The Trickle Down Effect

I am a proponent of 'the trickle down effect'. It's really a simple concept, or theory to understand. I think it makes perfect sense, and then there are those who think it's stupid or greedy. But you either agree with the theory or you don't, and whether or not you agree with it should determine whether you are fiscally conservative or liberal in the political sense.

The basic idea of the the trickle down effect is that when corporations and/or wealthy people have more money in their pockets it is better for the middle and lower class than when they are heavily taxed. When a business is being heavily taxed they have less money to spend, therefore, they can afford to have less employees, so there are fewer jobs.

Say a mid-sized business brings in $5 million a year. If they are being taxed at 45% then they pay $2.25 million in taxes. So that means they have $2.75 million to cover their cost of operating. After paying all the bills and insurances associated with running a business they also have to match the social security each employee puts in, and pay unemployment insurance. So while employee Bob who is making $50,000 at that company views $2.75 million as a huge sum, after all these overhead cost the amount of money left to pay the employee's salary is probably going to fall around $2 million. Say there are 40 employees making an average salary of $40,000 at this company, that leaves only $400,000 for the owner. Now you may say that that is a ton of money, but for someone who most likely started the business, has all the headache of running it, and is your employer that is nothing to gripe about...they are not running the business so that you can have a job. And don't forget that the withholding that comes out of your check is not in that $2.25 milliion, it is in addition to that. Corporations get taxed at an alarming rate. Just imagine if there was another $1 million for the owner to spend, employees could make more money, more people could be hired to share the workload, the facilities could be upgraded creating more jobs in the construction of the facility.

For another example say a billionaire is getting taxed 50% so he doesn't really want to spend $300 million on the yacht he wants. Well if he was only taxed 35% then he would buy that yacht and the manufacturer and all the people who built the boat would have work and he would hire 10 people to work on the boat, he would buy gas and have ridiculous parties ordering expensive foods and all the money he would spend would circulate through to the people in the middle and lower class.

Now say the government continues to tax heavily and increases taxes on corporations and the wealthy. Do they use those dollars creating government jobs, sure. But are government workers efficient at all? Is government spending necessary or even justified most of the time? Do we want the government taking our money and using it how they see fit without any regard for cost and value?

When a company has more money, there are more jobs period. When you cut taxes you free up tons of cash that was being sent to the government so companies can buy more, spend more, hire more. Not only that but it makes it easier for people to start a business. A business right now basically has to make 35-40% more money than they need to pay salaries because they have to pay taxes. So next time you think paying a mechanic $75/hour is ridiculous, think about how $20 of that is going to the government. So when you pay sales tax that is just a tax on top of the tax that the mechanic is charging because he knows he has to pay taxes on whatever you pay him. That is the way you have to think about it because it is true. If you want to hate taxes, own a business.

The bottom line of the trickle down effect is that we need to always try to cut taxes and not raise them. There are certain times when the country is in debt or we need money for military action that taxes should be raised. But there is no need for spiking taxes so the government can have more money. And just remember that when sticking it to the rich with more taxes for them and less for you sounds nice, that really just means there's a chance you're out of a job because they've got more taxes to pay and believe you me they aren't going to fire themselves so that you can have a job.

JB