Do tax cuts stimulate job growth?

[qazwart]

@MikeBB

My gut feeling is the government is the villain because it operates by force and business is the oppressed hero because it provides people with what they want. Some people apparently see it the other way around, and I can understand their point of view. It’s a difference of perspective that math can’t reconcile. But claiming that tax cuts have no effect on jobs doesn’t fit the facts of real-life business planning.

I’ve helped run businesses. Tax cuts are nice, but they’re not even close to being a factor in hiring decisions. The real decision is whether the economy is growing and the general business outlook. Maybe if taxes were upped by 200%, it might make a difference, but cutting a few points here and there pretty much does nothing for a business decision to hire.

In fact, I’d argue that if higher taxes would help reduce the deficit and help our economy to grow, most businesses would not only not mind paying more taxes, but would take it as a sign to hire more people.

Heck, I’ll accept this challenge. I paid about $20,000 in taxes last year. I’m willing to have a 20% tax increase if it helped take care of the deficit and helped our economy to grow substantially next year. To me, that’s a $4,000 in extra taxes. That works out to a little over $330 per month. I could use that money, but I could swing it.

I’m willing to do that because if the economy starts to grow, the job market will pick up and I’ll be able to make another $10,000 to $20,000 per year. Seems like a good investment to me.

Instead of thinking that Government is the villain, think of the services it provides. These include police and military protection, a justice decision, infrastructure, etc. These are things that allow us to have a functioning economy in the first place.

Are you really complaining about the government use of force to enforce the law? How would you handle a murderer? Would you take away his credit card until he voluntarily tried himself, found himself guilty and put himself away for 10 to 20 years?

Government involvement in business has been around since Alexander Hamilton help found the Society of Useful Manufacturers as a state sponsored corporation. Throughout our history, the U.S. has benefited from a strong government at both the state and federal level. The Continental Railroad kept this nation together during the Civil War and helped American business make this country an economic powerhouse.

The Interstate Highway System and the Internet were both government sponsored infrastructure projects that allowed the economy to grow. Even Adam Smith recognized an important role government played in helping stabilize the economy.

[IdahoMauleMan]

@qazwart

I’ve helped run businesses. Tax cuts are nice, but they’re not even close to being a factor in hiring decisions. The real decision is whether the economy is growing and the general business outlook. Maybe if taxes were upped by 200%, it might make a difference, but cutting a few points here and there pretty much does nothing for a business decision to hire.

In fact, I’d argue that if higher taxes would help reduce the deficit and help our economy to grow, most businesses would not only not mind paying more taxes, but would take it as a sign to hire more people.

Heck, I’ll accept this challenge. I paid about $20,000 in taxes last year. I’m willing to have a 20% tax increase if it helped take care of the deficit and helped our economy to grow substantially next year. To me, that’s a $4,000 in extra taxes. That works out to a little over $330 per month. I could use that money, but I could swing it.

I’m willing to do that because if the economy starts to grow, the job market will pick up and I’ll be able to make another $10,000 to $20,000 per year. Seems like a good investment to me.

Instead of thinking that Government is the villain, think of the services it provides. These include police and military protection, a justice decision, infrastructure, etc. These are things that allow us to have a functioning economy in the first place.

Are you really complaining about the government use of force to enforce the law? How would you handle a murderer? Would you take away his credit card until he voluntarily tried himself, found himself guilty and put himself away for 10 to 20 years?

Government involvement in business has been around since Alexander Hamilton help found the Society of Useful Manufacturers as a state sponsored corporation. Throughout our history, the U.S. has benefited from a strong government at both the state and federal level. The Continental Railroad kept this nation together during the Civil War and helped American business make this country an economic powerhouse.

The Interstate Highway System and the Internet were both government sponsored infrastructure projects that allowed the economy to grow. Even Adam Smith recognized an important role government played in helping stabilize the economy.

The mods will probably move this to Great Debates shortly, I’m sure.

The amount of taxes required to provide the basic constitutional services you describe above are trivial. I too, as a business owner, would be delighted to pay whatever taxes are required to enjoy those services as a US citizen.

