Bush Article on CNN.com

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Registered: 03-19-2003
Bush Article on CNN.com
3
Mon, 10-04-2004 - 7:21pm

Bush signs tax bill in 'swing state' of Iowa -http://www.cnn.com/2004/ALLPOLITICS/10/04/bush.monday.ap/index.html


Comments???

iVillage Member
Registered: 04-30-2004
Mon, 10-04-2004 - 11:08pm


In times of war and unprecedented defecits Presidents should NOT give tax cuts (even if they are only for the rich). I'm not saying taxes should be raised but tax cuts are not the answer.

You wouldn't deduct more from your salary for savings for your 401K if you couldn't make the mortgage payment would you? It just doesn't make sense. And the trickle down idea (which incidentally is NOT an economics term) is just insane. Tax cuts to the rich do not help the poor. Reagan was wrong with this idea and Bush is wrong too.

Peggy

iVillage Member
Registered: 03-26-2003
Tue, 10-05-2004 - 9:46am
Here's a good article to the contrary. I'd love to hear your objections.

Do the Rich Help the Poor?

by Jacob G. Hornberger, October 2000

PRESIDENT CLINTON justified his veto of Congress's recent repeal of the

estate tax by suggesting that most of the benefits of the repeal would go to

the wealthy. "Of the $750 billion the repeal costs , one-half - nearly

$400 billion - goes to the top one-tenth of one percent of estates," said

Gene Sperling, the president's national economic advisor. Democratic

presidential candidate Al Gore chimed in with his own endorsement of Clinton

's position when one of his campaign spokesmen, Douglas Hattaway, said,

"Most of the benefits under the Republican plan go to the extremely

wealthy."

Do the poor benefit when the wealthy are free to become more wealthy?

Absolutely. In fact, the freedom to acquire unlimited amounts of wealth is

the greatest thing that could ever happen to those at the bottom of the

economic ladder. And this is true not simply because the poor are then able

to acquire more easily the capital needed to compete against established

businesses. It is also true because capital accumulation is the only way in

which real wages - and therefore standards of living - can rise for salaried

workers.

What causes the real wages of workers to rise in a society? Most people

believe that the only reason that wages rise is that governments enact

minimum-wage laws that place a floor below which wages cannot fall and then

periodically raise the minimum, thereby ostensibly ensuring a rising wage

rate for the worker.

But if it were that easy to raise real wage rates, then every nation on

earth would have high standards of living. All that underdeveloped countries

would have to do is raise their minimum wage to the equivalent of $5 per

hour and then $10 per hour and - voilà! - standards of living would

constantly be rising.

The reality is that the legally established minimum wages do nothing to help

those at the bottom of the economic ladder and actually cause them harm. For

one thing, minimum wages do not cause businesses to pay higher wages.

Businesses make wage decisions on one simple determination: Will the

employee produce a return that exceeds the amount that the business is

paying him? If a business believes that a worker will produce $6 an hour

worth of revenue in return for a wage of $5 per hour, it will hire the

worker. If the government requires the worker to be paid $10 an hour, that

worker - the worker whom the employer values at only $6 per hour - will,

quite simply, not be hired.

"But without a legally established minimum wage, wages would continue to

drop because employers have no incentive to pay more than what they are

required to pay?" Oh? Then why do some businesses pay a wage rate higher

than what they are required to pay?

The reason is that they place a higher value on that person's ability to

bring revenue to the firm - a value that competing firms are just as likely

to recognize. Thus, it is neither the law nor benevolence that motivates a

business to pay a high wage but instead self-interest and greed.

The key to wealth

But why do workers in some countries make less money than workers in other

countries? Don't self- interest and greed characterize businesses all over

the world?

The answer lies in savings, capital, and productivity. Societies in which

there are massive amounts of productive capital being accumulated in the

private sector are societies where wage rates will be increasing for

workers. Societies in which there is little capital in existence or coming

into existence are societies in which workers will be receiving low wages.

Let's analyze why. Suppose farm workers are working on farms that use hoes

for plowing. Let's assume that the owner of the farm receives a total sum of

$1,000 when he sells his crops. This means that the maximum amount he can

pay his workers is $1,000. Realistically, he pays the workers less than

$1,000 and uses a portion of the money to pay other expenses. If there is

money left over, that is his profit.

