I am tired of hearing the conservatives keep speaking about tax cuts for small businesses.  They keep saying that if you cut their taxes, they will hire more people.  Even Obama said in his state of the union that he wants to eliminate all capital gains taxes on small business investment.  I am very disappointed that Obama would propose this, I guess he is just trying to score some points with the tax cuts are always good crowd. 

Let us look at this logically instead of politically.  If someone today has a good business idea which they think is profitable, they will try it and if they make a gain on the value of their investment they will keep 85% based on a capital gains rate of 15% (excluding other taxes).  Cutting the rate to 0% will not change their decision to try and make a go of the business.  In addition the extra money the investor may make when they sell the business due to the lower rates may be used for an additional investment but only if there is a good opportunity.  Since there are a lack of good opportunities in today’s economy, the extra money would probably not be invested.

The argument is even better when talking about small businesses taxes.  The right contends that lowering these taxes will make the companies hire more people but this is just not logical.  A business will only hire people if there is more of a demand for their product, not if the owners get more money. 

Tax cuts for small business are therefore an inefficient way to use scarce government resources which should be used to increase business, create jobs and lower the deficit.  Politicians propose these cuts because they want the votes of the beneficiaries and there is no talk about the loosers from this policy.  I guess since Obama wants to freeze spending for many government agencies the loosers are the government employees who would not have jobs and the groups and people who would loose these agency’s services but this will not be mentioned because that is bad politics.