How to Respond When Republicans Want to Cut Taxes

July 19, 2010 at 6:15 pm

Subtitle: The Business Case for Progressives

posed the question on a political blog recently: What would the Tea Party do to create a functioning economy? 

The answer that came back was: “Cut taxes, for starters.”

I found this interesting because this seemed to be a repeat of conservative philosophy. Cut taxes and incent individuals to make more private investment and this will grow the economy.

Or, to quote from the respondent:

The foundation of conservative economic philosophy is to cut taxes to help promote investments by business and more purchases by consumers, which will ultimately help invigorate and grow this stalled economy.

I found this a little unusual as I thought “trickle down” philosophy had ended with the financial crisis. Instead, it rebranded itself holding a Constitution and wearing a tricorn.

But the writer did make a good point that Democrats don’t typically talk about their philosophy when it comes to the economy. Republicans do a much better job of making their business case and it’s part of the reason that “trickle down” keeps coming back.

So I took this as a personal challenge. Here’s my response:

Anyone who has been in business knows that there are basically 2 ways to make money:

1. You can be the low-cost provider
2. You can innovate

Low cost providers are those who take ideas already in place and find a more cost-effective way of doing things. Innovators are those who find new ways of doing things that no one has thought of before.

Ideally, you want to be on the innovation side of things. Why? Because it allows you greater profit margins and you avoid commoditization. That is, competition is higher in the low cost realm and you are always forced to cut costs. This is what CB is talking about when he talks about unions forcing companies to outsource.

Basically, if you’re an innovator, you can charge higher prices, lead the market, pay your people better, and provide higher benefits. Unions aren’t such a big deal. When your product commoditizes, things like high wages and benefits become a problem.

I think we should lead the world in innovation. This is the type of investment we should be encouraging. This is when everyone wins.

The trouble is that many of our industries became lazy. They found it easier and cheaper to lobby the government for tax breaks rather than innovate. The auto industry is the best example.

Rather than focus on building a better car, they focused on cutting costs w/ unions and lobbying the government for handouts. And the investment paid off in the short term for companies like GM and Chrysler but hurt them long term. Ford, by comparison, has done a better job innovating and is in better shape.

The oil industry is another great example. Rather than focus on developing alternative energy because there is a finite oil supply, they are lobbying the government to open new offshore wells and drill in national parks.

I believe that we should support the innovators and lead in development rather than providing handouts to these “lazy” businesses. We should also encourage better working conditions, higher wages, and fair competition from other countries.

Conservative thought has tended to focus on lowering costs for the non-innovators. They believe that in order to compete, we should have to lower wages and benefits.

I believe the business case is in supporting innovation so that we don’t have to lower wages and benefits.

This is why I feel we rewarded the wrong people in the financial crisis. We rewarded the failures.

And I see this happening in the energy industry, the healthcare industry, etc. We have done the opposite of encouraging competition, we have given welfare to the dinosaurs.

Both of you are correct when you say that Democrats have been complicit in much of this. But the underlying philosophy that they’ve bought into is some version of “trickle down” theory.

Now I can see elements of the innovation philosophy in Obama’s agenda. He encourages things like new energy development, high speed rail, building our tech infrastructure, investment in small business, and even healthcare reform. But I will give you this, Obama has not done a very good job explaining this reasoning. He’s not made a very good business case.