LETTER: Market forces drive cost, not tax rates

To the Telegram:

Although I admittedly don’t have a degree in economics, I was surprised by a couple of claims made in the Dec. 7 “We the People.”

A writer accused Democrats of deceiving the public into thinking they only want to tax the rich. This is despite the fact that Democrats continue to favor keeping taxes low on those earning less than $250,000 per year as families, and, less than $200,000 for individuals — thus extending tax breaks for the middle class while eliminating the Bush tax cuts for the wealthy. This comes along with several other tax cuts, including extending the payroll tax cuts for the middle class (despite vigorous opposition from Republicans) along with several tax cuts for small businesses.

The same writer basically invokes the spirit of “trickle-down economics” to support the claim that, when taxes are raised on the upper classes, businesses must pass this cost onto consumers. But there is also a basic economic axiom supporting the fact that free enterprise favors those businesses that offer quality goods at lower prices. So, even with higher taxes, products will be competitively priced, assuring market dominance for companies that offer the highest quality at the lowest possible price.

It’s not like companies can’t afford to absorb the costs associated with higher taxes. Exxon Mobile earns several billion in profits quarterly, and, Wal-Mart has a more robust financial system than some third world countries. The point is that, in a competitive free market, prices will continue to remain as low as possible — benefiting businesses and consumers.

It’s true that the quest for cheaper products has led companies to seek lower production costs in countries like China and India — where they can lower their bottom line by paying employees much less. That’s the reason Democrats have continually supported the idea of providing tax incentives and other ways to level the playing field for domestically produced products.

Warren Buffett points out that, a profit remains a profit, despite modest tax increases. It’s like having the opportunity to purchase a Lamborghini or a Mercedes Benz at only one-tenth of fair market value, but not accepting the deal if the cost is raised to only one-eighth of market value. However, most people will not pass up such a deal even if it’s a little less profitable. Similarly, raising capital gains taxes from 15 percent to 17 percent will not discourage most investors.

During the higher taxes of the Clinton years, businesses continued to thrive, and shortly after World War II, rates were as high as 94 percent. However, the economy boomed, and millionaires remained millionaires anyway.

In a fertile business environment, businesses will remain profitable no matter where their bottom line is, and (as Buffet puts it) there is no need to “coddle” him, and his fellow millionaires and billionaires, with lower taxes.

Peter W. Johnson,

Superior

Tags: opinion, letters