That is not - by a long shot - where the majority of your tax money goes. At the federal level, it goes for entitlements. The local and state levels vary, but a large portion of those taxes usually go to fund an appallingly poor public school system, workers compensation programs and, in the State of Illinois, public sector pension contributions.

[gamerunknown]

appallingly poor public school system

That would be improved by abolishing it? You think parochial schools, child labour or homeschooling à la rural Idaho would be an improvement?

[Evil_Captor]

This happens on the Dope every time the gospel of conservative economics is challenged. The right screams, “NO NO you got it all wrong, you don’t understand economics at all, you idiot!” This despite the fact that it is blatantly obvious that lowering taxes on the rich has not resulted in increased jobs for Americans. Maybe it has resulted in increased jobs for Mexicans, or Indians, or Canadians, I don’t know, but the numbers are clear: lowering taxes on the rich does NOTHING to help with unemployment. All it does is increase the available wealth for the rich, which they in turn use to leverage their power in Congress. We are rapidly moving to an economic oligarchy in America, if we are not already there.

[Doubticus]

@xtisme

Of course, don’t let logic get in the way of a good rant…

-XT

Gotta love these political boards, can’t have a discussion without someone being mildly insulting. It’s true, the average consumer has a hand it this. But the average consumer doesn’t have a hand in setting trade policy. The loss of manufacturing in the US is mostly seen as a bad thing, even the ultra capitalist say it was a tragedy that we let it happen, but there is nothing we can do about it now. My point still stands, tax savings for the rich isn’t a direct win the financial health of the country and a lot of time is spent on foreign interests to the country’s detriment.

[Powers]

@New_Deal_Democrat

When Barack Obama was inaugurated in January 2009 the unemployment rate was 7.8 percent. By October 2009 it had risen to 10.0 percent. Since then it has generally been going down, but in February it was 8.3 percent.

True enough. Like an automobile speeding out of control, one cannot simply slam the transmission into reverse and have it change direction immediately. The forward vector must be decreased before the reverse vector can be increased.

Sadly, I have a number of conservative friends who point out how much the unemployment rate rose between January and October of 2009 with unmitigated glee, as if it is a reflection on Obama rather than on his predecessor.
Powers &8^]

[XT]

[QUOTE=Doubticus]
But the average consumer doesn’t have a hand in setting trade policy. The loss of manufacturing in the US is mostly seen as a bad thing, even the ultra capitalist say it was a tragedy that we let it happen, but there is nothing we can do about it now.
[/QUOTE]

We haven’t lost manufacturing…we’ve shed manufacturing JOBS. Until the recent recession, US manufacturing was on a steady increase. However, automation and offshoring/outsourcing means that it takes fewer manufacturing workers to produce higher and higher levels of finished goods and services.

My point still stands, tax savings for the rich isn’t a direct win the financial health of the country and a lot of time is spent on foreign interests to the country’s detriment.

I wasn’t addressing whether tax savings for the rich (or anyone else) does or doesn’t help the financial health. I was merely pointing out that the quoted statement in error, or at best a huge oversimplification.

-XT

[Askance]

@MikeBB

I don’t understand how it’s speculative to say that cutting taxes creates jobs. I used to work with lots of small business owners, and to them it’s not a theoretical issue. On any new hire, expansion, or purchase, they always compare projected revenue to projected expenses. It’s called “running the numbers.” They project a profit and decide whether that profit is sufficient to justify the risk.

Taxes are part of the projected expenses for any business venture. If taxes go down then expenses go down, which means that profits go up and some number of business plans move from not worthwhile to worthwhile.

So it should be impossible to deny that cutting taxes creates jobs somewhere for somebody. Tax cuts aren’t about animal spirits. Taxes are specific line items on specific spreadsheets that wealthy people use to decide what to do with their money. I’ve seen these spreadsheets. I’ve worked with these people. For them, this is a very clear and tangible subject.

So there’s no real question that lowering taxes creates jobs. The question is how many jobs versus what loss to tax revenue.

