Not Solving the Problem

Please don’t take this the wrong way, as I’m all for reducing the tax burden on small businesses.  But The One is not of a great economic mind, even though everyone seems to think He is all knowing.

The problem most small businesses face is not one of a lack of cash.  The problem also isn’t that a credit crunch is keeping small businesses from growing, as they certainly are able to finance growth through borrowing.  Alas, small businesses, as well as lots of big businesses, are holding (hoarding) cash.

The reason companies are hoarding cash and not growing, which is very odd, has to do with all the other stuff the Administration and this Congress have done.  Companies are not going to grow, and they are not going to hire people, when they have no idea what the costs of those investments (or the tax rate on the returns of those investments) will be.

No one knows what the health care mess is going to cost (other than knowing the answer is ‘more’.)  No one knows what Cap and Trade might do to tax rates.  No one knows if they will start taking the private property of businesses or individuals in addition to taking income.

Put that on top of the uncertainty on the demand side of the equation, where individuals are also hoarding cash instead of buying stuff (in the case of the wealthy, for the same reasons as businesses), and you get a nice little cycle of worry that slows (stops) recovery.

It all traces back to the madness we’ve seen these last 18 months.  And while tax breaks to businesses certainly won’t hurt, I don’t think they will help in this case.  (Which will be fodder for the 2012 elections, as the Left will point to the failure of tax breaks to fix the economy as a reason to raise taxes).

The only way we see things get started again is a sweep in November to remove power from the Democratic party, and the overturn of the health care bill in the courts.  When that happens, tax breaks on investment will be welcome and effective.