I have nothing conclusive or in-depth about economic policy to offer. I am not an analyst, nor do I study the market. What I know about the current state of economic affairs in the U.S. as it pertains to financial matters is this: I am on unemployment, I have very little income and a tax cut for me might only help slightly.
So many pundits, depending on your bias leanings, are blathering about the Economic Stimulus package each party in Congress is offering up. It all sounds like the same old song and dance. Republicans want tax breaks for the rich using the old “trickle down” theory, and the Democrats want tax breaks for the middle class using the old, “put the money in the pockets of the working man theory.”
In my recent discussions as servant to the wealthy (who are ALL Republicans) the “trickle-down” theory works and as far as they are concerned that is the only way to stimulate the economy. Seeing as how I am dependent on them for the pocket change I have (.32 cents as of this post) I am happy to see them with more money to spend on the little people.
In fact, the way I see it, in the service industry that I am working hard to break into, the upper tiers of the economy are the people I am most dependent on. I need for them to have disposable income. What they have is more money than time, and what I have is more time than money. For most wealthy people, it’s much easier to make more money, but no one has been able to generate more time.
I also understand the need for the middle class to get a break. Dual income families with kids in college, mortgages and car loans need more money in order to become consumers again. The ’90s boom was about consumption and even an economic naif such as myself knows that consumption drives the economy. I spent less this year on Christmas than I EVER have. Obviously my impending unemployment fueled my spending habits, but retailers just weren’t offering the kinds of deals I needed to part with my precious cash.
Discount stores I am convinced fared the best. Places like Wal-Mart, Marc’s, Big Lots and the like were packed. The malls were as desolate as a whorehouse during a raging outbreak of the clap (ewwww!!!). I wanted reasonable items at a cheap, Cheap, CHEAP price. So did everyone.
I received the below anecdote that describes what tax theories mean to those of us without an MBA. What an eye-opener.
- Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men — the poorest — would pay nothing; the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18, and the tenth man — the richest — would pay $59.
That’s what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement — until one day, the owner threw them a curve (in tax language a tax cut).
“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.” So now dinner for the ten only cost $80.00.
The group still wanted to pay their bill the way we pay our taxes.
So the first four men were unaffected. They would still eat for free. But what about the other six — the paying customers? How could they divvy up the $20 windfall so that everyone would get his “fair share?”
The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would end up being PAID to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. Each of the six was better off than before. And the first four continued to eat for free.
But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man, but he, pointing to the tenth. “But he got $7!”. “Yeah, that’s right,” exclaimed the fifth man, “I only saved a dollar, too, …….. It’s unfair that he got seven times more than me!”. That’s true!” shouted the seventh man, why should he get $7 back when I got only $2?” The wealthy get all the breaks!”. Wait a minute,” yelled the first four men in unison, “We didn’t get anything at all. The system exploits the poor!” The nine men surrounded the tenth and beat him up.
The next night he didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered, a little late what was very important. They were FIFTY-TWO DOLLARS short of paying the bill! Imagine that!
And that, boys and girls, journalists and college instructors, is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. Where would that leave the rest?
Well clearly the rich aren’t going to stop paying taxes BUT that doesn’t mean they won’t become tight with their dough when it comes to service industry expenditures. The extras are the things we cut out when we are facing an economic crisis, and the extras are what this country thrives on. Surely there must be a way to encourage the rich to keep spending and help the middle class have a few extras. And what would the poor have if the rest of us didn’t make money and pay taxes? I imagine even less.
Dawn’s blog is Up Yours and More helpful Tips, read it here.