Why Tax Cuts For The Rich Won't Create Jobs

Great Debates
1

The conventional wisdom among conservative economists is that tax cuts for the wealthy will stimulate the economy, because they will invest their windfall in companies, who then buy equipment, increase production and hire more workers.

And at one time, this might have actually been true.

However, in today’s global economy, there is little guarantee that the tax cuts lavished on the wealthy will be invested in America; rich investors will seek out the best return on their money, and can send that money any where in the world to do so. Indeed, even if the money is invested in an American company, with labor and manufacturing costs much lower abroad, it is much more likely that this money will not stay here, but flow out of the American economy to stimulate the economies of developing countries around the globe.

The damage to the American work force is masked by the recent rise in the stock market, which today reflects the growth of overseas manufacturing by American companies, rather than the strength of the American economy. The stockholders get rich while the workers starve.

Eventually, this will contribute to the decline of the domestic economy, as employment stagnates and wages shrink due to competition from outsourcing. American consumers will no longer have the income to purchase the products that are being imported, and the downward spiral accelerates.

Then there is the notion that stimulating production will create jobs. Why would the manufacturing sector want to add capacity when we are only using 74% of the capacity we already have? What the economy suffers from is not a lack of production capacity, but a lack of demand. Putting more money in the pockets of the rich does little to stimulate demand; they already have all they are likely to consume (and more, that’s why we call them “the rich”).

If we are going to engage in deficit spending as a means of stimulating the economy, let it be from the bottom up, which addresses the problems we have now, instead of concentrating more wealth in a smaller and smaller percentage of the population at the top. Any tax cuts should be in the payroll taxes of middle and lower class, who are more likely to spend that money on goods and services, and soak up some of the nation’s excess production capacity. Only then will industry see the need to expand production and create jobs.

2

No it isn’t. The argument is that high marginal rates are a strong disincentive for the rich to engage in productive activity which would benefit others as well as themselves. To be sure, there are some Keynesians of convenience in the US at present, but they don’t represent the conventional wisdom of conservative economists.

3

They want the tax cuts for the tax cuts and use the stimulate the economy argument as propoganda to push the tax cuts across the board. Republicans like high unemployment… it suits their corporate benefactors to have people vulnerable and unwilling to push for higher wages or better benefits. I tell you that there’s a reason unemployment under Reagan and both Bushes, and it’s not because Republicans don’t know what they’re doing. It’s because they do know what they’re doing.

4

Fair enough; substitute “the Bush Administration” for “conservative economists”.

5

You forgot one important thing: they still have to eat. So if rich folks have more money then there will still need to be McDonald’s, Starbucks and Panera. So those places will have more jobs. And don’t forget the malls and car dealerships. Sales of Porsche Cayennes have been through the roof lately with the extra money and the tax dodge for vehicles over 6,000(?) lbs. curb weight. That’s good for the upscale SUV companies, which is also good for the gasoline companies, which is good for big oil. Which is good for Cheney and Bush. It’s all so simple.

6

You seem to be unfamiliar with the law of comparitive advantage. It is the US economy’s advantage for things that can be done cheaper overseas for it to be done there. Consumers get cheaper goods, businesses get more profit, exporters get more customers. This leads to less unemployment and higher wages.
The rich do not just spend the tax savings, they save and invest it. Investment creates new technology, new companies to hire workers, etc… I agree with you that payroll taxes need to be cut but good luck selling that to the seasoned citizens.