Reflections From The Political Prism

For those who have not yet voted, here are a couple of considerations: 

Save the Supreme Court!

One of the most important issues of the presidential election has barely been mentioned, namely, the future of the Supreme Court.

The Court now has four conservative Justices, four moderate-liberal justices, and Justice Kennedy more or less in the middle. All conservatives plus Kennedy were nominated by Republican presidents; all liberals were nominated by Democrats.  

In all probability, Kennedy or one of the liberal justices will leave the Court within four years. If Romney is president, he will almost surely nominate a conservative replacement, guaranteeing a solid and lasting conservative majority. The result will be more decisions like Citizens United.

It matters not that Romney may be a moderate at heart. Remember, Bush 41 gave us Clarence Thomas. (And don’t be fooled by Roberts’ decision in the health-care case. It’s a Trojan horse. His ruling on the Medicaid provision furnishes a precedent for constraining the federal government far into the future.)

In short, a Romney victory means that the Supreme Court will probably be ruined for 20 to 30 years. That by itself is a decisive reason to reelect Obama.

Hoodwinking Us About Income Taxes and Job Creation

One of the central claims in the Romney-Ryan story is that higher income taxes for the relatively wealthy will seriously hinder job creation. Their argument is based on the assumption that owners of small businesses will be in the upper brackets. Their income consists of the proceeds from their businesses. (We’re not talking about businesses that have incorporated.) Take away from the proceeds and you will take away the money they would otherwise have to hire new employees.

In other words, new hires compete against taxes for a limited amount of funds. That’s the story.

One flaw in the argument is that a great majority of small businesses (perhaps 97%) don’t reach the $250,000 threshold for increased taxation. But let’s lay that aside and consider whether the argument makes sense at all, even for the small proportion of businesses that it refers to. To be sure, the argument sounds plausible. We envision a pot of money available to the business owner. The more you take out of that pot in taxes, the less will be available for new salaries. It sounds plausible, until you realize two basic truths:

1) No business owner will hire a new employee unless they have a reasonable certainty that the new employee will bring in enough revenue to at least cover their wages and other expenses such as payroll taxes. In other words, the employees will pay for themselves. And all such expenses are of course tax-deductible.

2) Taxes are levied on net profits of the business, not gross income.

Now do a simple visualization: Picture a bar, as in a bar graph, that represents gross income. Part of that income goes to expenses, including wages etc. The rest is profit. New hires will increase the expenses part. But they will not eat into the profit part, because as just mentioned, the new hires will at least pay for themselves. New hires will either leave profit unchanged or will increase profit.

Income taxes on the owner will eat into the profit part, but ONLY into the profit part, as just mentioned. They decrease the amounts the owners can consume in their private lives; that’s all.

So tax increases cannot possibly compete with the expense of new hires. Because, again, taxes take away from profits, but new hires don’t take away from anything.

Hiring will therefore be stimulated not by tax decreases, but by an increase in demand, which increases the need for more employees to take advantage of the new demand. Which is just what economists such as Paul Krugman have been saying.

Romney and friends, with their business backgrounds, must realize all of this. But they figure they can hoodwink the rest of us into swallowing their delusions, a la the “47%.”

Read More on Minding the Issues
Volume 8, Issue 21, Posted 5:44 PM, 10.16.2012