Is a Small-Business Tax Cut Coming?

Has resulted in economic depression, recession, or market bubbles.

Simply put lowering taxes encourages business owners to remove money from businesses that are running well, and making decent, but not enormous profits. Keeping taxes high points business owners in the direction of keeping money in the business, investing it in equipment, hiring more people, making more of what they sell, having more people working who can buy what they sell, opening new locations etc.

If a small business owner sees that if he takes a million dollars out of that business as income for himself, he is going to magically see it shrink by whatever the top marginal rate is, but if he keeps it inside the business, he is still going to have some asset that is worth a million dollars, and even increase the sort of assets that will create more wealth.

This is the diversion that conservatives often engage in, they comfuse wealth creation with profit creation.

In the last 80 plus years, every large tax cut has led to recession, depression, economic bubbles, small tax cuts have created relatively stagnant economies (the period between the tax cuts made by Lyndon Johnson and well into the Nixon administration saw a zero market growth), the Reagan administration was bookended with recessions and then the S&L failures, the slight tax increase of the Clinton years led to the greatest market growth in history.

Between 1921 and 1925, conservative administration gave three tax cuts, the first two relatively small, but the one in 1925 was relatively large, down to 25 percent. The Great Depression followed.

Why.

Because low taxes encourage diferent investment behaviors. High taxes create incentives for the business owner to earn money the hard way. By creating and growing businesses, hiring new employees, opening new plants or stores. Anything to actually avoid paying the taxes.

On the other hand when taxes are low, business owners are inclined to take money out of those businesses and then go looking for other ways of making money. Usually they do so by investing in the stock market, usually looking for some hot sector that other people seem to be making a bundle in and then they go right to those markets as well which heats them until they form a nice big bubble that is ready to burst and usually does.

High taxes encourage earning money by creating something of long term value that will bring in a small, but regular profit consistantly over time. It creates wealth for the entire community.

Low taxes encourage the speculative behavior that has caused every cycle of boom and bust for the last 90 years. Consistantly. Like clockwork.

David Stockman, Reagans economic czar, reports that when they they first started cutting taxes, they waited for signs that those who got the large cuts would start REINVESTING their money into their businesses. It never happened.They had no incentive to do so.

N.J. of GA 2:16PM January 28, 2009