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JENKINS: Simplifying presidential economics for non-geniuses

I'm not an economist, but I do know how to balance a checkbook, make and follow a budget, and live (more or less) within my means. In Washington, that would qualify me as a financial genius.

But you don't have to be a genius to understand the economics of this presidential election. You merely have to grasp three simple concepts:

-- The economy is not a zero-sum proposition. President Obama seems to believe that the economy is finite -- that there's just one pie, of a certain size, and it's never going to get any bigger. Maybe that's because, under his administration, it hasn't gotten any bigger.

And because there's only so much pie, he argues, in order to be "fair," slices have to be parceled out according to some formula. For certain people to get more pie, others have to lose part of theirs.

But the truth is that economies grow -- or at least they used to. That means people with less can acquire more without taking from others. If we all want more pie, the answer is not to shift pieces around but to create a bigger pie.

-- Six million dollars is more than $600,000. When I pointed out last week that Gov. Romney has paid 10 times as much in taxes over the past two years as the president -- $6 million compared to $600,000 -- some readers wrote to say that it's not the amount of taxes you pay that counts, it's the tax rate.

Well, that's dumb. If the purpose of taxation is to raise revenue for the treasury, then of course the amount that gets paid in is the most important thing.

However you slice it, 20 percent of $100,000 is still more than 30 percent of $50,000. Maybe instead of raising tax rates, our goal should be to grow the economy so that everybody makes more money. That's the key to cutting the deficit and bringing in the revenue we need to pay for the programs everybody wants.

-- Over-taxing a behavior discourages it. Democrats seem to get this when it comes to cigarettes and gasoline. Want people to smoke less? Raise taxes on tobacco. Drive less? Tax the heck out of gas. And in both cases, the strategy is working.

So how come they don't make the connection when it comes to personal economics? People will endure a certain level of taxation as the price of doing business. Beyond that, they will do whatever they can to opt out.

Specifically, when we over-tax income, we discourage people from making money. This is especially true of investment and corporate income. When tax rates are too high, individuals and companies simply sit on their money rather than investing it in order to create more wealth.

That's exactly what they're doing now, in anticipation of another four years of Obama and higher taxes, and that's exactly why the economy isn't growing.

Rob Jenkins is a local writer and the author of "Family Man: The Art of Surviving Domestic Tranquility." E-mail him at rjenkinsgdp@yahoo.com or follow him on Twitter @rjenkinsgdp.

Comments

NewsReader 2 years ago

Rob, thanks for conveying it in a manner that even an Obamanite can understand. But rest assured, you will still get plenty of that "deer in the headlights" looks and the resounding "huh?" from a lot of them.

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