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Friday, October 12, 2012

Why giving tax cuts to the rich hurts everyone. Even the rich.

Most of us think about money, but we usually think about it in the terms of how we don't have enough, or how much we'll get paid. We don't think about what it really is, what its purpose is, and why it even exists. The reality is, is that money is a fiction.

It's not real.

"Oooookay" you're thinking. But wait let me explain.

Money is a human construct, it has its value placed on it by humans, everything about it is man made. Even the principle. Money came as a way to replace a system of barter, so that you didn't necessarily have to have something the other person wanted in order to get something you want from them. 

Currency became a great boon, allowing people to trade notes for things they want from others, and so on and so forth. Money is made to be exchanged from one person to the next, on and on, ever circulating. It's the life blood of any economy. Spreading purchasing power to everyone like blood spreads oxygen to every organ to keep it healthy. 

And like a healthy body, a healthy economy is one where everyone has money to purchase things, and uses that money, keeping it in circulation as it is meant to be.

But when money is hoarded, and not spent, or given to those who have little need to spend it, there becomes less and less money in circulation. Less money in circulation reduces the ability to buy things for the majority of everyone else. But that doesn't mean that printing more money is the answer either, because even though you're adding more money into the economy, you still have those who are hoarding large amounts, and all that does is reduce the value of money.

So you really don't solve the problem. 

So why is it that Governor Romney, Paul Ryan, and the rest of the Republicans want to cut taxes for the rich?

Because people no longer understand the reason why money exists. It has simply become a status symbol

No one needs a net worth $250 Million. You can raise your family, buy everyone a car and a home, keep food on the table, and invest in your hobbies with much less. 

But because there are so many people with so much money that they don't really know what to spend on, some crafty entrepreneurs have found ways to separate some of these rich "fools" from their money. 

Even so, what they spend, does not make up for what everyone else is unable to spend.

You may remember Nick Hanauer, the billionaire investor who did the Ted talk on income inequality. He said in his presentation that:

 "there can never be enough super-rich people to power a great economy. Somebody like me makes hundreds or thousands as times much as the median American, but I don’t buy hundreds or thousands of times as much stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and shirts a year like most American men. Occasionally we go out to eat with friends.
I can’t buy enough of anything to make up for the fact that millions of unemployed and under-employed Americans can’t buy any new cars, any clothes, or enjoy any meals out. Nor can I make up for the falling consumption of the vast majority of middle-class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages."

But Its not so much the fact that the wealthy can buy more, it's the fact that there are people that cannot buy these things. That fact alone instills a mindset of superiority, while the lack of money can turn into a reverence for those who are wealthy. Hanauer did well to point out the correlation between the idea of "job creator" and "the creator".  

Another important thing to mention is that money is also power. The power to buy ideas, properties, governments and even people. 

Citizens United has given billionaires something to do with their money, buy politicians. Oddly enough what the politicians plan to do is give more money to those billionaires who already have no idea what to do with their vast fortunes. While the middle class gets squeezed, and turned into the poor, the already poor suffer worse, because of the inflation from the Fed. Those former middle class can no longer buy things from companies, those companies will lose money, so they start to fire people to make ends meet, those people can no longer afford new things, and it all just continues to snowball. 

This shows that our current path is simply unsustainable. It's not good for the poor, the middle class, and for the rich. 

Cutting taxes again for the wealthy, screws the wealthy in the long run, because they will no longer get business. Of course, for the impact to occur on the wealthy, a lot of time will need to pass for those with all the money to spend it all. My guess is several generations. But can you imagine how much suffering would occur until then? 

In order to avoid that, we need a little income redistribution. Raise taxes on the wealthy and use that money to invest to create a larger middle class. Bring people up from poverty into a middle class lifestyle, and you'll see everyone doing better.

Even the rich.

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