No, the question is: do the jobs created in the occasional business that hires one more person because taxes have gone down by one percentage point, outnumber the jobs destroyed because government at all levels has had to let go employees? Not to mention the impact lesser government services has on the general efficiency of the economy?

The fact that some jobs are created does not mean that nett jobs are created.

IOW you are focussing on a micro effect to one sector of the economy only, and not the overall picture of national employment.

[MikeBB]

@Askance

No, the question is: do the jobs created in the occasional business that hires one more person because taxes have gone down by one percentage point, outnumber the jobs destroyed because government at all levels has had to let go employees? Not to mention the impact lesser government services has on the general efficiency of the economy?

Yes, I’m assuming that a discussion of creating jobs means creating private sector jobs. That was certainly Cecil’s assumption in his column. The core question, as I understand it, is how wealthy people respond to cuts in their marginal tax rates? Do they invest more aggressively, or do they use the extra hundred-dollar bills to light their cigars?

That’s a psychological question with a definite answer. If you want the answer, you need only talk to some actual wealthy people and find out how they think. I’ve done some of that, and found that wealthy people most definitely react to taxes in their financial planning. They’re usually only mildly interested in what the taxes are today, and much more interested in what the taxes are expected to be in the future.

It’s an entirely separate and probably OT question to ask whether a government job is equivalent to a private-sector job.

[Fear_Itself]

@MikeBB

Do they invest more aggressively, or do they use the extra hundred-dollar bills to light their cigars?

Short answer: it doesn’t matter.

In the absence of consumer demand, investments do not create jobs. Period. What is so hard to understand about that? More capital does not create demand for your products. There is no shortage of capital holding back job creation; job creators are sitting on over a trillion dollars of cash as it is. Stop pretending otherwise. We have had ten years of of tax cuts; we have the lowest marginal tax rates in 60 years; where are the jobs? We tried tax cuts; they don’t work, they just widen the income gap.

[Alabama_Al]

This thread is exactly like every other one I’ve read on other websites regarding this and other economic topics. It’s ideology that’s being debated here, not economics. I’ve taken my own courses in economics and finance in college; it is painful when I watch on TV some supposedly learned economic “expert” say things that are 180 degrees removed from what I was taught (at a very conservative university, I might add.)

Personally, I believe the Laffer Curve as an economic theory is valid as far as it goes. However, there are two things about the Laffer Curve I never hear addressed by its proponents: At what point on the Laffer Curve is the economy at this time? Can that point, and the slope of the curve, even be identified with any degree of certainty? If the answers to those two questions are “Don’t Know” and “No” then as an instrument of policy the Laffer Curve is worthless.

[XT]

[QUOTE=Fear Itself]
Short answer: it doesn’t matter.
[/QUOTE]

I think the short answer is ‘it depends’.

In the absence of consumer demand, investments do not create jobs. Period.

Really? What was the demand for iPads in, say, 2008? Or are you saying that creating an iPad created zero jobs? What was the demand for cell phones in, oh, say 1960? What was the consumer demand for personal computers in the 40’s? I hate to break this to you, but investments DO create jobs in the absence of consumer demand. Apple has made literally billions on guessing correctly that there was a market for their product and CREATING consumer demand via investment in the research, development and production of their iPad devices. And their iPod before that. iTunes as well.

What is so hard to understand about that?

You tell me. Saying that investments do not create jobs in the absence of consumer demand…period…no exclamation point…etc etc…is pretty silly, since there are plenty of examples where it does and has happened. There was no real consumer demand for a slate type product several years ago, even though they had existed for quite a while. Apple created the iPad and wham…plenty of demand now, even in this shitty economy. And not just for Apple…an entire product niche was created, with demand enough for other manufacturers to produce similar offerings and compete on price and functionality. All you have to do to create consumer demand is to invest in a winning product that captures that demand and drives it.

More capital does not create demand for your products.

Again, you talk in absolutes when the right answer is ‘it depends’. Sometimes more capital DOES create demand for your products. More capital, for instance, could update or upgrade your manufacturing process, making it more efficient and lowering your costs, which in term could spark consumer demand for your product line that now costs less. Or, like Apple, more capital invested in what you think is an exciting new product line could CREATE consumer demand where it didn’t exist before.

