Wednesday, February 27, 2013

Back to the Future on the Economy

Back in the 1930s the New Deal Democrats got really, really angry that business was sitting on its hands, that "capital was on strike."  So they passed a retained earning tax, to tax earnings that weren't distributed as dividends and weren't reinvested in the business.

Deja vu all over again as Connecticut Democrats push a hoarders' tax, according to Instapundit.
This would place a levy on liquid assets — companies with a lot of money in the bank — and dedicate the proceeds to job creation programs.
Really, the statists never learn.  Although, maybe they don't want to.  They don't seem to get that the more they bully business around the more that businessmen just want to curl up in a ball and hide.

Back in 1936, the year of their stunning win, the Democrats passed the Undistributed Profits Tax.
 The idea was to force businesses to distribute profits in dividend and wages, instead of saving or reinvesting them. In the end, Congress watered down the bill, setting the tax rates at 7 to 27% and largely exempting small enterprises.
Then in 1938 the act was watered down some more; it was repealed in 1939.

But maybe the Democrats then and now don't really care.  What they care about is getting reelected at the next election.  So the point is to generate the right atmospherics, to rile up the faithful against "corporate greed" and "price gouging."  It really doesn't matter what happens to the economy or jobs or wages.  That is a second order effect.  The only thing that matters is whether ragging on business helps you get reelected in November.

Election or reelection, the facts are still pretty clear.  When the politicians start bullying businessmen and creating uncertainty, then businessmen are going to draw in their horns.  Not because they want to "go on strike" but because any new capital investment is a big risk.  And if the politicians are threatening anti-business legislation it just makes any and all bets on the future a little more risky.

And get this.  Any and all business decisions are bets about the future.  The more uncertain the future, the more likely that any decision will turn out to be a mistake.

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