The argument is that lowering taxes makes business thrive. And they will hire more people.

My first question is,  “What do business taxes tax?”  My second question is, “Why do shop owners hire more workers?”  It is my understanding that the business taxes tax profit.  Profit is that amount that is left over after deducting all the business’ expenses.  Wages are part of those expenses.  That is a curious item because increasing employees ALSO decreases taxes because they reduce profit.   OK, so if you reduce taxes, you increase profit and provide more money to the shop owner.  However, if the employees the shop owner already has are not doing very much—that is to say that two waiters on one table will not cause the existing customers eat more, there is no need to hire more.  Therefore, lowering taxes will only increase the profit of the shopkeeper while lowering the revenue of the government.

Let us keep in mind that the money the government spends mostly goes to pay people to do things for you—the most visible of which are police, fire, and librarians.  These people are also the shopkeeper’s customers.  When you cut taxes, you cut those jobs and are thereby cutting  your customer base.  This leads me to my second question, “Why do shop owners hire more workers?”   The answer is pretty simple.  The shopkeeper’s workforce is not able to keep up with his customer’s demands.  So, more customers require more staff.

Therein lies the glowing error of the initial argument.  The private sector is not hiring because they do not have enough customers.  Lowering taxes only increases the shop owner’s profits but does not provide any reason to increase output.  IN FACT, it actually decreases the customer base by putting people out of work.

HOWEVER, if government can increase taxes on the rich, it will not stop them from spending, it will just siphon off a bit from what will go into the banks.  The government can then hire more workers, who will create more customers, and eventually require the shopkeepers to hire more people.  The economic growth is self-stimulating once the government primes the pump.  The reason the economy did not take off after Obama tried his first stimulus was because 8,000,000 people lost their jobs under Bush and the Republicans, with the “Blue Dog Democrats,” prevented Obama from spending what was needed to get enough of those 8,000,000 back to work.  It was luckily enough, however, to stop the bloody hemorrhaging of jobs that was taking place as he took office.

My question to you is, “If you want more customers, than why are you in such a hurry to elect someone who will make your boss richer while causing more customers to lose their jobs?”

August 25, 2012