I’ve spent some time following the presidential race (get it done in August, and you don’t have to worry about it during the football season) and noticed these boys are talking a lot about cutting taxes.
Dubya wants to cut taxes for everyone, but since rich people pay most of the taxes, they’ll get most of the refunds. Gore wants to cut taxes only for those with lower incomes.
My question is, what’s better for the rich? With the median family making around $47,000 (meaning half earn less), I figure rich is what most ClickZ readers are or will be.
So let’s give our rich friend $1 from Dubya and think about what will happen to it. It might go into a new BMW (but he’s already got one) or a first-class ticket to Moloka’i (Moloka’i again?). But chances are it’s going to be “put to work” making stuff. It’s going into the supply side of the supply-demand equation.
Now let’s give our poor relation 50 cents from Gore and think what might happen to it. It could go into an education savings fund (and then into Cisco or Microsoft shares), but chances are even that will just substitute for 50 cents that can now be “put to work” buying stuff. (La-Z-Boy, here we come.) It’s going into the demand side of the supply-demand equation.
Now Dubya’s $1 is going to compete with hundreds of billions of others, cutting interest rates, reducing investment returns, and (perhaps) getting sucked into the next wave of dot-com start-ups. The question is that when the new Ivegotthecabbage.com brings out its table vegetable portal, where are the buyers?
Gore’s 50 cents, on the other hand, is likely to end up buying cabbage and making the smart guy who invested in Ivegotthecabbage.com something resembling a profit. Don’t forget that the purpose of investing is to eventually make a profit – not find a greater fool to take the investment off your hands.
Now if the nation were woefully short of capital, I’d say sticking money into supply would be the way to go. Lord knows places like Russia and Africa and Latin America could use the money. If I were living there, that would be sensible economics.
But despite all the money that’s gone to money heaven the last six months, I don’t see any capital shortage here. We’ve got a ton of online businesses scratching for profitable markets. We’re looking for buyers, not more sellers.
Do the math yourself. The last thing rich folks need right now is more capital competing for scarce business models. Rich folks need buyers to bail out the existing business models.
Of course, what the really rich probably need most of all is some unemployment so there will be Americans eager to take what government pays to teach, to do police work, or to be all they can be in the Army. It is hard to get good help nowadays. But that way lies cynicism.