“What’s good for grocery clerks is good for America,” proclaimed David Peterson in a Denver Post opinion piece on June 8. Peterson cleverly echoed a similar claim about General Motors from days gone by, but his well-intentioned article was lacking in reality. He says, “In countering recessions, there are but two antidotes: Either increase government spending or increase private employment and income. Either has the same effect: Because of more income, there is an increase in aggregate demand and as more factories and companies begin producing again, the feedback loop turns positive.”
His article goes on to say that companies that can afford to raise wages, such as Kroger, should do so because it will help the company in the long run. Peterson states too many companies are laying people off because of the short sightedness of the CEO’s. This view actually perpetuates a recession. While his article advocates private sector involvement versus government involvement, which I agree with, he fails to account for one of the reasons for the layoffs. Let me explain…
CEOs are by nature visionaries and forward thinkers. Their primary job is to protect the bottom line and create value for the shareholder. One of the main reasons there are negotiations on labor contracts and layoffs are because of the impending tax increase on all businesses by the Obama administration. Wait a minute, you say, the federal tax for the highest earners -- keep in mind this is true for S-corps, LLC’s, etc… as these are pass thru entities -- is ONLY going up by 4.6 percentage points from 35% to 39.6%. But do the real math. This is 13% more money out of your pocket in taxes. If you make $100 that you make, instead of the current $35 in taxes, you will now pay $39.60. That extra $4.60 is an increase of 13% on what you used to pay. Make sense?
So now in light of that, companies are realizing that they are going to have to do more with less. Companies’ available cash to pay employees, expenses, etc will go down because of these new taxes. This impending tax code is no incentive for companies to hire more people. Any smart business owner is working as fast as possible to protect the interest of the shareholders. Companies are laying off people preemptively before this tax increase comes down the pike. In an altruistic sense, it would be great if healthy companies paid more but these companies realize in a short time that they are going to be penalized by the government. In other words, the wage payer is getting punished by the wage earner. Wake up America!
As Lincoln so eloquently stated,"You cannot help the poor, by destroying the rich. You cannot strengthen the weak, by weakening the strong. You cannot bring about prosperity, by discouraging thrift. You cannot lift the wage earner up, by pulling the wage payer down. You cannot further the brotherhood of man, by inciting class hatred. You cannot build character and courage, by taking away men's initiative and independence. You cannot help men permanently, by doing for them what they could and should, do for themselves."