Poor choices cause financial struggle

Guest Columnist and Guest Columnist

Once upon a time I was like you, Erik [Goins]; a belief that somehow there were multitudes of people living off government systems, unwilling to work, which was taking resources away from me and somehow limiting my present situation and my future prospects.

While I understand this feeling comes from deeply held values you brought with you from your family and maybe even community, this makes it no more true than Ronald Reagan’s reference to the “welfare queen” in 1980.

The reality is that the current situation in both Ohio and the nation is all about choices. At this moment, taxes have never been at a lower rate in general than they have been since the Eisenhower administration.

Taxes on the upper one percent of income earners have never been lower since the Theodore Roosevelt administration. In 2001, 2003, 2005 and 2010, there have been successive cuts in taxes for all wage earners nationally.

In Ohio there was a massive 25 percent tax rate cut in 2005. The net result of all of this tax cutting has been net losses in jobs, lowered wage expectations, cuts to health care and retirement benefits, and the widest gap between middle income earners and the upper two percent of income earners in our state’s and nation’s history.

Point one: tax cuts do not in any economic model increase employment or the propensity for those with resources to create jobs. Those with money already have the resources to expand the job market if they wished, but they choose not to because there is no realistic demand for additional products.

More Americans live in poverty now than they did in 2000 when the Clinton administration left power. More people can’t buy things they need and want, so those with money don’t expand. They invest in China and India where there are growing markets.

Point two: when tax rates were higher, the Clinton administration being the most recent example, the economy grows at a faster rate, lower unemployment occurs because of more demand and thereby a need for more workers.

This occurs because job creators are faced with increased taxation on wealth, and therefore they seek to put resources into the market to lessen tax burdens and take advantage of incentives to invest. Workers, as they become in higher demand, increase their median incomes which further increases demand and therefore production, economic growth and employment.

We actually had a surplus in the Ohio budget in 2000 as well as the Federal government. We were then on pace to eradicate the national debt by 2010. What happened: tax cuts for upper income earners.

Result: economic downturn and a widened gap between rich and middle income earners.

Point three: the myth is that somehow benefits and workers with greedy expectations are weighing down the economy.

If only common workers would “tighten their belts” and stop being lazy and just go to college, all would be right with the world. You can even see how this falls apart just by restating it. Everything in our economy hinges on demand.

Whether we like it or not, Keynesian Economic principles are the closest model to reality and Supply Side the furthest.

Small businesses are most affected by changes in demand in a community because they operate closer to the margins.

Small business owners need people coming in to buy their products or services and relying on the upper two percent plainly isn’t enough foot traffic, if you will. Even a rich person can only drive one car at a time so he will buy no more gas to drive that car than a person with low income.

There are limits to how much food and clothing one can purchase. Demand is created and maintained by increasing your demand base.

Tax cuts do nothing to increase demand base because low income earners benefit almost not at all.

When in difficult times like now, and like those seen in the Great Depression, great recessions at the turn of the century and the 1880s, government is the only entity which can prop up demand.

In order for government to prop up demand when the private sector is unable and unwilling, we can either increase our national debt (like we did in World War II to 124 percent of Gross Domestic Product – we’re at about 24 percent of GDP now) or you can increase revenue to fund demand creation through government sponsored building, buying and employment.

In the 1990s when we hit a recession, tax rates were increased including upper-wage earners, and the economy recovered.

If nothing changes now, the gap between rich and middle income will continue to widen, and the gap between poor and middle income lessen.

Unemployment will remain high, and “job producers” will still not expand because they have fewer and fewer people able to buy products.

Choose the world you want to live in, but don’t continue to fool yourself.