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Potomac myth: More taxes are good for economy

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POSTED February 22, 2013 10:14 p.m.

Taxes - according to more than a few folks in positions of power - stimulate the economy.

I guess someone forgot to tell the folks who don’t shop at Saks Fifth Avenue or dine at the Ritz.

Wal-Mart this week was the latest retailer to state the obvious - consumer spending has taken a big hit from the increased 2 percent tax on the take-home pay that was imposed Jan. 1.

A median family in Manteca lost $120 a month out of their household income when President Obama and Congress restored the previous reduction in Social Security payroll taxes. Of course, this wasn’t characterized as a tax increase since it took it back to previous levels. Whether the tax should have been temporarily cut is another issue. But when push comes to shove it has all the impact of a tax increase to most Americans who don’t lobby Congress and the administration for tax credits.

When you combine it with stagnant wages, reduced hours, and perhaps a wage earner in a household being unemployed or dropped to part time, it is a massive tax hit.

Remember how just two months ago the “tax Americans until it hurts crowd” was saying the 2 percent tax increase wouldn’t hurt consumers or the economy?

Tell that to Burger King, who felt the spending slowdown within weeks of it taking effect. They lowered the price of their Whopper Jr. to $1.29 from $2. They also dumped advertising for salads and smoothies and shifted it to cheaper items on the value menu.

As for Wal-Mart, don’t cry for them. They are no different than the folks in Washington, D.C. They know how to use smoke and mirrors to keep the masses in line. They’re simply stocking their shelves with cheaper products and making packages smaller. That means a bag of diapers may cost consumers less but they’ll be getting less as well. The same is true for many other items such as toilet paper and snacks.

Banks such as Citigroup estimate the 2 percent tax hike will shift $110 billion out of consumer pockets into government coffers. And while it is going to Social Security, there is an uneasy feeling by most paying the tax that a combination of government mismanagement and being over-generous through the years could mean Social Security is a hollow promise.

Taking $110 billion out of the economy is going to weaken the demand for goods and services. That means people will lose jobs they may not find another one easily.

That brings us to the latest cry for higher taxes in Washington, D.C.

We are told funding will dry up for first responders if more taxes aren’t put in place. Nice try. Federal taxes don’t pay for police and fire that protect you. Your local taxes do.

Then we are told virtually every civilian employee at the Pentagon will lose a day of work - and pay - each week for at least five or so months a year unless we pay more taxes.

Join the crowd. State and local government employees as well as educators have been forced on non-paid furloughs for more than four years. Private sector workers - assuming they kept their jobs - had hours and/or pay reduced. It’s time federal employees took one for the economic recovery.

Here’s a suggestion to the Administration and Congress: Make it work. Everyone else that is still standing since 2006 had to trim spending to deal with drops in revenue. That meant restructuring, streamlining, and slashing expenses which often translates into cutting jobs.

As for the cry for higher taxes being an effective way to stimulate the economy, perhaps the Washington elite should pay to gas up their own limos, shop to feed and clothe their families on what a typical American household makes, and trade trips to  $10,000 a plate fundraisers in Hollywood and San Francisco for dining at Burger King.

If they do, they might just see that taking more money out of consumers’ pockets through taxes mean they have less to spend.

People don’t replace their kids’ shoes that are falling apart when they have to pay for food and gas to get to work while being squeezed even more by Uncle Sam who is living high on the hog.

 

This column is the opinion of executive editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA.  He can be contacted at dwyatt@mantecabulletin.com or 209-249-3519.

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