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How Forrest Gump Would View the Tax Plan

GumpI’ve taken a number of college level economics classes. I found them enlightening and enjoyed them a great deal. However, I don’t pretend to be an economist. Admittedly, I sometimes get a somewhat inflated opinion of my understanding of economics when I compare myself to others who know little of the subject, but this isn’t a piece to be focused on the current resident in the White House.

Thirty-five years ago, I founded a computer software company. I’m proud to say that over the years, it grew to become a very successful enterprise. As you might imagine, I used my knowledge of mathematics, engineering, business and … economics on the road to success. As I look back on those years, I find that much of the current “tax plan” proposed by Trump’s minions doesn’t make a lot of sense to me. Aside from the fact that the lion’s share of the tax benefits go to the rich, there are other red flags that amount to nothing less than sleight of hand intended to appeal to and fool the gullible.

Time, space, and your patience don’t permit me to expound at length on the proposed tax plan. I did actually meet Arthur Laffer, the economist who is one of the chief proponents of the plan. His famed “Laffer Curve” of the Reagan years has been proven to be a failed theory. I suspect he’s misspelling his name too.  With the track record of his policies, I’m pretty sure his name is actually spelled Arthur “Laugher”. Nonetheless, I’ll stick with one particular aspect of the proposed plan – corporate tax rates.

I’ve heard Donald Trump proclaim that we are the most heavily taxed country in the world.  One phrase comes to mind when I hear this – bull shit! That’s patently false. It’s nonsense, ridiculous, drivel, rubbish. If the Trumpster believes that, he has no business in the White House. If he doesn’t believe it, he’s lying again. Then I hear the refrain that our corporations are the most taxed in the world. Again … pure, unadulterated crap. It’s entertaining when some of Trump’s supporters with the evolutionary remnants of a conscience are cornered, they admit that almost no corporation in the nation pays anything close to the highest tax bracket on the books. I heard a reasonable estimate that the average tax rate for a corporation in this country was somewhere in the vicinity of fourteen percent.

The propaganda ministers in the Trump administration know that in the ears of most Trump supporters, the “corporation” is an evil monster set on sucking the blood out of every hard working American patriot. They now peddle the concept that corporations must have their taxes reduced so they can give the profits to the middle class. Still evil, but now beneficently evil.

But this whole thing doesn’t square with my recollection of growing my small business. In fact, it’s diametrically opposite my experience. Here’s how it worked with me. There was a line where my corporate profits fell into a substantially higher tax bracket. Every year when I enjoyed a good profit, i.e., every year, my thinking changed as I approached the higher tax bracket.

I could either give my further profits to the government in the form of higher taxes or I could spend those profits on things like hiring employees, giving raises to existing employees or I could expense the profits on things that would grow my business, things like employee training.

If the next tax bracket were dramatically reduced, a big part of my incentive to grow the business would have been removed. I would have been more inclined to spend the profits on dividends for my stock holders (which in my case was me).

So by lowering corporate tax rates as proposed, corporations experience greater profits. Where are they going to put those profits? Here’s a hint … they’re not going to write checks and send them to the working people of America. The profits will go into the hands of the stockholders in the form of dividends. I happen to live in a sort of fantasy world on the border of Scottsdale and Paradise Valley, Arizona where a lot of people live in humble little 10,000 sq.ft. bungalows. Most people living in this neighborhood are not only struggling financially, even their servants are so poor, they can barely afford new tires on the Lexus. So if Trump’s tax plan dramatically increases corporate profits, they’re going to delight in their increased dividend checks. Maybe they’ll use the extra money to hire more servants and grow the economy.

However, the average Joe (remember “the plumber”?) doesn’t normally return home after a hard day of toil and pop a cork on a bottle of Dom Pérignon and review his massive stock portfolio. Quite the contrary, he’s the guy who’s trying to figure out how to buy groceries and pay the rent. Cutting corporate taxes isn’t going to help this guy. He’s just going to scratch his sweat covered forehead and wonder why the rich seem to be getting richer while he’s sinking deeper in debt.

Help the middle class? Run Forrest, run.

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