1/8/2002 – Robert

            Okay, so George W. Bush, (Dubya to most of us), has announced a new plan to jumpstart the economy.  I agree with the statement that the economy does need a boost.  The unemployment problem has compounded in the United States in the past few years… some blame September 11^th, some blame the dot.coms, some blame greedy executives lying about earnings and such… I tend to think all are to blame and more. 

            Well, the purpose of this rant is not to try to point out an initial cause and assign blame.  That’s pretty much useless in the short term.  The issue I have is the way Bush is planning on dealing with it, by eliminating the dividend tax.  Yeah, I can’t think of anyone around me that actually enjoys paying taxes (myself included), but it’s a necessary evil in society.  Someone has to keep the schools running, the garbage collected, the police and fire departments functioning, the streets paved, the libraries open, the buses running, etc., etc., etc. 

            Back to the dividend tax…  I currently make at least 15% more than the median income of families as of the year 2000 (source: Milwaukee Journal Sentinel).  Okay, so I’m pretty well off.  I tend to make more than the majority of people in the country.  How much dividend income did I receive in the year 2002?  Well, according to my bank, about $20…  I may have received another $10 off of stock at the most.  So, until I get my statement from my brokerage firm, let’s just go under the assumption that I made $30 off of dividends during the past year.  Anyone mind telling me how much of that is going to tax?  I betcha that I could just about buy a roll of film with that huge amount of tax money I’m losing as a result of dividend taxes.  Most people probably have even less than I do. 

            If the average American makes less than I do, how are they going to benefit from the elimination of this tax?  Well, I may not be an economics major, but I am pretty sure that most Americans won’t benefit from it.  The people that will receive the most benefit are people that already have a massive amount of stock in the first place.  These include the people that happen to CEOs that already happen to be making at least 475 times the amount of their average worker (source: United For A Fair Economy, 1999 statistics). 

            Let’s say for a minute this tax cut will pass, and I believe it will:  If the people that are making the most money in this country actually receive the cut, if they’re already making so much more than the average person, why would they not just pocket the money themselves?  Granted, I’m generalizing here and I realize not every person in our highest tax bracket acts that way, enough of them do to raise some eyebrows.  Enough of my complaining here…  would I be any good without proposing some solutions?

            Here’s part of the problem, the way I see it:  We have employees getting laid off from their jobs in massive quantities.  The employees are consumers in the economy who cannot afford to consume as much anymore because they are now laid off.  A company that fails to sell products becomes less profitable so the stock price takes a tumble.  As a result of the declining share price, the company lays people off to try to decrease their expenditures to make themselves look more profitable so more people will have an interest in purchasing their stock… but, the people that purchased their stock no longer have money so the value declines further, so the companies lay off more employees. 

Well, this may be the case with publicly held corporations, but the smaller private companies also take a hit.  The laid off employees can no longer afford to buy as much from the smaller companies as well, so the cycle is one that takes place, across the board. 

The economy needs a boost, but it needs to begin with the workers and small businesses first.  This will generate more demand in the economy in general and may help to fix the problem for most everyone.  We’ve all learned what happens to the economy when trickle-down economics comes to play.  The amount of debt this country holds skyrockets, and the people at the top see a lot of benefit while the working class hardly sees any of it.

Proposed solutions (instead of eliminating the dividend tax):

• Find a way to eliminate the personal income taxes for a month.  This will free up a huge chunk of money for every working person in the country.  The government will take a hit, but it still has other sources of revenue such as tariffs, sales tax, and property tax.
• Give some sort of tax break or compensation to small businesses so they can actually afford to hire more people.  Hiring more people plus the lack of a personal income tax will generate more consumer demand.
• Make all medical expenditures tax-deductable (see the part about generating demand).

No, it’s not a permanent fix, but ideas like this are a start.  We definitely need long term solutions to take place…  If anybody else has better ideas on how to possibly fix things, please share them. 

robert@digitalsingularity.com

(thanks to Jeremy for helping me brainstorm here, and for the last two ideas)