Article 45. The Relationship between Inflation, Taxation and Innovation.
When I was in high school in the 1950’s my parents bought me a watch costing over $300. Adjusting for inflation that same watch purchased today would cost $3,000. But in a few years late 1950sTimex through innovation came out with a watch costing only about $10 or about $100 today. Today you can buy watches that work just as well for only $10 or $20. If today’s innovation in watches had been available in the 1950’s my parents would have only paid $1or $2 for the Watch instead of $300.
In 1984 I purchased my first personal computer an IBM XT with a 10 meg byte hard drive it cost $6000 and all the software was extra. It was a real bear until Windows come out in the 1990s. When you adjust for today’s inflation then I would have paid $36,000 for the IBM XT. Now through innovation you can buy a personal computer thousands of times more powerful for about $1000. The bottom line is that buying power increases with product innovation and it’s the same in government tax dollars go further with increased innovation in the work place.
In our college business classes we should have learned that when a person’s income is increased to compensate for inflation his taxes will also increase. Over time taxes will take an increasingly larger bite out of a person’s buying power. Therefore it is necessary from time to time to reduce taxes to maintain the same buying power. This should be the primary argument for tax reduction.
In the 1950s a person could inherit $650,000 before the IRS stepped in and took 55% of what was left. This was not a significant problem in the 1950s but the same deduction remained until Bush’s tax cut in 2004. In 2004 the value of the 1950s $650,000 exemption due to inflation should have been $6,500,000. The result of this incredible blunder by congress resulted in the loss of thousands of small businesses and farms affecting most of the mid-west severely with the result in recent years of many states voting Republican rather than Democratic.
When I discussed this problem with friends of mine both Republicans and Democrats I found that they either did not understand the problem or they felt that taxes for the rich should not be reduced. Here is how I was able to explain the problem using the following examples. When a mechanic gets a job he has to bring to the job his own set of tools costing about $1,000 the same with a carpenter and other craft jobs. But when a person wants to open a restaurant before he has money coming in he must make a significant investment in a facility, equipment and supplies often costing more than $1 million these are his tools without them no money comes in. The same is true with a farmer but his investment is in millions for land and farm equipment. These are the tools he needs before he can start farming. But at today’s low farm prices it costs more for farmer to grow grain than it did in the Great Depression of the 1930s. To some people he is a millionaire and therefore does not deserve a break when his children can only inherit $650,000 and the government gets 55% of the remaining property. This amounts to confiscation of the farmer’s tools and forcing his children out of the business. This has been going on for at least fifteen years and the result is the dramatic shift in the mid-west vote from the Democratic to Republican Party. The Democratic Party doesn’t seam to have a clue as to what happened they are still blaming the abortion issue and other things for the loss of the mid-west states. If the 2004 tax reduction is not modified and made permanent taxes normally paid by the super rich, not most farmers and small business owners will be transferred to and paid by the middle class.
