Sunday, January 25, 2015

Thune Gets It Right On Cap Gains, Wrong On Minimum Wages

     Our Senator John Thune's reflexive rejection of a couple of Obama administration initiatives on taxes and wages demonstrates his partisan consistency but doesn't fit in with a general scheme of doing something about the wage/wealth gaps between working stiffs and rich
Senator John Thune
C'mon, Senator.  Be Reasonable.  You Can Do It.
(photo from wikipedia.com)
folks.  
He's right as rain with his opposition to Obama's State of the Union tax proposal that would jack up the tax rates on capital gains and cut taxes for the middle class.  The most irksome word about the President's idea is "fairness," because it overlooks the most crucial element of an investor's decision to put money into a business.  That element is "risk." As a card-carrying Republican and a longtime investor since the day I first donned a trading jacket and made my first market on the trading floor of the Chicago Board Options Exchange (1978), I've known "risk" to be a 4-letter word that defines what entrepeneurship is all about.  

     Like it or not, a capitalist culture is built on risk.  The growth of the economy's pool of risk capital should be one of the top priorities of government tax policymakers, and while it's true that cap gains are taxed at lower rates than ordinary income, I believe that's because it's a pragmatic, not a "fairness" issue.  If you want entrepeneurs to invest vigorously in the kinds of start-ups that for more than two centuries have driven the growth of this country's economy, a marginal tax break is a reasonable incentive to get them to do so.  In effect, society is giving them a break in order to compensate for the losses that are often incurred when their risks go sour.  That goes, big time, for the many farmers, ranchers and small business people that dominate the economy of a state like South Dakota.  I've seen many of my compadres, both in the country and in town, just barely hanging on for dear financial life, sometimes for years on end, in order to make their investments in their ag operations and businesses pan out.  In the process of doing so, they've been the economic engines of their communities, hiring workers, buying goods and services from local merchants, collecting sales taxes, paying local taxes, and supporting their community schools and organizations. Their reward?  A decent profit on their land or businesses, either via their estates or through outright sales while they're alive.  
     Thune's got it right on this one.  Beating up on South Dakota's entrepeneurial class in order to give tax breaks to working, middle-class people is no way to show some understanding of what it takes to amass decent capital gains in the first place.
     What the Senator apparently doesn't get, though, is that the infamous wage gap we've accrued in this country is just getting wider, with middle income earners basically stagnating while higher income earners maintain their upward arc.  Is this fair?  I don't know--my attitude is
We Need To Kick Up Wages In This Country
Transferring Money From One Class To Another Is Creepy & UnAmerican
(graph from www.economist.com)
fair, shmair. I leave the value judgement to others. My view is a practical one. In this consumer-driven economy a much better way of improving the lot of working folks is by making sure they get paid more money, which in turn makes the rest of the world go 'round.  Thune opposes a federal minimum wage hike because he thinks it will lead to job losses, a theory that may have some currency among his fellow conservative Republicans but one which in practice has been shown to be a myth. The U.S. Department of Labor put out a document to that effect last year.  Last November South Dakotans ignored Republican exhortations against a minimum wage hike and passed one handily at the polls. Voters understood that people need to make more money.  They don't need to be enriched at the expense of others. Heck, even the seminal laissez-faire economist John Stuart Mill argued in the 19th century that regulating people's working hours and wages by law was a justified departure from laissez-faire.  

     Besides the obvious political imperative, Thune's thinking on minimum wages is antiquated and unsupported by research and history.  Nice, reasonable guy that John Thune is, I'm confident that if we keep working on him he'll come around.  

1 comment:

  1. While I tend to agree with you and as a rancher that takes advantage of the lower capital gains tax I think a distinction could be made with some of the capital gains gains. While my money is working and is my own and is at risk, I think there is inherited moneys and moneys that are in retirement accounts that maybe are not as "at risk" as someone who risks their money every day. I don't know if they are as deserving of the capital gains break? Just wondering.

    ReplyDelete