It’s a gamble, but saying absolutely that more capital doesn’t create demand is, again, silly, when there are plenty of examples where this has happened.

There is no shortage of capital holding back job creation

No, but there are a lot of uncertainties out there right now that are impacting companies hiring. There are uncertainties about how taxes are going to play out. There are uncertainties about how health care reform is going to play out. There are uncertainties about how things in Europe or China will play out. In such an environment, companies often take a bunker mentality and run with minimal staff if they can, saving their capital in case times become tougher. If you don’t have a good idea of what your costs might be a year or 5 years down the line you are unlikely to hire a bunch of new employees, unless things are booming.

-XT

[New_Deal_Democrat]

@Powers

True enough. Like an automobile speeding out of control, one cannot simply slam the transmission into reverse and have it change direction immediately. The forward vector must be decreased before the reverse vector can be increased.

Sadly, I have a number of conservative friends who point out how much the unemployment rate rose between January and October of 2009 with unmitigated glee, as if it is a reflection on Obama rather than on his predecessor.
Powers &8^]

Republican gloating over persistent high unemployment is sickening. They pretend to care, but they have jobs that seem to be secure. Their real fear is tax increases.

The highest rate of unemployment under Obama has been 10.1 percent. Under Reagan unemployment reached 10.7 percent.

Table Data - Unemployment Rate | FRED | St. Louis Fed

[Askance]

@MikeBB

Yes, I’m assuming that a discussion of creating jobs means creating private sector jobs. That was certainly Cecil’s assumption in his column. The core question, as I understand it, is how wealthy people respond to cuts in their marginal tax rates? Do they invest more aggressively, or do they use the extra hundred-dollar bills to light their cigars?

Neither. Or, taking the fallacy of the excluded middle at face value, more the latter than the former. Beauty! I can get another Ferrari, yacht, or container-load of Krug. How does this help the US economy? Not at all.

That’s a psychological question with a definite answer. If you want the answer, you need only talk to some actual wealthy people and find out how they think. I’ve done some of that, and found that wealthy people most definitely react to taxes in their financial planning. They’re usually only mildly interested in what the taxes are today, and much more interested in what the taxes are expected to be in the future.

No doubt, but that does not speak to what they would DO with that extra money. Let’s say a given person in this class is earning $100m a year and is paying 15% tax overall, so netting $85m. A tax cut for them from 15% to 14% is a 1/7 decrease in outgoings, but only 1/85 increase in incomings. What do they DO with that extra $1m? Even if they actually directly employ people in their wealth-generating efforts how many more helpers have they been holding back on hiring for lack of that extra $1m? An employee might cost them, what, $100,000 a year? This pampered self-entitled set would hire someone at that price in an instant if it saved them a minute a day, they wouldn’t be saying to themselves “just one more million, *then *I’ll hire someone!”.

If they are in the moneyed classes though, the likelihood is that extra money never sees the US economy at all.

@Alabama_Al

Personally, I believe the Laffer Curve as an economic theory is valid as far as it goes.

Why? It is patent and utter garbage, as actual economic data show again and again. If you can fit just **US **economics since 1900 into the Laffer curve for more that 50% of that period, I’ll eat my hat. Indeed, I’ll eat *your *hat.

[Quercus]

@IdahoMauleMan

The amount of taxes required to provide the basic constitutional services you describe above are trivial. I too, as a business owner, would be delighted to pay whatever taxes are required to enjoy those services as a US citizen.

That is not - by a long shot - where the majority of your tax money goes. At the federal level, it goes for entitlements.

What do you mean by ‘entitlements’. Do you consider Medicare and Social Security as 'entitlement’s? How about unemployment benefits? Are ‘entitlements’ supposed to be bad things?