Let's assume that our farmer pays $600 in wages and $200 in other expenses

and retains $300 as his profit.

How can workers be sure that he's paying the highest amount possible to them

out of the $1,000 that he has received? Because they check and see what the

farmer next door is paying. If he's paying more, they can ask their boss to

match it or they can quit and go work for his competitor.

How can wages rise? Not with a law, because a law cannot increase the amount

of money the farmer receives, year after year, for his crop. After all, a

law cannot change the quantity of the crop that the farmer and his workers

are producing. Remember: the absolute most that the farmer can pay is

$1,000. Make him pay more than that and he'll simply close the business.

"But the government can force him to pay his profits to the workers in the

form of higher wages." Yes, and that was the argument that Karl Marx used -

that profits were simply a form of theft by which the employer steals what

rightfully belongs to the worker. But let's keep in mind that a businessman

customarily does not organize a business enterprise with benevolence in

mind. He himself wishes to improve his economic and financial condition. And

he risks the money he invests in an enterprise in the hope of receiving a

return on his investment.

The owner's profit is his compensation for putting the enterprise together

and risking his capital, just as the worker is compensated for contributing

to the success of the business. Confiscating the businessman's anticipated

return only means that he might very well close down the business, thereby

shutting his workers out of jobs, or it might mean that he will never open

the business in the first place.

Why do wages rise?

If government cannot make wages rise, then what does make wages rise? I

repeat: The only way that real wages can rise in a society is through the

accumulation of capital.

For example, let's assume that our farmer has been saving $200 a year from

the $300 annual profit he has been making. At the end of the fifth year, the

farmer uses his savings to purchase a tractor. So now his workers, instead

of using hoes, are using a tractor to plow and harvest the crops. As a

result of using the tractor (capital), the workers become more productive.

They now produce $2,000 in total revenues for the farmer rather than the

$1,000 they produced with hoes.

The increase in productivity now enables the farmer to pay higher wages.

Notice a crucial point: In the absence of the tractor, the maximum that the

farmer could have paid his workers was $1,000, which represented his total

amount of receipts. There is no way that a law could have effectively forced

him to pay more.

It is only through the increase in productivity that the farmer is now able

to pay more than $1,000 in wages. That increase in productivity could come

about only through the acquisition of capital, not through the coercive

power of the state or even through such exhortations as "Work harder!" And

the capital - that is, the tractor - could only be purchased with savings.

Thus, the workers on that farm have benefited because the farmer was free to

accumulate wealth.

But how do we know that the farmer will increase wages? How do we know that

he won't keep all of the money for himself? Do the workers have to rely on

the goodwill and benevolence of the farmer in order to receive higher wages

from the increased productivity?

The wage rate that the farmer pays will be based not only on the value that

he places on the worker but also on the value that others place on the

worker. The workers will again check to see what competing farmers are

paying. If they're paying significantly higher wages, the farmer will have

to match those wages or he risks losing the workers to his competitors.

This is why it is in the interests of the workers that all the farmers (and

everyone else in society) be free to accumulate wealth. If that money is

going into productive capital (tractors), then all the farms in the area

become more productive and therefore have more money to offer workers.

And the cycle is an endless one. The more wealth that people are able to

accumulate, the more savings there are in a society. The more savings, the

more capital (e.g., tractors, baling machines, and trucks). The more capital

there is, the more productive workers become. The more productive workers

are, the more the owner earns. The more the owner earns, the more there is

to pay workers.

Interests are harmonious

Thus, every business enterprise is a cooperative venture between the owner

and the worker. It is in the interest of every worker that the business

succeed and that it earn the largest profits possible. And it is in the

interests of every business to have the best and most productive workers.

And the principle applies not just for workers in their particular company

but all across the board for all companies and all lines of work. If

companies everywhere become more productive as a result of the capital they

are acquiring from savings in society (i.e., through loans), that benefits

everyone else in society as well. How? Not only in people's role as

prospective employees in an entirely new (better-paid) line of work but also

in their role as consumers. Because the increase in the supply of goods and

services that companies are producing means a decrease in the price of those

goods and services. And that's good for consumers.

