Sunday, January 31, 2010

Does Taxing the Rich Help Me?

The United States has a progressive income tax system, the more you make the higher percentage of income tax you pay. Some in Congress, and the President, are advocating that certain tax cuts on those making over $250,000 expire (the tax rate would go from 33% to 36% for money earned from $250k to $373K and from 35% to 39.6%). I’m not quite sure how this benefits me, a furloughed Civil Engineer. If anything I only see negatives from this for me.

It doesn’t balance the federal budget, it only “helps”. If anything it prolongs me getting a job by pulling money out of the economy. I work in an industry that is largely discretionary in nature. Governments have the discretion to improve and maintain the government owned infrastructure. Land owners, and their investor partners, have the discretion on whether to improve the land they own (with the governments permission). While the government spending has increased it has not increased adequately to compensate for the decreases in the private sector. Who funds the private sector developments? Last time I checked it’s not the person behind the counter serving me fries. It tends to be people who have a large amount of discretionary income, the very people the taxes will affect.

Now a large part of the problem is that people have lost faith and aren’t using their discretionary spending on land development. I can’t really blame them. If they had some of their money invested in land development during this current bust they probably lost some money. Locally there has been two or three investment funds go bust. There’s also a lot of housing and commercial stock on the market which needs to be filled up with families or employees. Taxing the rich only delays this.

Now what could the government do that would really help get investors back into the game? How about getting out of the way? The first step could be requiring federal and local agencies to deal with permit requests within 10 working days. Any time period beyond that time the governmental agency would pick up the tab for the costs involved in the delay (interest, inflation, etc.). This would remove a large portion of the risk in land development and provide an incentive to investors to reenter the market. Best of all it wouldn’t increase the national debt.

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