Now, there’s no doubt that Medicare/Medicaid and Social Security are huge parts of federal outlays. (File:U.S. Federal Spending.png - Wikipedia). Each of them is about equal to military spending, one fifth of the total. Throw in interest on the debt, and everything else – Congressional salaries, meat inspectors, road building, medical research, airport scanners, emergency federal aid, student loan subsidies, you name it – makes up one third of the total.

So can you give some numbers to show that ‘entitlements’ are “by a long shot” the majority of federal outlays?

[Evil_Captor]

“Entitlements” are just government programs that benefit people you don’t approve of. All of the people getting Social Security paid Social Security taxes. It’s not an entitlement in the sense that you paid for it. It’s more a matter of the government repaying a debt they owe. Something coservatives are loathe to admit.

[XT]

[QUOTE=Evil Captor]
All of the people getting Social Security paid Social Security taxes.
[/QUOTE]

Well…and the companies they worked for paid into it as well (IIRC, they match the 7-8% of wages the employee is paying). You don’t just get what you, and individual pay into Social Security (Medicare too for that matter), it’s a aggregate. Also, not ALL people who get Social Security benefits paid into it fully. I know of several people who are fairly young who get Social Security benefits without having paid in fully (or in some cases, at all).

I don’t know whether Social Security or Medicare are technically an ‘entitlement’ or not, per se, but it’s a bit more complex than ‘I’m only getting what I paid for!’…something some liberals are sometimes loathe to admit.

-XT

[scJazz2]

@echoreply

I understand what you’re saying, and once again, I’m not trying to be socialist. But I’ll raise you’re government’s burnt steaks by one AIG derivative debacle, or one BP oil spill. Your pork project is my county’s widened highway. SNIP

Getting back to Cecil’s column. I think if lowering taxes could create jobs simply and effectively every time, then the government would just lower taxes when unemployment rose above 5%, and raise it a bit as it went below.

Couple of things

1. Cecil failed to point out that it was a Democrat Congress that promised to lower spending in the future and then failed to do so that caused a significant portion of the debt he ascribed to Reagan. Lesson: Never believe a Dem’s promise to cut spending. Lesson 2: Never believe a Repub’s promise to cut spending either.

2. AIG, GM, Wall Street are precisely the kind of perfect examples of why Government doesn’t allocate capital efficiently. Each side had ponies in the race and backed them with various tax breaks, laws, oversite and general busy-body meddling. Seeing them about to fail would make aforementioned busy-bodies look like the moronic leeches that they real are… hence QUICK BAILOUT!!! lest the peasants (us) grab the pitchforks!

3. They can’t fuss with the tax rates based on unemployment because it takes them too long to agree on the details.

[mmckee44]

Do tax cuts stimulate the economy? This is a rather simple question with a simple answer. Putting money into the economy will of course stimulate the economy. So the real issue is what is the best way to put money into the economy. Is tax cuts the best way?

We all hear about the Reagan tax cuts and how they so very much were the reason for the burgeoning economy of the later 80s.

But in 1980 the prime rate was 20%, raised to that level to kill inflation. It killed the economy and also killed the Carter presidency. But it killed inflation back then, something Nixon and Ford could not do. By 1984, the prime rate was 12% and by 1986 it was 8%. No one mentions this drop, partly I suspect because it doesn’t fit the talking point that we need more tax cuts for the rich.

But wait, there is more… In 1980 the price of a barrel of oil peaked at $80 a barrel due to the cut in production by a united OPEC. But by 1980, OPEC was splintering and production was increasing and a glut was starting on world oil supply. Plus the North Sea oil fields were coming more fully into production contributing to that glut. Thus by 1985 the price of a barrel was back down to stable $30 per barrel. Again, no one mentions this factor on the economy as well. Again I would suggest you don’t hear about these factors because they don’t fit the talking point of lets give more tax cuts to the rich.

Yeah rich, the backbone of America!!!

[Askance]

@Askance

Let’s say a given person in this class is earning $100m a year and is paying 15% tax overall, so netting $85m. A tax cut for them from 15% to 14% is a 1/7 decrease in outgoings, but only 1/85 increase in incomings.

Idiot! It’s clearly a 1/15th decrease in outgoings. Point remains.