Like drugs, the slogan “just say no” works great with Keynesian and socialist economic policies. After losing a series of votes on Saturday that would have raised taxes on Americans in the highest tax bracket, Democrats are ready to negotiate with Republicans. In this process, the GOP would do well to remain cognizant of the message the American people sent on November 2nd.
The possible plan floating around Washington is a two-year extension of tax cuts for everyone in return for a one-year extension of unemployment benefits that would allow recipients to take from the public coffers up to 99 weeks. This solution is unacceptable.
Democrats argue illogically that unemployment benefits promote economic growth while low taxes for high-income earners lead to economic stagnation. Ohio Senator Sherrod Brown went so far as to say, “It’s extending unemployment benefits that creates economic activity, that creates jobs.”
Brown’s strange comment falls in line with Keynesian notions of how an economy grows. This theory fails on several grounds. First it ignores the fact that the government is incentivizing individuals to remain unemployed. Why search for a job when you can receive unemployment benefits for almost two years?
Second, it perpetuates the idea that a consumption based economy leads to prosperity. In an ideal world, the most prosperous society would be one where everyone maintained employment and maximized their productivity. This utopian society would produce the most output and consequently raise the mean standard of living to its highest level.
Redistributing wealth to support non-producing people does not increase prosperity; it diminishes it by legitimizing a slothful lifestyle.
Another myth that the Democrats indefatigably repeat is tax cuts are equivalent to spending. Nancy Pelosi recently discussed how we can’t afford to add $700 billion to the deficit in referring to the extension of tax cuts to high-income earners.
Congressman Paul Ryan summed up the fallacies of this line of thinking best when he said, “She talks about the $700 billion in spending. It presumes that that’s the government’s money, unless it wants to benevolently give some of it back. It’s really a different philosophy.”
Congressman Ryan is right. It presumes government ownership of everything and leads to a complete negation of private property. The past two years have proven that this philosophy does not work and as a result, it was soundly rejected at the polls.
A free and just society does not seek to demonize and further tax wealthy individuals. In order to stop us from sliding into a never-ending recession, we need to create an atmosphere that incentivizes the rich to invest and expand entrepreneurial endeavors. Why would a person risk their money if the return from the potential profit is miniscule due to excessive taxes? The risk-benefit analysis is not advantageous for business investment and expansion.
Consumption by the rich may not be effected by extending the current tax rates, but this is only part of the story. Consumption overall will increase from the higher employment levels resulting from increased investment and job creation. The improved employment situation will result in more consumption and it will be from income earned rather than welfare received.
Republicans need to stand firm and not negotiate on this issue. There is no reason why a person should receive unemployment benefits for two years. The unemployed will have nearly 7 months to receive benefits if Congress doesn’t extend the previous policy. The GOP needs to just say no to bigger government; no to tax hikes and no to extending unemployment benefits.