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DO TAX CUTS CREATE JOBS? PDF Print E-mail
Written by Jim Jordal   
Tuesday, 26 October 2010

DO TAX CUTS CREATE JOBS?

By Jim Jordal

Now that the midterm election campaigns are in full swing perhaps it’s time to look critically at one of the major issues being tossed about: Do tax cuts create jobs?

The Recession of 2008 and the continuing high unemployment rate with consequent home foreclosures and family turmoil make tax policy and jobs vital issues for this election season. Both political parties are in favor of creating more jobs, but differ strongly in the ways they would accomplish this.

The simple answer is: Yes, tax cuts do create jobs---if the cuts go to the right people. Main Street small businesses do create jobs if they have additional money available. And small consumers do spend money if they get more of it. Additional tax refunds provide consumer buying power which creates jobs and then more consuming and so on into general prosperity. Since small businesses create some 75 percent of new jobs it seems obvious that tax cuts for small businesses will result in more jobs.

But this simple truth applied to tax cuts for the super-rich reveals several very questionable assumptions, casting doubt on the viability of the entire philosophy.

First, look at American tax history since World War Two. During and after the war the marginal income tax rate (the rate on any extra dollar of income above a certain amount) was as high as 94 percent. Over the next 60 years Presidents Kennedy, Reagan, Clinton, and the second Bush slashed marginal income tax rates to the present 36 percent.

When marginal tax rates were 70 percent and over we should have had very high unemployment, but we did not. Conversely, when tax rates reached the present low of 36 percent we should have had jobs for every American willing to work, but we do not. Now if this massive tax relief for the mega-rich, especially since the Reagan administration, resulted in job creation—as conservative politicians and economists still claim—where are the jobs? Obviously this is not the case, so this factor alone ought to cause questioning of the basic premise.

Another very questionable assumption is that the rich manage their massive incomes and fortunes in the same manner as common people do. If common people spend extra earnings on consumer purchases and a small amount of savings, so must the rich. But the basic goal of common people lies mainly in earning enough income to provide a decent living standard for themselves and their families. For the rich it’s most often preservation of capital.

The mega-rich do not behave as they did several generations ago. It used to be that the rich lived in the community where they earned their money—usually from manufacturing or services. Their loyalty was primarily to their locality and their workers, whom they deemed absolutely necessary for financial success. But the transportation and communication revolution made it possible to operate entire industries from a distance and to easily transfer operating funds and profits anywhere in the world.

Today the mega-rich are really citizens of the world. They can escape by jet to villas anywhere on earth if things at home get too difficult. They can easily transfer billions of dollars to tax havens and secret bank accounts with the stroke of a computer key. They can export jobs in the same manner. They can claim government subsidies of all kinds that did not exist several generations ago. And they can use their money to obstruct any effort to restrict their financial freedom. Their loyalty is more to their business and preservation of their personal fortune than to any nation-state. They often make so much money and are so hungry for profits that they will not invest in normal undertakings like Main Street businesses and services. Instead, they opt for high-rolling, risky financial schemes like derivatives that create danger for the economy and have little or no potential for job creation.

Over the past 30 years America has endured a massive transfer of wealth from the lower and middle classes to the upper strata of income earners. Millionaires are commonplace; now it’s multi-billionaires that sit atop the income pyramid. These billionaire citizens of the world do not view investment in the same manner as rich people did a generation ago. They view workers not as valued resources to be treasured but as highly expendable factors of production to be consumed with as little cost as possible.

This tragic state of affairs is vigorously defended by the apostles of great wealth and their shills who continue to blatantly claim that if we would just reduce taxes a bit more for the rich then there would be jobs for all.

That’s simply a perversion of available facts and experience, and needs to be exposed for what it is before American workers suffer even more.