Taxes – Think twice before taxing the rich!

Yesterday, I heard unhappy news. Nordic Tugs, a highly respected Burlington boat building company, announced it is closing its Burlington manufacturing plant. Their outstanding boats are clearly a luxury purchase, and one that is not selling in these difficult, uncertain economic times. This is billed as a temporary closure “forced by the ongoing effects of the Great Recession”, according to their press release. They are not closing the business entirely and are hoping to resume building in the future.

I’ve had the pleasure of being onboard a Nordic Tug, so this news made me sad on more than one level. Most importantly for this blog post, it is an example worth considering in the context of our economy and what is being proposed to help it. I speak of tax increases, particularly the drive to raise taxes for the “wealthy”.

There are two specific tax increases to consider here. First, there is the upcoming expiration of the Bush tax cuts, which will result in a huge, across the board tax increase as of January 1, 2011. (No, the Bush tax cuts were decidedly NOT just for the richest 1%. That is a political lie that has been repeated so often, and not challenged enough, that many believe it as truth. It is not.) There is talk of a delay, but there is also much talk of delaying all but the taxes that fall on the “wealthy”. Second, there is an initiative on the Washington State ballot, proposed by Bill Gates Sr., that would initiate an income tax, again on the so-called “wealthy”. This one bothers me on two levels. The first, that it is a blatant end run around our state constitution which expressly prohibits an income tax, I will set aside for the moment. The second problem it shares with the national debate on the Bush tax cuts, namely allowing them to expire for the “wealthy”.

Why use that word in quotes? Because when you are talking about taxes, “wealthy” is a concept that depends on who defines it at the moment. It is also a fluid term that absolutely will change in time. To support that statement, one has only to read up on the history of the Federal Income Tax.

I am really tired of the class warfare rhetoric! This is America where everyone is supposed to have the opportunity to become really successful and wealthy by virtue of creativity, entrepreneurship and old-fashioned hard work. Why must we continually punish that success with ever higher taxes? Punish a behavior and you will get less of it. Reward it, and you will get more. We are currently rewarding non-work and punishing success. This is a really bad idea!!!

These two proposals, Federal and State, both set the bar for “wealthy” around the $250,000 per year mark, if I remember correctly. At that level, you hit two key constituencies that will get you more results just like the closing of Nordic Tug. Let me explain.

First, you will punish small business owners, a large proportion of who pay taxes at individual rates rather than corporate, since they are subchapter S corporations. Tax them more and you slowly kill the goose that has laid the golden American entrepreneurship egg throughout our history, that job creating machine that has fueled our amazing economic success.

Second, taxing the people with disposable income, i.e. those evil rich people, and they can’t buy things. That kills the market for products like Nordic Tugs. Now, before our natural envy of people with money kicks in, remember that their consumption is the fuel in the engine of that job creating machine.

A lot of people lost their jobs when Nordic Tug closed its plant, dedicated and highly skilled workers who took personal pride in creating a quality product. Contemplate that for a while before jumping to the conclusion that taxing the rich is a good idea.

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