It’s been one of the central debates of the 2012 presidential campaign – the U.S. economy’s sub-par record on job creation over the past four years. Whether you’re a Republican planning to vote for Mitt Romney, or a Democrat planning to vote for President Obama, I think everyone can agree that our nation’s unemployment rate is still too high, and that something must be done about it.
And that’s where the two parties differ.
What Republicans Think
Forget what Mitt Romney said in the first presidential debate – he is in favor of cutting taxes. His plan is based on the extension of the so-called Bush tax cuts; on top of that, he’s proposed dropping federal taxes for individuals by an additional 20 percent, eliminating the estate tax, and reducing corporate taxes from the current rate of 35 percent down to 25 percent or lower. The non-partisan Tax Policy Center compared Romney’s tax plan against current tax policy under two scenarios, and found the U.S. stood to lose somewhere between $480 and $900 billion in tax revenues in 2015 alone; by some projections, the Romney plan could cut tax revenues – and, as Democrats claim, add to the national debt – by $5 trillion over ten years.
The Republican position is that these tax cuts would benefit small business owners, a lynchpin of the Romney platform. Those on the right believe that lowering taxes – both on corporations and on individual small business owners who file their business’s taxes under their personal income taxes – would lead to more job creation, since those business owners would have more money in their pockets to make investments in their labor force. More people in the work force leads to more people paying taxes, higher tax revenues, and a drop in the national debt.
What Democrats Think
Democrats, of course, think the Republican plan is hogwash. They call it trickle-down economics, and believe that business owners will keep that extra money gleaned from federal tax cuts in their pockets. As their theory goes, if these business owners don’t hire more employes and spread the wealth, the U.S. will face a major revenue shortage. This is why so many Democrats say the Romney plan will benefit those at the top – the so-called “job creators” – and nobody else.
Here’s The Problem
Do you know any small business owners? Chances are, you do – data from the U.S. Census Bureau and Small Business Administration show that 99.9 percent of all businesses operating in the U.S. in 2009 employed 500 workers or less. In fact, just 18,311 of America’s 27.5 million businesses were big enough for the SBA to label them “large” businesses.
Anyway, go talk to a small business owner and ask them this simple question: “What’s your main goal as a small business owner?” If you come across a truly altruistic businessman or woman, they may tell you that their goal is to improve the nation’s economy or serve a need in their community. But chances are, most most small business owners will have one main objective that towers over all the others: to make a profit. Because, to put it simply, a business that doesn’t make a profit is simply not a viable enterprise. And if the business isn’t viable, they definitely won’t be able to create jobs.
So even if a company gets a tax cut, but doesn’t need to expand, why would they hire a new employee? Why would a business owner pay for labor – one of the key overhead expenses of any business – if it would only amount to an unnecessary expense? Every small business owner I know does whatever he or she can to trim all the fat possible from the business’s budget. Ancillary employees are nothing more than a drag on profits.
And, for me at least, that’s what it comes down to – thinking that a tax cut will lead to more job creation is a little like putting the cart before the horse. Our free market economy depends on the theory of supply and demand; hiring new workers before there is any increase in demand for the fruits of their labor is suicide for many small businesses.
Reader, am I wrong on this? What are your thoughts?