Democracy and Technology Blog

Work, Invent, Invest

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Work, Invent, Invest

Driving the economy are not dollars in peoples’ pockets but the ideas in their heads. Not buying-power but incentives impel people to take risks and make efforts and investments. More dollars may even reduce peoples’ incentives to work and invent and invest. Every dollar rebated to a consumer comes from another consumer or investor. You cannot increase spending power (real income) without first increasing output. Supply creates its own demand. Demand does not increase supply except to the extent that the demand symbolizes previous productive efforts that expanded output.
Democrats and wobbly Republicans are panicked by class rhetoric from lowering the top rates which most affect incentives. These top marginal rates yield all the revenue (the lower the rates the more the revenue–see Art Laffer’s superb piece in today’s Wall Street Journal). Therefore the pols lower “business” taxes, helping profitable established businesses compete against fast growing new businesses, such as our technology companies.
The fact is that the only way to get more revenues without hurting the economy is to lower the rates on the rich. Cutting corporate rates is an indirect way of doing it.
In the political debate it is worth recalling that so-called Bush’s tax cuts on capital gains and dividends were in fact proposed by Bill Thomas on Ways and Means and merely signed by Bush, after he proposed wimpy phased reductions of income taxes. The Bushes all consult Yale Keynesians who know nothing about the economy. Bush’s entire administration, including its ability to prosecute the war in Iraq while drastically reducing the deficit, was fueled by Bill Thomas’s revenue gushing tax rate reductions on capital gains and dividends.