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Expert Unexpert Advice

The Cost of the Tax Hike

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Bigger Piece, Smaller Pie

The Sun-Times had an interesting, if not terribly informative, piece yesterday.  In talking to “ordinary” Illinoisans about the effect of the tax hike, they stumble upon one of the biggest problems with it:

Matt Smallheer, owner of an exotic reptile store not far from the Illinois-Missouri border, already knows the price of the tax increase: his pay raise.

The O’Fallon business has grown steadily in the nearly five years it has been open, but Smallheer hadn’t given himself a raise the last two years. He had been planning on a 20 percent bump as a perk.

But Smallheer, a 28-year-old married father of two, quickly decided against it because he doesn’t want to pass along the cost of a tax increase to his customers.

Now I can agree it’s good to have legislators who have non-economic experience.  Still, you’d hope there’d be at least one person they’d listen to who could explain the idea of a tax base to them.

They seem to think that if they raise taxes, they’ve magically created new money, and all of the belly-aching about it is just from ignoramuses who don’t understand the value of creating new money.

In order to tax incomes, people have to make incomes.  In order to tax profits businesses have to make them first.

The reality is this guy was going to spend this money that is now going to Illinois government.  It would have gone to a business that’s selling something of value to consumers, allowing them to stay open or possibly even expand.  Now one could argue that the government also puts the money back into the economy, but if you honestly think stuffing union coffers, paying interest on their debt or giving a kickback to a generous government contractor has the same economic impact as giving it to someone who, you know, earned it, you’re an idiot.

Taking money out of the economy and spending it in a less effective manner means you have less to tax.  Something tells me they’ll be figuring that out the hard way.

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Written by updowndownup

January 16, 2011 at 9:17 am

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