Wednesday, March 31, 2010

Not Following Through

I was reading this article by Kevin Hassett of Bloomberg News in The Wichita Eagle. His points out that the new taxes are just more of the same from Washington DC. He is basically asserting that Obama's policies are going to be an increase of 3% on the rich. He is right, as far as he takes it, but he doesn't follow through to the logical and real life effects.

What most people never bring up, and I'm not sure whether it's short-sightedness or an unwillingness to discuss it, is that tax increases do not simply affect the people taxed. That tax is passed on, much like a game of hot potato--or musical chairs; last one standing gets stuck with the bill, to whomever they can. So any tax increase results in higher bills down the line.

Hassett is right in that wealth is redistributed from the 'rich' to the 'poor'. He neglects to tell you who the rich or the poor are or what the net effect of the taxes are. The rich are going to be composed of businesses and businesspeople in this case, as they are the target of the bills that target mainly employers. Do you really think businesses (or the stock owners in corporations) are going to simply absorb the cost? Of course not, they are going to pass as much as possible on to consumers.

As the middle class consumes the majority of products out there, the bill is going to get passed on to them. The truly rich are not likely to be hurt at all. They will pass the costs to the middle class, who will be notice the higher prices in the stores (but probably never guess why the costs are higher).

In a slow economy, the higher prices are going to make people reconsider whether or not to make unnecessary purchases. Sharper Image won't be doing so well financially.

The poor who may get the benefits of the redistributive nature of taxes, will also end up paying higher prices, so they will have more services provided to them by other tax payers (primarily the middle class-despite what Washington is telling you) but will simply be made more comfortable in their poverty. These across-the-board increases in product costs brought about by the taxation will make it that much harder for those that want to move out of poverty to do so.

Another part of the health care bill is the assault on property ownership through the capital gain 3.9% increase. Real estate investment and, more recently,  mutual funds have been the primary way by which the middle class and poor have been able to leverage themselves into the upper class. But now there will be an extra burden on them, that will take more of there hard earned money away.

So, while I applaud Hassett's points in the article, and think he and I are on the same page, I wonder why he hasn't pointed out what should be obvious. Unless, of course, it has to do with working for Bloomberg News.