I’m a job creator. So are you.
We create and sustain jobs every time we grocery shop, send our kids to school, eat out, buy a car, purchase a washing machine or clothes, and when we call a plumber or electrician.
I mention this because, as the rhetoric ratchets up in the heat of the 2012 presidential campaign season, those who want to shield the wealthy from higher tax rates seem to be trying to create a protected class – entrepreneurs and those who have millions to invest.
The thought is that if the top tier of the federal income tax rates goes from the current 35 percent to 39.6 percent (which it was in the prosperous '90s) droves of innovators and entrepreneurs will either move to places such as Mexico (top tax rate 30 percent) or invest elsewhere.
That’s hogwash, according to billionaire investor Warren Buffett. In a 2011 op-ed piece in The New York Times, Buffett wrote: "I have worked with investors for 60 years and I have yet to see anyone -- not even when capital gains rates were 39.9 percent in 1976-77 -- shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off."
Surely, investors and entrepreneurs are not going to relocate to most of Europe, where the marginal income tax rates are much higher. Among 96 nations surveyed in 2011 by the tax and auditing firm KPMG, the U.S. ranked 23rd in terms of the top marginal tax rate.
What entrepreneurs and investors need is a healthy middle class to buy their products. Journalist Hedrick Smith pointed out Sunday in a New York Times op-ed piece that in the early 1900s, Henry Ford understood the importance of paying his workers a good wage because they would be able to buy his Model T cars.
I asked Stephen Herzenberg, an MIT-trained economist and executive director of the Keystone Research Center in Harrisburg, what went wrong.
“As Henry Ford understood, the middle class is the greatest job creating machine the world has ever known,” Herzenberg said. “That’s why our country grew most rapidly when middle-class incomes rose. If workers can’t afford to buy more, businesses don’t have enough customers and won’t invest.”
“We won’t continue to have the most powerful economy in the world unless we invest enough in research, infrastructure and the education of the 99 percent,” Herzenberg said. “Right now, we’re not investing in the future and one reason is that affluent families… are paying less of their income in taxes than many middle-class families.”
Keystone just released the “State of Working Pennsylvania 2012” report, which found: “For a four-person family, median income grew nearly twice as fast in the 1990s as it did in the 1980s, but it actually declined by $6,136 over the course of the ‘lost decade’— going from $82,818 in 2000 to $76,682 [in dollars adjusted for inflation] in 2010.
“This decline occurred despite growth in the Pennsylvania economy because the benefits of growth went disproportionately to the top 1 percent of earners. The 1 percent captured more than half of all income growth in Pennsylvania between 2002 and 2007. After a brief setback, top incomes were on the rise again in 2010, capturing three out of every four dollars in income growth in Pennsylvania in the first full year of the economic recovery.”
It’s not class warfare to say the wealthy should pay more taxes to invest in infrastructure, education, to help pay for entitlements like Medicare and Social Security, and pay down the federal deficit.
Yes, discovering new products and markets and starting your own business should be respected and rewarded. But so should picking the crops that feed America. So should building the roads and cleaning the bedpans in our nursing homes, picking up our garbage, serving Americans food and cleaning hotel rooms. With stagnating wages, such workers can’t afford to pay more.
Henry Ford was a job creator but he recognized that so were his employees. That didn’t make him a socialist.