Friday, September 17, 2010

Growth without Justice

Hang down your head, Tom Horner

Tom Horner- Targeting the middle ground - StarTribune.com_1278868094518 Here’s the lede in a Strib article about Horner’s proposal to eliminate the corporate income tax in Minnesota:

Hoping to boost job growth in Minnesota, Independence Party gubernatorial candidate Tom Horner said Thursday that he would phase out the state's corporate income tax, simplify regulations and increase state-funded research.

According to the article, Horner would pay for this and increases in spending in education by with an a broadening of the sales tax base.

He would offset some of that new spending, he said, with his proposed expansion of the state sales tax to clothing and unspecified services. He said that food, medical care and prescription drugs and related services would remain untaxed. Horner said he also plans to close tax deductions for the wealthy, increase alcohol and tobacco taxes and cut spending.

Note to readers: there is already a gross receipts tax on medical service providers, intended for the Minnesota Health Care Access fund, but hundreds of millions of dollars have already been diverted from it for the general fund; there is already a sales tax on medical services, in practical effect.

The belief that merely reducing taxes will increase “good jobs” is the kind of “I sat down and worked it out with a pencil” thinking that one might expect from King Banaian or Craig Westover. And that should tell you something right there.

Reducing a company’s costs increase its profitability, but not necessarily its employment. We can demonstrate this with a simple illustration.

Let’s assume that you are a company that needs one employee for every customer you have. You have fifty customers and currently have fifty employees. Tom Horner is elected governor, and he slashes your business taxes, but you have the same fifty customers.

How many more employees do you hire? Tom?

Tom might say, “They’ll hire waaaay more!” but the right answer is zero. The business will hire another person when the marginal revenue generated by that person exceeds the marginal cost of the hire. In our little example, without any marginal revenue, there is no incentive to incur the marginal cost. (If it helps, just substitute the word “extra” for “marginal.”)

It is more complicated in the real world, naturally, but the example does show that simply reducing taxes by itself is not the driver of employment, certainly in the short to medium term. It gets more complicated when the issue is situs of a new factory or other substantial bricks and mortar investment. We’ll leave that for future posts.

For right now, though, let’s talk just about fairness. In a recent op-ed, the unacknowledged Pat Anderson functionary Craig Westover said that we couldn’t afford to be fair, that corporations had us by the short hair, and we might as well get used to it. Well, thanks Benito, but I don’t think it’s come to that.

Raise your hand if you don’t think that corporate business activity consumes state government resources or incurs cost to the state.

Of course it does.

But Tom Horner, the faithful corporate retainer, wants you to forget that.

When Well Fargo Mortgage wants to foreclose on your house, it needs the sheriff, and maybe the courts, to do it. When Target Credit Corporation wants to collect a debt owed by a customer, same thing. When a corporation wants to, well, exist, it needs the Secretary of State. When 3M wants to send its cellophane tape down the road, guess who provides the road?

And who educated most of the people who work for 3M, Target Corporation, and Wells Fargo? Certainly not the corporations themselves.

But to the deadly bloodsuckers like Tom Horner, that doesn’t matter. Corporations should get a free ride.

Corporations want to exist when it comes to things like First Amendment rights, but they don’t want to exist when it comes to other attributes of citizenship, like paying a fair share of the cost of government. And sleek mouthpieces like Tom Horner are there to help every step of the way. But we certainly don’t need to elevate one to the governor’s office.

UPDATE: We had a discussion about the Republican Liberty Caucus at Drinking Liberally on Thursday; the RLC describes itself as “the conscience of the Republican Party.” In Minnesota, the RLC has endorsed Tom Emmer, Mark Buesgens, Pat Anderson, Steve Drazkowski, and Mary Kiffmeyer among others.

On the issue of the elimination of business taxes, the RLC Caucus and candidate Horner are on the same page.

Strib photograph


James K said...

If tax cuts caused more people to be hired then George W Bush wouldn't have had the worst record of any president in history for job creation.

Mark Gisleson said...

Damnit Spotty! Now I've got the Kingston Trio rattling around in my brain and I know from experience it's going to take DAYS to get that song out of my head.

blogspotdog said...

It's what happen when old people write blogs.

blogspotdog said...

If you're interested in reading more about Tom Horner's ship to oblivion, read Jim Lenfestey's op-ed in the Strib today.

Craig Westover said...

Spotty --

Your analysis comes up a little short, unless we assume you bury your business tax cut in a coffee can in the backyard. If you don't, you have three choices: spend it, save it or invest it.

If you spend it, you stimulate the economy more effectively than if the government spends it. You exchange wealth directly with a willing partner, which eliminates the administrtive cut of government. You are exchanging/creating wealth, not redistributing wealth.

If you save it, you are for a price (interest) enbling someone else to borrow it and spend your money with the same positive ramifictions as if you spent it yourself.

You can also invest your tax cut (the most productive choice). You can indirectly invest in your business by lowering your prices (because you no loinger have to pay a tax). That brings you more customers and (your example) necessitates hiring more people. You can pay higher salaries attracting more productive employees enabling you to hire fewer employees per customer, but more employees in aggregte because higher productivity enbles you to further lower prices below your competition and reduces your overall cost of doing business.

You can also invest in R&D to improve your product, attract more customers and therefore hire more employees. Or you can invest in wider markerting and distribution systems, increase your customer base and hire more people.

The difference between Dayton's plan and Horner's plan is Horner's plan has correctable flaws while Dayton's plan is fatally flawed.

blogspotdog said...

But nothing you say Sticks changes the fact that if there is no additional demand, there won't be more employment. If you tool up to make widges faster and cheaper, but still sell the same number, your employemt will go down. That is in fact what has been happening in many areas of the economy lately, even coming out of a rescession. Employers delay hiring, work people harder, and add overtime, if necessary.

Businesses have administrative cost, too, Sticks, it's called overhead and it doesn't mean the roof. If I sell office supplies to a private business or the the state, the money I get in payment spends the same for me.

Sticks persists in the absurd argument that he gets nothing for the taxes he pays. But he's buying something called "civilization," according to Oliver Wendell Holmes. Sticks may say he doesn't want civilization, and I believe him, but he'd miss it if wasn't there. Civilization makes business possible, among other things.

Dayton and Horner's plans may need work, but the animating force behind Dayton's plan is to make the overall tax system more progressive and fair; Horner's is just the opposite.

blogspotdog said...

Emmer also advocates the elimination of the Minnesota corporate income tax.