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THEORIES

The trickle down theory relies upon supply-side economics in order to derive benefit to the economy. However, it is flawed theory in that it suggests that money rich people are not taxed will be spent employing people. If that were true, then the taxes paid by the people they employ would tend to offset the reduced taxes through the number of people who will derive benefit through increased demand in the market, which creates tax revenue. The increased demand will result in more transactions, and more occurrences of taxation, which is how supply-side theory does work.

However, that which is trickling down from the rich onto the needy person is not a paycheck. The line depicting "needy" is steadily moving toward the average or common person. The answer is not to rely upon trickle down theory, but to apply supply-side taxation deductions as allowable expenses.

A paycheck given to another person is usually deductible as an expense. So is a commission paid to a broker for an investment transaction. If a rich person were to derive more benefit from giving a paycheck than for transacting investments, then some would do it. Those people they employ will pay taxes, perhaps for the first time. They will buy things which will create demand and result in employment for others.

As it is, however, there is more risk and less benefit to employing a person, than to invest in large companies that export jobs. The flat tax rate would compound the benefit to invest rather than to employ, which is counter-productive for the economic realities with which we are dealing.

A BETTER IDEA

The main problems we face in our economy today are the outsourcing of jobs and devaluation of the dollar. It is nice to think of this as "we are all in it together," but that is not the case. If we are going to change "those on public doles" to "employees on private doles," we must do so through tax incentive to private individuals and corporations for actually enacting the transfer.

By coupling a graduated income tax rate with a high top rate on foreign investment income, together with a tax credit 1.5 times its typical value for employing an American worker, we would actually transfer from the government to private businesses a substantial number of the people who currently rely upon government assistance.

If a rich person were to maximize this credit to the point that substantial income could be retained tax free, the benefit of truly employed people creating true demand that will be met by other truly employed people also creating demand, will more than offset what the government would have been paid and would have paid out without all those people employed.

The flat tax rate, however, will not resolve these problems. It will pit the proverbial immovable object against the unstoppable force, creating immense gaps between the rich person and the average person, who will be much closer to needy than rich. That, as Marx forewarned long ago, is the recipe for class warfare.

Though it will not likely result in violent revolution here, it will likely result in socialism through democracy as the gravity of common thought swings the pendulum from what is fair to what is needed. What is fair sounds good, but the flat tax is neither fair nor good.

Learn more about this author, Tom Koecke.
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