From Salaries to Taxes, One Tax Increase at a Time

I have seen several cartoons over the past few days and they often look like this:

The message is that Republicans are only looking out for the “rich.” For anyone who has not had the chance to follow the news, Democrats have essentially made the extension of the Bush tax cuts dependant on extending unemployment benefits. And consequently we have the above cartoons.

And so the Democrats paint a picture. By Republicans holding out for an across the board extension of the Bush tax cuts without extending unemployment benefits, Republicans are for the “rich” and Democrats for the unemployed. But is this really what is going on?

For the past eight years, the Bush tax cuts have acted as the standard tax rates. Business folks took this into account and began putting this money to work. Rather than being sapped up by Congress, this money has been out in the economy allowing entrepreneurs to hire workers, expand business, and develop new fields of revenue. It has been hard at work combating the very unemployment Congress has stated it is committed to reducing.

If Congress chooses not to renew the current rates, the “rich” will need to pull this money out of the economy to pay the new rates. And it will come directly from the funds invested in economic capital. Investment will decrease, the market will shrink, and jobs will be cut because of the reduced capital.

This is not foreign to any of us. If you find yourself taxed more, you find ways to cut your budget. You eat out less. You make due a bit longer with the car with engine problems. You hold off investing in a few stocks. The more well to do are no different, except that their cutting back makes a noticeable impact on the economy. They invest in fewer companies. They hire fewer employees. They take fewer risks.

While cartoon strips continue to paint Republicans against the unemployed, remember that we are here in the first place because Democrats refused to support an across the board tax cut extension. If the Democrats could have gotten their way by increasing taxes on the “rich,” they would have needed those extended unemployment benefits to care for all the people whose salaries would have gone to paying taxes. When we couple the negative impact taxing the “rich” has on the economy with data indicating that unemployment benefits actually hurts the economy, is it really the Democrats who are holding out for the interest of the unemployed? I’m not so sure the above cartoons present the right picture.

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