As the battle over the payroll tax cut extension is set to continue today with the introduction of the GOP package, the point of contention is over how to pay for the tax cut.
In order to fund the bill — legislation that would provide an additional $1,500 take-home income to 160 million middle class families — Senate Democrats are calling for a surtax on those with gross income over $1 million, while the Republicans are seeking instead for a Federal pay freeze and a gradual reduction of the Federal work force in lieu of millionaire surtax.
This debate, once again, highlights the over-emphasis of wealthy Americans’ positive role in spurring the domestic economy. But in an economy where consumer spending is nearly two-thirds of GDP, it is the middle-class consumers who are the job creators, not the wealthiest Americans.
Many Republican lawmakers call the millionaire surtax a “job-crushing tax hike," arguing that any additional tax on these “job creators” will do nothing to improve, and will likely even further increase, the unemployment rate.
But are the rich in America really the all-important job creators that should be protected from any kind of tax increase, even if protecting them will provide additional take-home income for the middle and lower class? As Nick Hanauer, founder of a venture capital company Second Avenue Partner so persuasively wrote recently on Bloomberg, real job growth stems mainly from the actions of the average American consumers, not from the super-rich. Ultimately, it is the everyday consumers that create the economic environment for job growth.
Of course, business entrepreneurs invest, hire workers, and make products and services – but they do so if and when there is demand for what they produce. And the more disposable income Americans have in their pocket, the more money they can spend on products that the rich invest to produce.
The rich don’t magically create jobs. They don’t hire more workers simply because they have money to spend. They hire when they know they will make additional profit by hiring more workers. And similarly, even if a tax increase leaves them with less capital to grow their business, they will expand and hire if they know there are consumers out there who will spend and buy their products.
Yes, rich investors and business owners do hire and create jobs. Their reason behind doing so, however, are not solely determined by how much money they have left after paying taxes, but by how much opportunity there is for profit in the economy.
This is why the tax breaks on the middle-class and surtax on the millionaires to pay for them make sense. According the Moody’s Analytics, this payroll tax holiday extension would “spur enough new consumer spending to add about 750,000 jobs.” The middle-class consumers are the real job creators here. This tax on the rich is not about class-warfare or income redistribution. This is about getting the economy going again.
Photo Credit: Matt McGee
The Discussion
Why President Newt Gingrich Will be better than President Obama?
Please type the title in Google above to read my article
President Obama promised the American people to fix economic problem in home and fix the image of the USA overseas. The Nobel Peace Prize committee rushed and gives the prize to
Rarely have I seen such succinct and accurate analysis of this debate and the hidden truth, agenda, and consequences of action. The current GOP is lost and adrift in special interests that are far removed from the average American. That alone is reason enough to reject, not necessarily the GOP, but the premise by which they are currently operating. I was expecting "hope and change" to come from Obama to my dismay. It is not the label but reality.
The title of the article should be the reverse: the rich should pay the same tax rate as the middle class. We can not keep on borrowing our way out of everything and should face up to the pains of a balanced budget. Perhaps that would get our country to get our fiscal house in order.
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We can't cut income taxes anymore for the middle class and poor b/c they don't pay any income taxes. Now we are cutting their contribution to social security, and the Dems want the wealthy to pick up the tab.
What are the chances the Dems ever vote to get rid of the payroll tax "holiday"? None. It will become the new "doc fix", renewed every year. We will hear the same mantra: we can't raise taxes on the poor and middle class. . .
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Ji, you are right. We have a consumer-driven economy. As for the "job creators" I wonder where the jobs are that they supposedly create. It seems that they are oversees. They don't create jobs; they outsource them (at least the multinational corporations do). And the medium to small size businesses need people to have money in order to stay in business. We can argue all day long about what should be done about this, but the fact remains that without demand nothing can be sold. Also, we seem to incentivize making money off of money. This has no supply chain and does little to effect a positive growth because it does not put money in the pockets of working class Americans. Nice article!
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Mr. Ji:
Please look at the actual IRS data.
With an AGI of $170,000 or what a 20-year teacher with a masters and a 2-year police captain in Pittsburgh make, your earned a ranking of TOP 5% in America.
With an AGI of $115,00 or less than what a married couple of Engineers make with 3 years work experience in Atlanta put you in TOP 10% in America.
The Problem with America's TAX SYSTEM is 10% of filers pay 70% of all Federal INCOME Taxes!!
Someday, Progressives will admit you CANNOT claim to have a Progressive tax code when 50% of fillers pay ZERO and 90% pay less than 30%.
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Mr. Ji, you have espoused the same ubiquitous arguments that have been rammed down our throats by liberal congressmen and our liberal president for the past three years; a little creativity, please. Conservatives think raising taxes for anyone at this time would be a bad move. Most economists agree with this. And, give me a break on the fair share argument. Liberals won't be happy until the wealthiest pay all the taxes. The tax rates of the affluent are not the only source of new revenues in this country; as soon as the class warfare advocates recognize this, the sooner we will be able to move the economy in the right direction.
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