How will lowering the taxes create more jobs? Has lowering taxes in the past created more jobs?
In theory, lowering the taxes will stimulate the economy. People will have more money to spend, so they will buy more goods and services. The demand for all products will increase and to keep up with demand, business will have to increase supply. They will hire more workers to increase supply.
The reason lowering these taxes is being debated (besides the deficit) is the people who will have more money to spend are mostly the 1% with the biggest incomes who may not make a desired change in their spending. If someone buys another house in Aspen, they will need to hire another housemaid for it, but what if they just buy another Rembrandt instead?
That said, I second your question about whether lowering taxes in the past created more jobs.
Companies will make more investments, grow, and hire. It’s more about that, than consumer spending.
Here’s an online textbook that’ll give you the basics: Essential Principles of Economics: A Hypermedia Text. Chapters 22 through 28 should give you the info you are asking about.
I can’t do better than that right now.
the theory goes: more money for the people to spend - creates a demand fore more goods and services – companies will hirer more people fulfill those goods and services.
But if there was this demand for goods and services, wouldn’t companies invest in technology that would eliminate jobs (which is biggest killer of jobs). For example the automobile industry has reduced its work force since 1980’s yet is producing the same amount of cars if not more.
I’m not trying to debate it just to understand it.
The theory is based on a formal, but fairly simple, model. To really appreciate it, the explanation needs to flow from and mirror the model even if it doesn’t state the model explicitly.
Essentially, we’re talking about the Keynesian aggregate demand model where total demand equals total output in equilibrium. When there is a disequilibrium, the aggregate demand can be adjusted through government activity such as taxation. To say that cutting taxes puts money in the hands of people to either spend or invest doesn’t really answer the question, because money that is taxed by the government is spent by the government. You have to get into it in a little more detail to see why taxation and spending by the gov’t. of $X has a different effect than just spending and/or investing of $X by private citizens.
I’m not really up to it right now. Let me think about it and try again. Unless someone else comes along and does a better job of it.
There’s this big important equation where the units are different on different sides of the equals sign, you see, and most economists still believe in it because most non-military government-employed mathematicians didn’t pay attention in school. IIRC, it goes:
Number of dollars in (public and private) circulation * Volume of money spent per year = Average (mean) price per good * number of goods per year
NV=PG, I think
If you drop the first term, it makes sense both mathematically and unit-wise, but it’s the only term they can directly control without violating the constitution (again, this is a IIRC from a generally stoned-seeming teacher. It was a blow-off GPA booster). Dollars in circulation is generally managed by changing the percentage of money it “holds” that a bank must have in it at a time (or, what percent it can lend out) or by changing tax rates so that the people/private businesses have less/more money to spend.
The end effect of all of these is to the V so that the government can collect more taxes.
The applications of this all make no sense, because anyone with two weeks of chemistry under their belt can tell you that this does not work, and units have been shoved into my head so hard that I am physically incapable of believing it, so use your imagination now that you’ve got the theory given to you.
Um…are you sure you don’t mean to say that you blew it off? You’re talking about an identity and the units do in fact work out.