Every four years or so, American voters go to the polls to choose political leaders who enact public policies that shape and direct our nation’s economy. Yet, the vast majority of Americans lack an analytical framework required to adequately evaluate the true impact that these policy decisions will have. While Americans may understand how much money they will get up front from tax relief or government assistance, the broader impact of the policies come from the way they influence certain types of economic behavior in the future.
These secondary effects will have a much more fundamental impact on jobs, income and wealth creation than the immediate impact of the policies promised by politicians. To clarify things, perhaps we should look at a few of these proposed policies from the prospective of a student in Economics 101.
Taxing the Rich is a Free Ride for Middle Class Taxpayers
Senator Obama has promised voters that the government can raise money for social programs by increasing taxes on the rich. He defines rich as anyone making over $250,000 per year. While a person earning that amount does make more than 95 percent of other income earners, taxing them disproportionately might not necessarily create a larger government pot. Consider, for example, that most of the people in the top income class own businesses and derive their income from the sale of goods and services at a profit. If the Government decides to tax their profits at a higher rate, they will earn less income, and there will be less incentive for them to g o into business.
Creating disincentives for business means that fewer businesses will hire employees, making jobs scarcer and reducing income among those who are able to find work. Fewer people working means people will spend less money, resulting in a decrease in taxes collected on the consumption of goods and services. Furthermore, people who earn less will save less, meaning less money available to financial institutions to fund middle-class investments like home purchases and business investments in capital used to expand companies and create more jobs.
Trade Restrictions to Keep Jobs in America