Bush signs tax bill in 'swing state' of Iowa -http://www.cnn.com/2004/ALLPOLITICS/10/04/bush.monday.ap/index.html
Sue- Cl of the Parent Soup Weight Loss Board
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.
Do the Rich Help the Poor?by Jacob G. Hornberger, October 2000
PRESIDENT CLINTON justified his veto of Congress's recent repeal of theestate tax by suggesting that most of the benefits of the repeal would go tothe wealthy. "Of the $750 billion the repeal costs , one-half - nearly$400 billion - goes to the top one-tenth of one percent of estates," saidGene Sperling, the president's national economic advisor. Democraticpresidential 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 isthe greatest thing that could ever happen to those at the bottom of theeconomic ladder. And this is true not simply because the poor are then ableto acquire more easily the capital needed to compete against establishedbusinesses. It is also true because capital accumulation is the only way inwhich real wages - and therefore standards of living - can rise for salariedworkers.
What causes the real wages of workers to rise in a society? Most peoplebelieve that the only reason that wages rise is that governments enactminimum-wage laws that place a floor below which wages cannot fall and thenperiodically raise the minimum, thereby ostensibly ensuring a rising wagerate for the worker.
But if it were that easy to raise real wage rates, then every nation onearth would have high standards of living. All that underdeveloped countrieswould have to do is raise their minimum wage to the equivalent of $5 perhour and then $10 per hour and - voilà! - standards of living wouldconstantly be rising.
The reality is that the legally established minimum wages do nothing to helpthose at the bottom of the economic ladder and actually cause them harm. Forone thing, minimum wages do not cause businesses to pay higher wages.Businesses make wage decisions on one simple determination: Will theemployee produce a return that exceeds the amount that the business ispaying him? If a business believes that a worker will produce $6 an hourworth of revenue in return for a wage of $5 per hour, it will hire theworker. If the government requires the worker to be paid $10 an hour, thatworker - 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 todrop because employers have no incentive to pay more than what they arerequired to pay?" Oh? Then why do some businesses pay a wage rate higherthan what they are required to pay?
The reason is that they place a higher value on that person's ability tobring revenue to the firm - a value that competing firms are just as likelyto recognize. Thus, it is neither the law nor benevolence that motivates abusiness 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 othercountries? Don't self- interest and greed characterize businesses all overthe world?
The answer lies in savings, capital, and productivity. Societies in whichthere are massive amounts of productive capital being accumulated in theprivate sector are societies where wage rates will be increasing forworkers. Societies in which there is little capital in existence or cominginto existence are societies in which workers will be receiving low wages.
Let's analyze why. Suppose farm workers are working on farms that use hoesfor 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 canpay 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 ismoney left over, that is his profit.
Let's assume that our farmer pays $600 in wages and $200 in other expensesand retains $300 as his profit.
How can workers be sure that he's paying the highest amount possible to themout of the $1,000 that he has received? Because they check and see what thefarmer next door is paying. If he's paying more, they can ask their boss tomatch 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 amountof money the farmer receives, year after year, for his crop. After all, alaw cannot change the quantity of the crop that the farmer and his workersare 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 theform 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 whatrightfully belongs to the worker. But let's keep in mind that a businessmancustomarily does not organize a business enterprise with benevolence inmind. He himself wishes to improve his economic and financial condition. Andhe risks the money he invests in an enterprise in the hope of receiving areturn on his investment.
The owner's profit is his compensation for putting the enterprise togetherand risking his capital, just as the worker is compensated for contributingto the success of the business. Confiscating the businessman's anticipatedreturn only means that he might very well close down the business, therebyshutting his workers out of jobs, or it might mean that he will never openthe business in the first place.
Why do wages rise?
If government cannot make wages rise, then what does make wages rise? Irepeat: The only way that real wages can rise in a society is through theaccumulation of capital.
For example, let's assume that our farmer has been saving $200 a year fromthe $300 annual profit he has been making. At the end of the fifth year, thefarmer uses his savings to purchase a tractor. So now his workers, insteadof using hoes, are using a tractor to plow and harvest the crops. As aresult 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 thefarmer could have paid his workers was $1,000, which represented his totalamount of receipts. There is no way that a law could have effectively forcedhim to pay more.
It is only through the increase in productivity that the farmer is now ableto pay more than $1,000 in wages. That increase in productivity could comeabout only through the acquisition of capital, not through the coercivepower of the state or even through such exhortations as "Work harder!" Andthe capital - that is, the tractor - could only be purchased with savings.
Thus, the workers on that farm have benefited because the farmer was free toaccumulate wealth.
