FUNDAMENTAL TRUTH #36: “Politicians oppose across the board tax cuts because they are not politically expedient.” -Old Pithy

Posted by PITHOCRATES - October 19th, 2010

Pay Raise or Christmas Bonus – Which is Better?

If times are tough and the boss has to cut costs, which would you rather see cut?  The annual pay raise?  Or the Christmas bonus?  You, the employee, should pick to cut the Christmas bonus.  You, the employer, should pick to cut the pay raise.  The reason is the same for both.  A bonus is a onetime thing.  A pay raise is forever.

If you chose a Christmas bonus this year over a pay raise there is a very good chance you will take a pay cut the following year.  For if you got a $1,000 bonus this year but get nothing the following year, your annual earnings next year will be $1,000 less than they were this year.  However, if you chose the pay raise over the Christmas bonus this year and you get neither a pay raise nor a bonus the following year, you’ll at least make the same amount next year as you did this year.  Because that pay raise is still there.

The allure of a big check, though, is tough to beat.  Getting a 4-figure bonus check for the holidays may make the difference between a truly merry holiday and a not so merry holiday.  That’s why some people have more income tax withheld from their paychecks.  They want to get a big, sexy check after the holidays to help pay off their holiday debt.  Another $20 or $30 in a weekly paycheck just isn’t as sexy.  But it’ll do a whole lot more for you.  Perhaps even being just enough additional income to get you approved for that mortgage.

The Mortgage Interest Deduction

Big Government likes to spend money.  Their money.  When it comes to spending, they operate under the premise that it’s all their money.  Your net pay is only the portion of their money that they let you keep.  For you to spend as it pleases them. 

Affordable housing is important on both sides of the aisle.  The Left likes it primarily for putting people into houses who can’t afford to buy houses.  This makes for grateful voters at election time.  The Right likes it primarily for the economic dividend.  New housing drives a host of other economic activity to furnish those new houses.

Now Big Government is not very generous with their money.  Hence their pervasive taxes.  They don’t want to lower taxes too much.  If they did, we would be able to keep more of their money.  And they just won’t have that.  But on the other hand, they want us to buy houses.  So they came up with the mortgage interest deduction (MID).  If we buy what they want us to buy, they’ll let us keep a little more of their money via this income tax deduction.  Their little way of saying thank you for going into debt up to our eyeballs.  Of course, if they would just cut our taxes we could probably buy those houses without the MID.  But we must remember whose money it is.  It’s not about us enjoying our life as much as we can.  It’s about them giving us as little of their money as possible.

What Have You Done for Me Lately?

They give us (for the time being, at least) the mortgage interest deduction because they get something for it.  Housing sales.  Which gives the Left more grateful voters.  And the Right a more bustling economy.  In other words, Big Government received a sufficient payment on this gift of money they gave us.  This to them is a sensible tax cut.  It’s not general.  It’s not across the board.  It’s specific and targeted to the people they want something from.

This is how they measure the value of any projected tax cut.  They ask themselves how will this tax cut benefit us, Big Government.  And if that benefit is sufficient, that they will gain real value for it, then they grant us this sensible tax cut.  It’s basic accounting fundamentals, matching the costs to the benefits. Which is why they really eschew across the board tax cuts.  With those there’s no matching of costs to benefits.  Sure, everyone may win, but that ‘everyone’ doesn’t include them the way they see it.

They’ll provide a tax credit to buy a ‘green’ car because they can match the cost to the benefit.  They get campaign contributions (and votes) from the Left for promoting ‘green’ technology.  And they get kickbacks from ‘green’ industries the more green technology is used.  They can match the costs of these ‘green’ tax credits to the benefits they receive in exchange.  These tax credits make sense to them.  Across the board tax cuts, on the other hand, don’t.  It’s a lot of money thrown away without anything specific to show for it.  Sure the economy may be better off, but what demographic did it buy?  What specific graft can they count on?  Big Government operates on props.  And if they don’t feel the love (and the money), you better watch your back.

A Crisis is a Terrible Thing to Waste

Pay raises and Christmas bonuses.  Targeted tax cuts and across the board tax cuts.  They have something in common.   Two of them benefit us in the short term (bonuses and targeted tax cuts).  Two of them benefit us in the long term (raises and across the board tax cuts).  Tax credits and the MID are nice, but you have to spend a lot of money to get them.  And they’re short lived.  A pay raise and an across the board tax cut, though, gives you more money to spend with every paycheck.  And the more money you have, the less you have to borrow.  The less interest you will pay on your credit cards.  And the smaller your mortgage will be (and the less interest you will pay on that mortgage).

But, of course, letting us keep more of our money doesn’t help them.  Big Government.  It won’t help reelect them.  And it won’t help them get rich.  (And who hasn’t left Washington rich?)  And that’s what it’s all about.  At least, based on history.    And so what if they crash our economy in the process?  A bad economy is good for them.  A bad economy calls for stimulus spending.  It calls for reform.  It calls for Big Government to step in and do something.  Anything.  Because the people are desperate.  And a crisis is a terrible thing to waste.

And the people will willingly suffer for a couple of years.  They’ll make their sacrifices.  Suffer unemployment.  To help build a better tomorrow.  But when that tomorrow never comes, they will grow impatient.  They’ll stop giving them their props.  They will stop loving them.  Believing in them.  Which may back Big Government into a corner.  Where they will either move to the center and govern according to the will of the people.  Or rule by executive order against the will of the people.  Should they choose the former, we better all watch our backs.

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