State run lotteries have been described as a special tax on those who do not understand probability. Another mantra used by government to justify increased spending is, “we will fund it with taxes on businesses”, a statement accepted by those who do not understand economics. Both make promises based on faulty logic. In the first case odds often greater than a million to one make it unlikely for a ticket to provide any return on investment. In the second case taxes are simply an expense that companies manage to maintain a rate of return. The choices are limited, reduce the number of employees, reduce cost by cutting employee benefits, move production to a lower cost geographic area, or raise prices. The alternative is to accept a lower rate of return thus a lower growth rate, a lower stock price, and a more limited future for the company. There are also less obvious effects described in Shafron (Shay) Hawkin’s testimony before a Congressional committee on taxes and the economy last week. Shay earned his undergraduate degree in economics from The Ohio State University, his MBA from Columbia Business School, and his JD from the Moritz College of Law at OSU. He summed it up in a handful of sentences. When asked about the massive tax increases to fund the American Jobs Plan his response could be summed up as follows. Those tax increases are going to land on the most vulnerable. When you look at what’s been proposed in terms of spending and how to pay for it you see significant corporate tax increases. Those corporate tax increases make Americans less competitive internationally and those taxes are not landing on the corporations themselves. Corporations do not pay taxes. Consumers, shareholders, and workers’ pay those taxes. Consumers pay in the form of higher prices, workers pay in the form of decreased job opportunities, and shareholders pay in the form of decreased share prices. We cannot add a significant tax burden on top of Inflation which already disproportionately affects the lowest income Americans. I would add some of my advice to Shay’s educated opinion. Beware when hearing the promise “someone else will pay”. At the end everyone pays.
Joe Grant, Wiscasset