotiable businesses have to incorporate them. Most people don’t see it as their problem if a business makes less profit. If you are an Average Joe and you think that, you are wrong!

A business needs to make a decent profit to keep operating. Business owners are not altruists. The Profit Motive is the reason why they start businesses. If they don’t expect a reasonable profit out of their venture (remember Venture Capital in Part I?) they won’t do it. That means the job that you, Average Joe, thought you would have, isn’t there. That puts a drag on the economy because you don’t have the money to spend on consumer goods that you had when you were working. That means that the businesses that you buy from will sell less, so they will need fewer workers who will, in turn, buy less because they don’t have jobs. And on and on and on. I call this my Trickle Gone principle. If you have less money to spend, you will buy less. It ripples through every product and business sector. You may not buy a new HD TV but the Average Joe who would have sold it to you if he had a job, maybe won’t buy a car. The car dealer, who would have sold it to him if he had a job, maybe won’t buy that new house. The carpenter who would have built the house, well you get the idea. It is a big downward spiral. The amount of money in the economy, and remember, Capital is the Worker’s Best Friend, actually shrinks. Listen to the business channels on TV. When they talk about the M1 money supply, this is it. Less money means less investment. Less investment means fewer jobs. That’s why the unemployment rate goes up.

When taxes go up there is less money in the economy for investment. You may say yeah but the money that the government spends goes back into the economy and you would be right (minus what goes overseas. That money doesn’t come back here.) The ‘yeah but’ in Capitalism is tax money does not go into business investment. Uncle Sam and the Little Sams are not Venture Capitalists investing in new businesses. Rather, they are taking the Venture Capital and investing it in government programs and expenditures. Sure, some of that money ends up in the pockets of the Average Joe but not in the amounts needed to start a new business. If your income is a Social Security check, you are the Average Joe in the first paragraph of this article who is trying to decide which bill to pay. You are not the Rich Guy who has the money to start a business and the less money the Rich Guy has, the less chance you have of getting hired. Ask any of the ten percent of American workers who are living on unemployment checks (an example of government money that goes back into the economy) when is he starting a business?

So far I have stayed away from saying Democrats bad, Republicans good. More accurately, I believe that Big Spenders bad, Fiscal Conservatives good. The current Administration and Congress have passed some incredibly, whoppingly large spending programs that are going to suck Investment Capital out of the economy worse than a competition between Hoover, Oreck and Dyson. Buried in health care reform, stimulus and other monster bills, both passed and pending, is a host of new taxes and fees. The Federal Government tells you that tanning beds are bad for you, so now you pay a ten percent tax. You chose not to buy health insurance so you have to pay an income tax surcharge. There are countless ways to grab money from you. And of course, as you know now, when you have less money to spend, you don’t buy those consumer goods that you could have before. That means some other business doesn’t need as many workers. And on and on and on. How long will it take for the downward spiral to circle around and get your job?

Get ready for the next economic crash. Remember in 2010 when the tax cuts enacted during the Bush Administration were going to expire? Nancy Pelosi said it wouldn’t be a tax hike; it would just be returning taxes to where the rates were supposed to be before the tax cut. This is political doublespeak. I don’t care how much you are paying in taxes now. If next year you have to pay more, then your taxes went up. Wake up Average Joe; it’s called a Tax Hike!

Americans dodged that particular bullet because a courageous bunch of people stood up and screamed ‘we’re mad as hell and we won’t take it any longer’. When we elected a Republican Party majority to the House of Representatives, we broke the one-party stranglehold that brought you Obamacare in the dead of night, against the wishes of the majority of the people. However, the challenge of out of control spending that sucks money out of the free market system will continue as long as we have these giant spending bills.

Go back up three paragraphs and re-read the first sentence. When taxes go up there is less money in the economy for investment. I don’t have to repeat what happens when the money supply decreases. People lose their jobs. You know that. You are living it now. The last thing this economy needs is less money available for investment because Capital is the Worker’s Best Friend! Say that again. Capital is the Worker’s Best Friend. Now go out and tell that to your neighbors, strangers on the street and most importantly, to your congressmen and senators. And when you are done with them, don’t forget your school boards, city government, county administrators, state assemblymen and anybody else who thinks they have the right to stick their hands in your pocket and take your money out because ‘they know’ how to spend it better than you do.

So how do I get my job back?

Businesses need money to expand. Expanding businesses hire Average Joes to work for them, who then have a steady paycheck, buy consumer goods and on and on – Jack Kemp’s Trickle Down works. To expand, business expenses need to drop. The one business expense totally out of the control of the businessman is taxes, so you need to cut the corporate tax rate. Why should our corporate tax rate be the highest in the world? Before this world-wide recession hit, Ireland was known as the Lion of Europe for its economic growth. Why? Because their corporate tax rate is 12.5 percent. It was so much lower than the rest of the EU that the other European nations couldn’t compete with them and their economic growth surged past the rest of the continent. We need to do the same thing.

A funny thing happened here in 2008. The Economic Stimulus Act of 2008 gave $300 economic stimulus ‘tax rebates’ to people. Big Spenders (mostly Democrats because they were not the majority party in the Senate at the time) ridiculed the rebates as nothing more than a Band-Aid on a bleeding economy. But here is the funny thing – researchers found that the stimulus checks increased spending by 3.5 percent. If you look at retail sales figures for May 2008, you’ll see a one month bump up of 4 percent. Now look when the stimulus checks went out. April 2008. Coincidence? I think not. When the Average Joe has money he spends it because there is always something that he needs or wants.

So do you want your job back? If you do, start telling your representatives at every level to cut spending and reduce taxes For Everybody! This is no time for class envy or class warfare. More money for the Average Joe increases consumer spending but if the Rich Guy doesn’t get his share of the tax cuts also, he won’t have the Venture Capital to open that new business that just might hire you. Only getting your share without the Rich Guy expanding production means you have too many dollars chasing too few goods or services. That’s what causes inflation, but that’s another article.

Call your congressman. Join the Tea Party. Let the government know anyway you can that you are the best judge of how your money should be spent. Have the government provide a true economic stimulus. Cut taxes and you may just get your job back. Remember, Capital is the Workers Best Friend!

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