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Tax Reform A La Nick Hanauer

Nick Hanauer on Tax Cuts

Let's talk about tax reform...or maybe it's really going to be tax cuts rather than a reform. I've been reading in the news that most of the cuts are geared toward the wealthy (why doesn't this surprise me?) and that maybe those who make around 80-100K will see an increase in taxes. Those at the lower end will see only a minimal increase, maybe where around $600. 

I've also read that most Americans want taxes to be increased on the wealthy (maybe to make taxation more fair?), even those who are Republicans. Republicans or Democrats, average Americans want taxes increased on the wealthy. They get it.

On the other hand, the Republican leadership and some of the wealthy keeps saying that cutting taxes on the wealthy, who are supposedly job creators, will lead to hiring increases. For decades they told us that tax cuts leads to growth and greater employment, to the point that it's considered dogma. 

Except it's a canard.

The only way businesses increase hiring is when demand increases and they need people to satisfy those increased demands. That is the only reason they increase hiring: increased demand calls for greater production of goods and services. If they can deliver more goods and services without hiring more people, then they will do so because that means more money in their pocket. So a tax cut is just gravy. Tax cuts will not incentivize businesses to hire people, only greater market demands. Remember, they are profit seekers - profits in their pockets. Businesses might use the taxes for stock buybacks but the tax cuts will not be used for hiring.

One of the super wealthy, a hedge fund guy I think, wrote an article about how taxes should be increased on rich guys like him. He lists out various facts about why cutting taxes will not lead to economic growth or employment growth. Most recent and best illustration of the lie about tax cuts is the tax cut that Kansas did and the tax increase California did. You could call this an experiment. The end result was Kansas came in dead last on economic and job growth whereas California saw increases. Nick Hanauer also mentions that there has been numerous studies that implicates a connection between tax increases and growth.  I think what's going on there is that the tax increase probably went towards some kind of investment: infrastructure or educational investments that lead to money being disbursed into the hands of regular people who then turn around and spend that money. This is the increased demand that then led to increased hiring and possibly increased wages (that probably comes much later when companies see a very, very, very tight labor market).

So data says that a tax cut does not have a high correlation with economic and job growth.

He also mentions that the wealthy already have so much that get more money will not lead them to buy more things. They can only buy so much. The people who will buy are the average Americans, but you have to get the money in their hands before that happens. As a matter of fact he did say:

"low wages and rising inequality are the disease that causes slow growth." Nick Hanauer, Politico, "A Zillionaire's Solution: Tax the Rich and Save the Economy", October 11, 2017.

Now, I'm sure that the response would be, "But the government is terrible at investing. We need to let the people, especially the wealthy, do the investing."

Except...they are not investing... in either people or infrastructure. They won't build the infrastructure that will help society in general and may not have an apparent or immediate payback. Internet is a classic case. They definitely wouldn't build all of those roads and highways. And right now, we probably don't have as great a telecommunication structure as Europe or Asia (if I understand my readings).

And you know what? The American people get it: they want the wealthy to be taxed more.

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