How High Taxes Kill Jobs: A Tale of Two Tax Plans
Although Hillary Clinton hopes to be the “champion” of small businesses, she fails to recognize the difference between how a government program works and how a business is run.
From her website, DNC speech, commercials and debates, it appears that her plan is not only to simplify the tax code but to overtax the wealthy in order to finance government loans for business efforts. It is indeed noteworthy that she has identified 1) the tax code as too complicated and 2) there is a need for businesses to thrive in the United States. However, government-sector solutions for private-sector problems rarely, if ever, work well and efficiently.
Let’s take her plan to overtax the wealthy and redistribute the money in an unspecified way for businesses. For this example, we’ll name our chief protagonist Bob.
Bob owns a small business. Bob makes good money, but Bob is now being overtaxed, so he has to layoff half his workforce because with the tax burden he can’t afford to pay them a living wage. Additionally, the money he would have spent to hire more workers (i.e. more jobs) has to be coughed up for taxes too. He can’t pay for vacations (that pay hotel employees), new cars (that pay for car manufacturing employees) or art for his home (that pays artists).
“Wait,” you say. “I thought Hillary’s program created jobs!” Well, we haven’t gotten there yet…and neither has she. You see, the tax money is supposed to be “re-invested in our country” and “create jobs” and go to “clean energy,” but how exactly that happens has yet to be discussed.
But let’s get back to Bob. Bob’s tax money goes to the U.S. Treasury in the “to be determined” category for whimsical government-business projects. It goes towards the salaries of the government workers in charge of the whimsical government-business project office until they figure out what sorts of things they want to do with the money.
Meanwhile, Bob’s formerly employed workers are looking for jobs. Bob wishes that he could hire them, but he can’t afford to pay them a living wage. And the new jobs created by starting the U.S. Whimsy Business Office are outweighed by the layoffs from Bob’s business. This is indeed a sad tale of woe.
Now for the second tale: Let’s see what happens if Bob doesn’t get overtaxed.
Bob owns a small business. Bob makes lots of money. Bob hires lots of people. Bob can pay his people a living wage. Bob’s company makes more money and he starts another business. This creates more jobs. More people have a living wage. More people are feeding their families. More people have freedom. Some of these employees save their money and start their own businesses. These businesses create jobs, which pay more people living wages and this feeds more families.
Additionally, Bob can now go on vacation (hotel employees are paid), buy cars (car dealership employees are paid) and buy art for his home (artists are paid).
You see, the scheme to overtax the rich in order to “make it fair” for the rest of us simply doesn’t work. In fact, it kills “the rest of us.” If the wealthy business owner is overtaxed, he can’t afford to keep his employees or spend his money in a way that helps pay the artists, car manufacturing and hotel employees along the way. If the small business owner (think pest control company, plumber, florist shop owner, baker, tailor, shoe repairman, independent hair stylist, writer, artist, consultant, massage therapist) has to pay an overtax amount, it will likely put them out of business. They will lose their livelihood. And America just lost more jobs.
This issue with Hillary’s concept of taxes is that she does not fully understand which group creates jobs in the best manner: the government or business owners. The government creates jobs, but rarely are these jobs on the cutting edge of technology, innovation and creativity (although there are some exceptions such as the former NASA Space Program). The reason is that business owners understand the concept of risk and are willing to weigh the risks and rewards facing their business, their families and their livelihood. Government doesn’t have to feed a family, pay for school or pay a mortgage (although some people believe that it should pay for all of these things). Yet, there is something in the human spirit that longs to create, longs to take a risk and longs to reap the rewards. By making all things, including businesses, a government subsidy, it takes away that beautiful narrative arc of “work hard, sweat and reap rewards.” This narrative arc gives us dignity and pride in our own good work. It is the narrative arc that inspires people to invent lightbulbs, airplanes, microchips and to discover cures for infectious diseases. By participating in this narrative, we begin to touch the edges of humanity, we begin to live out our calling, we begin to reach high to help our world and to help each other.
We should all remember the great words of Margaret Thatcher, the late Prime Minister of England: “The colonists did not come to America for subsidies. There weren’t any.”
This statement describes the true ingenuity of our Pilgrim Fathers and the Founders. These brave men and women did not come here in search of tax credits or “the easy way out” of life. They did not seek a government to solve their problems. They sought freedom, and we should do the same.