Taxes and capital

Many politicians are nonchalant today about raising taxes. They look at it as a solution to our endless budgetary ills. It seems impossible to satiate these politicians. They show their widespread misunderstanding of capital. On the other hand, they always run out while spending other people’s money. This is called Keynesian economics, the death nail in the coffin of economic growth.

Our local representatives seem to have a handle on understanding taxes and capital spending, thus representing us well. However, nations around the world are not exercising sound economic thinking, i.e., basic knowledge from Econ 101. Those nations are Japan, Greece, Spain, France, to name a few. They are racing to the pits of financial disaster. Yes, the U.S.A. is only car-lengths behind. Scary, you bet!

Those who think higher taxes bring prosperity miss the point entirely. They mistake means for ends, when actually capital is the means. It is what we strive with to reach our material aims, thus taking us from our hand-to-mouth past to the present. We call it private enterprise. You couple more input with labor, the result is economic profit and GDP growth. Which, by the way, the U.S. is stagnate right now.

Now, when you tax this gain or profit, it is taxing gross profit. This gives you less net profit, which results in smaller dividends, less capital for research and development, less capital for reinvestment, greater risks for the entrepreneur and it stymies interest in reinvestment.

ROIC – return on investment capital – is the grease which makes our large economic machine run smoothly and for a longer term.

Government does not create ROIC, they only skim from the top and impede it. The Great Depression and bank failures were caused by this Keynesian thinking. Our more recent Great Recession is quite similar. It seems like we are in an incomprehensible world. National leaders and our own President Hussein don’t understand basic economics. We have some great economic minds in this country, but he is not listening to them.

When we don’t confuse the means with the ends, we will create jobs, find our way out of debt, and have a GDP which is not equal to our debt, but one which will again be second to none in the world, and one which will be able to pay off our debt. We must vote, write and pray, not necessarily in that order.

Alan Cohick

Cogan Station