Today’s Guest Saturday post comes to us from Pat Slattery of The Free Market Project blog where it was originally published on August 6, 2012.
What Would Actually Help the Middle Class?
In his “the economically ignorant speaking to the economically ignorant” tour, President Obama is shoveling as fast as he can. This morning I heard him explaining how a tax break for the wealthy (also known as simply keeping taxes the same as they have been for over ten years) means that the non-wealthy have to pay more.
Let that simmer for a minute. These non-wealthy tax payers are paying $X right now, and the wealthy tax payers are paying $Y right now. Obama is selling the notion that not changing anything, meaning that you are not raising taxes on the wealthy or anyone else, somehow inevitably results in the non-wealthy paying $X plus thousands more. What? The non-wealthy only pay $X plus thousands more if the government changes the tax code to cause that to happen. It doesn’t automatically occur because the government does not take action to raise taxes on the wealthy. If taxes are cut across the board, the people paying $X then pay $X minus the tax break. Just because the people paying $Y are paying $Y minus the tax break does not mean that the people paying $X are paying more. That simply logic does not stop Obama from selling this line of BS to his followers.
The thinking, of course, is that there is no possible way that government can spend less. And, there is absolutely no consideration of the possibility that the government spending at current, unsustainable levels has any negative impact on the economy, making it increasingly difficult for the non-wealthy to find and hold the jobs that enable them to pay their $X tax burden. There is no thought that actually doing something that produces economic growth, which probably means less government interference in the market and less of the wealth of the country being funneled to Washington DC, might actually increase government tax revenues. Surely it was an anomaly when, during the Bush administration, the tax cuts actually produced an increase in revenues that surprised everyone. (Remember those days, when the surprise at the end of the fiscal year was that the deficit actually was smaller than projected because revenues exceeded expectations? You probably don’t, because the media didn’t trumpet it very loudly, and we certainly haven’t been reminded of it in the last four years. In fact, despite the fact that it is absolutely true that deficits were shrinking after the Bush tax cuts–and surprisingly so–and before the Reid-Pelosi power combo in the Senate and House, Democrats have repeated over and over again that our debt and deficit problem is because of the Bush tax cuts, because it couldn’t have anything to do with the Dem spending beginning in the Reid-Pelosi power era.)
How might one improve the conditions for the middle class? Obama seems to think its a zero sum game, where you have to harm one income sector to bring improvement to another, as though government redistribution were the only way to improve anyone’s lot in life. He also seems to think you build something from the middle. Clearly, the man has never built anything. Do you think he wrote the middle chapters of his books before he wrote the beginning? If he built a house, would he frame the walls before he laid the foundation and installed the beams and flooring? If the man was to sculpt with clay, would he expect the clay to magically hover in the air as he molded the middle section of his masterpiece?
Who is in the middle class? First, it is huge. Something like 90% of people would describe themselves as middle class. That’s a big damned middle. Even so, we know who they are. The middle class is mostly composed of people who work in other people’s businesses. Whether employed by large or small businesses, the middle class is the workers, both blue collar and white collar. Also in the category are the small business owners, who hope to become rich (perhaps, but perhaps they just want to make a good living while having the independence of self-employment).
How do you help those people? How do you improve the lot in life of the workers and the small business owners?
Well, first of all, you’d recognize that the vast majority are people who work for other people. (By the way, this is most often by choice. Not everyone wants to be an entrepreneur. Most people want a good, stable job that enables them to live a decent lifestyle, but they don’t want to take the risks associated with entrepreneurial endeavors.) Given that fact, you’d better be willing to help the people who do the employing, or at least not get in their way. In other words, you need to recognize that the foundation that holds up the middle class is the business owners, the entrepreneurs and the investors… The employers! When you put roadblocks in those people’s way, through regulations, fees, and taxes, you harm their ability to hire, give raises, and expand their businesses. You can’t get mad if they get rich. Their getting rich means that they were successful and their success was the foundation that enabled their employees to have their jobs. If they get rich, they’re going to do one (or more) of three things with the money: save it (where it becomes available for banks to loan to other people… often middle class people seeking mortgages, auto loans, or loans to start their own businesses); spend it (where it re-enters the economy through other businesses); or invest it (where it helps the economy grow). Given our progressive tax system (a system that Obama always seems to forget is already the most progressive in the industrialized world) the rich will also pay a larger percentage of the tax burden than anyone else.
What else happens when you get out of the way of business owners and entrepreneurs that is good for the middle class? Well, the higher employment gets, the stiffer competition gets to secure good employees. This is where supply and demand come into play. If the business climate is good, and businesses are successful and expanding, they have to pay their workers more to retain them or to hire them in the first place. If you really want to see middle class people with more money in their paychecks, don’t cut taxes for them and increase taxes on the entrepreneurs and investors. Instead, create a business friendly environment that causes increased employment which also causes the businesses to pay the workers more to hire and retain them in a competitive environment.
A robust business climate also creates opportunities for those who are entrepreneurial. New businesses will be started, risks will be taken, and wealth will be created. The new businesses will hire, adding to the upward pressure on employee pay as the new businesses compete for good employees. Increased competition and recognition of new opportunities can also create downward pressure on consumer prices (competition in the market does that) which also results in more money kept in the pockets of the middle class workers.
You can’t build something from the middle. But if you create a strong base, you can build something with a large and robust middle section. Perhaps the problem is that people like Obama can’t understand that, while we speak about the top earners, then the middle and the bottom when we’re charting income, the actual way it works is that the “top” is the base, it’s the foundation. Take away the people who’ve created the wealth and there’s nothing to support the middle. How you chart the income is not how it works in reality. Does he really think the poor are the foundation of our prosperity? That’s how it would be if the reality was the same as the income chart. So when he talks about “top-down” economics, he’s being an idiot who doesn’t understand reality. Reality is that wealth is created at the foundation and pushed up. It is pushed up into a very broad middle. The base is not wide (though wider is better!), but it has to be strong. Policies that weaken it will cause the whole thing to come crashing down, slamming the middle class.
The bottom line is that you can’t have government policies that harm businesses and business creators and investors and expect that those policies will help the people who are employed by those businesses and business creators. That should not be difficult even for the economically illiterate to wrap their minds around.