But how do we know that the farmer will increase wages? How do we know thathe won't keep all of the money for himself? Do the workers have to rely onthe goodwill and benevolence of the farmer in order to receive higher wagesfrom the increased productivity?
The wage rate that the farmer pays will be based not only on the value thathe places on the worker but also on the value that others place on theworker. The workers will again check to see what competing farmers arepaying. If they're paying significantly higher wages, the farmer will haveto 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 (andeveryone else in society) be free to accumulate wealth. If that money isgoing into productive capital (tractors), then all the farms in the areabecome more productive and therefore have more money to offer workers.
And the cycle is an endless one. The more wealth that people are able toaccumulate, the more savings there are in a society. The more savings, themore capital (e.g., tractors, baling machines, and trucks). The more capitalthere is, the more productive workers become. The more productive workersare, the more the owner earns. The more the owner earns, the more there isto pay workers.
Interests are harmonious
Thus, every business enterprise is a cooperative venture between the ownerand the worker. It is in the interest of every worker that the businesssucceed and that it earn the largest profits possible. And it is in theinterests of every business to have the best and most productive workers.
And the principle applies not just for workers in their particular companybut all across the board for all companies and all lines of work. Ifcompanies everywhere become more productive as a result of the capital theyare acquiring from savings in society (i.e., through loans), that benefitseveryone else in society as well. How? Not only in people's role asprospective employees in an entirely new (better-paid) line of work but alsoin their role as consumers. Because the increase in the supply of goods andservices that companies are producing means a decrease in the price of thosegoods and services. And that's good for consumers.
This helps to explain why people were fleeing Europe and Asia to come to theUnited States throughout the 19th century. Despite all the propaganda abouthow horrible the Industrial Revolution was, the average person knew that itwas the best thing that ever happened to him. Not only was he free toaccumulate wealth by saving a portion of his earnings, he was also receivingthe societywide benefits of increasing levels of productivity and graduallydecreasing price levels. In other words, for the first time in history, whenpeople were free to accumulate wealth, the standard of living for just abouteveryone was increasing, sometimes exponentially.
Were there enormous disparities of wealth? Absolutely. But so what? Ifeveryone is better off, why should it matter that some have significantlymore than others?
For example, suppose we have a society in which the government isconstitutionally prohibited from equalizing disparities in wealth. The top10 percent earn $1,000,000 per year. The bottom 10 percent earn $10,000each.
Now, let's assume that the citizenry decide to change their own system inorder to equalize these disparities of wealth. They amend their constitutionto enable their government to confiscate the wealth of the rich and give themoney to the poor. The government then embarks on a massive tax-and-welfarescheme that distributes $2,000 to every poor person.
The confiscation of capital results in less savings among the rich, whichcauses productivity to drop, which causes wage rates to drop. Let's say thatthe 10 percent at the top are now earning $700,000 a year and that thebottom 10 percent are now earning $7,000 a year (plus the $2,000 in welfarethey'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'rebetter off when the state distributes a part of the loot to them, which iswhat happened in Cuba and other communist countries.
By confiscating the capital of the rich, the government makes the poor lessproductive. And since the rich now know that their savings are going to beconfiscated in the future, the incentive to save and acquire productivecapital diminishes.
Ultimately, if the redistributive policies are continued, the golden gooseis killed and everyone, rich and poor alike, ends up living a life ofimpoverishment. Again, this is what happened in Cuba, East Germany, andother communist countries.
And remember: the state cannot confiscate wealth in order to equalize unlesswealth has first been created. And wealth is created in a climate ofeconomic liberty, that is, one in which the state is prohibited fromconfiscating and redistributing wealth.
Unfortunately, the success generated by economic liberty often triggers theenvy and jealousy that motivate people to change their system to one ofconfiscation and redistribution of wealth. This is what happened to theUnited States in the 20th century.
What saved the 20th-century American from lower standards of living was thefact that capital continued to accumulate at a rate faster than the rate ofconfiscation. It is impossible to imagine how much higher the standard ofliving of the American people would be today, especially for those at thebottom of the economic ladder, had the state not been permitted toconfiscate so much income and wealth in the 20th century.
The crucial issue, of course, is the one that Adam Smith raised some 250years ago. What are the causes of wealth and poverty in a society?Unfortunately, Bill Clinton and Al Gore and people of their ilk remainconvinced that the poor are poor because the rich are rich. The truth isthat when people such as Clinton and Gore are prohibited from confiscatingthe wealth of the rich, the biggest beneficiaries are the poor.
Mr. Hornberger is founder and president of The Future of Freedom Foundation.
$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.
Proudly voting for...
Carrie, Mom of Alex & Anna