Lemonade Stand Conundrum

Disclosure: I was a member of NFIB (National Federation of Independent Businesses), US Chamber of Commerce, and board member of both the state Chamber of Commerce and the local Chamber of Commerce.

I continue to hear the rallying cry for tax cuts to help out businesses. Lately, our state, like many states, are discussing whether to stimulate job growth through tax cuts or kick-starting jobs through projects via a bonding bill--not unlike trying to kickstart jobs with the American Recovery and Reinvestment Act on the federal level.

Let's say you make lemonade stand equipment--the juicers. What form of assistance is going to cause you to hire more people to make more juicers? You get a tax cut, and so you have a bit more money in your pocket. Or bonds are issued to build more lemonade stands, requiring more juicers. Obviously, the action that causes more lemonade stands to be built will help you more, and cause you to hire more people.

Let's say you have nothing to do with lemonade stands directly. You sell t-shirts. Would a tax cut that puts a little more money in the lemonade stand owners' pockets, and the juicer-manufacturer's pockets, cause them to buy more t-shirts. Maybe. However, if they're erecting more lemonade stands, they will need to hire more people who are sitting out on the sidewalks on warm days, trying to sell lemonade. On warm days, t-shirts are a very comfortable apparel item. The more people who are outside on warm days, the more t-shirts you'll sell.

If you're asked whether a tax cut or a bonding bill will help job growth, think about lemonade stands. In some ways, our businesses aren't much more complicated than the first businesses we created when we were little. You need demand, and you need to attract customers, and when it starts to grow, you "hire" help--the brother, sister or friend. You don't hire help until the growth starts, and having more money in your pocket doesn't make the customers come to you in any greater numbers. Even if they have more money in their pocket, it may not cause them to spend it.