This helps to explain why people were fleeing Europe and Asia to come to the

United States throughout the 19th century. Despite all the propaganda about

how horrible the Industrial Revolution was, the average person knew that it

was the best thing that ever happened to him. Not only was he free to

accumulate wealth by saving a portion of his earnings, he was also receiving

the societywide benefits of increasing levels of productivity and gradually

decreasing price levels. In other words, for the first time in history, when

people were free to accumulate wealth, the standard of living for just about

everyone was increasing, sometimes exponentially.

Were there enormous disparities of wealth? Absolutely. But so what? If

everyone is better off, why should it matter that some have significantly

more than others?

For example, suppose we have a society in which the government is

constitutionally prohibited from equalizing disparities in wealth. The top

10 percent earn $1,000,000 per year. The bottom 10 percent earn $10,000

each.

Now, let's assume that the citizenry decide to change their own system in

order to equalize these disparities of wealth. They amend their constitution

to enable their government to confiscate the wealth of the rich and give the

money to the poor. The government then embarks on a massive tax-and-welfare

scheme that distributes $2,000 to every poor person.

The confiscation of capital results in less savings among the rich, which

causes productivity to drop, which causes wage rates to drop. Let's say that

the 10 percent at the top are now earning $700,000 a year and that the

bottom 10 percent are now earning $7,000 a year (plus the $2,000 in welfare

they're now receiving).

Obviously the poor are not better off simply because the rich are worse off,

at least not in the long run.

The short-term illusion, of course, is that the poor feel that they're

better off when the state distributes a part of the loot to them, which is

what happened in Cuba and other communist countries.

By confiscating the capital of the rich, the government makes the poor less

productive. And since the rich now know that their savings are going to be

confiscated in the future, the incentive to save and acquire productive

capital diminishes.

Ultimately, if the redistributive policies are continued, the golden goose

is killed and everyone, rich and poor alike, ends up living a life of

impoverishment. Again, this is what happened in Cuba, East Germany, and

other communist countries.

And remember: the state cannot confiscate wealth in order to equalize unless

wealth has first been created. And wealth is created in a climate of

economic liberty, that is, one in which the state is prohibited from

confiscating and redistributing wealth.

Unfortunately, the success generated by economic liberty often triggers the

envy and jealousy that motivate people to change their system to one of

confiscation and redistribution of wealth. This is what happened to the

United States in the 20th century.

What saved the 20th-century American from lower standards of living was the

fact that capital continued to accumulate at a rate faster than the rate of

confiscation. It is impossible to imagine how much higher the standard of

living of the American people would be today, especially for those at the

bottom of the economic ladder, had the state not been permitted to

confiscate so much income and wealth in the 20th century.

The crucial issue, of course, is the one that Adam Smith raised some 250

years ago. What are the causes of wealth and poverty in a society?

Unfortunately, Bill Clinton and Al Gore and people of their ilk remain

convinced that the poor are poor because the rich are rich. The truth is

that when people such as Clinton and Gore are prohibited from confiscating

the wealth of the rich, the biggest beneficiaries are the poor.

Mr. Hornberger is founder and president of The Future of Freedom Foundation.

Avatar for mom2noodles
iVillage Member
Registered: 03-25-2003
Tue, 10-05-2004 - 12:30pm
Not only do I NOT buy this absurd argument, I am absolutely entertained by the math:

<
$1,000 when he sells his crops. This means that the maximum amount he can

pay his workers is $1,000. Realistically, he pays the workers less than

$1,000 and uses a portion of the money to pay other expenses. If there is

money left over, that is his profit. Let's assume that our farmer pays $600 in wages and $200 in other expenses and retains $300 as his profit.....>>

According to my handy dandy calculator, $600 plus $200 plus $300 is $1100, and not $1000. If the guy can't do simple math, then why on earth do you buy his "logic"?

I fail to understand why anyone could think that tax cuts are the answer to record budget deficits and a war economy.

Carrie


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Carrie, Mom of Alex & Anna

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