Paul Revere by Cyrus Dallin, North End, Boston



Friday, November 19, 2010

Tax cuts for the super wealthy do not create jobs. Where are the jobs from the Bush Tax-Cuts-For-The-Wealthy Era?

Greg Dworkin explains:

"Does anyone actually have data showing that giving millionaires tax breaks creates jobs? How many jobs would that be? For all those who claim that it is so, please provide the data so we can have an honest discussion about it.

A table would be nice: in the left hand column, the income bracket and the tax breaks based on the current rates; in the right hand column, the number of jobs created. You know, what we in the old days used to call 'facts' to back up the argument that we need to bail out the rich because they need to get richer because 'everyone knows' that what follows is jobs (aka 'trickle-down theory' or Reaganomics). Really? If it worked so well, where are the jobs now? And did you know who said 'money was all appropriated for the top in hopes that it would trickle down to the needy'? That was Will Rogers during the Great Depression. Some ideas never die, no matter how many times they fail.

The justification for DC's refusal to fix a problem caused by tax cuts on the rich by restoring taxes on the rich is that you can't raise taxes on the rich during a recession. The oft-repeated idea that taxes "take money out of the economy" has become so ingrained that there is no discussion at all, it is just accepted as a given. It is "conventional wisdom." It certainly is a convenient conventional wisdom for the wealthy, but it is a fact?"

Dave Johnson at Campaign for America's Future says: 

Let's look at some counter-arguments:

1) Tax cuts for the rich means borrowing. This is the root of the "taxes take money out of the economy" argument because the resulting borrowing pumps into the economy, which is stimulative. If you stop the borrowing the resulting stimulus is withdrawn. Of course, tax cuts are the least-effective stimulus, especially when it is top tax rates we are talking about, but still... Unfortunately we have been borrowing a lot for a long time to pay for tax cuts at the top, so massive debt has accumulated and the interest paid (guess who it is paid to) on the borrowing is significant and anti-stimulative. (Don't interest payments "take money out of the economy?")

2) Taxes bring in revenue to pay for improvements in infrastructure that cause the economy to grow. Investing in modern transit systems, smart grid, energy efficiency, fast internet and other improvements leads to a huge payoff. Infrastructure improvement and maintenance is the “seed corn” of economic growth. We have been eating that seed corn since Reagan’s tax cuts. Some might argue that we can just borrow to invest in infrastructure -- but we don't. One result of the Reagan tax cuts was a cutback in infrastructure investment, which is dissed as "government spending." (For some reason the same borrowing to spend on tax cuts is not dissed.) After 30 years of Reaganomics our infrastructure has fallen behind and we are not competitive in the world economy.

Taxes also bring in revenue for improving our schools, colleges and universities. Not only does this help our economic competitiveness, education improves each of our lives and our level of happiness. (And more education helps people who end up on deficit commissions to understand that tax cuts for the rich cause deficits which can be fixed by putting top tax rates back where they were before the deficits that they caused.)

Jon Ponder of Pensito Review:

"A Republican plan to extend tax cuts for the rich would add more than $36 billion to the federal deficit next year — and transfer the bulk of that cash into the pockets of the nation’s millionaires, according to a congressional analysis released Wednesday."

NYTimes' David Leonhardt:

"Those tax cuts passed in 2001 amid big promises about what they would do for the economy. What followed? The decade with the slowest average annual growth since World War II. Amazingly, that statement is true even if you forget about the Great Recession and simply look at 2001-7.

The competition for slowest growth is not even close, either. Growth from 2001 to 2007 averaged 2.39 percent a year (and growth from 2001 through the third quarter of 2010 averaged 1.66 percent). The decade with the second-worst showing for growth was 1971 to 1980 — the dreaded 1970s — but it still had 3.21 percent average growth.

The picture does not change if you instead look at five-year periods. Here’s a chart ranking five-year periods over the past 50 years, in descending order of average annual growth:

Nevertheless, every Republican in Congress and many of the Democrats are clamoring to extend the Bush tax cuts because they will create jobs.

Really, if I have to hear a fairy tale, I’ll just stick with my toddler’s library."

I hope the Obama administration sticks to their resolve to end tax cuts for the super wealthy.  History shows those tax cuts do not create jobs, but in fact, increase the deficit.


libhom said...

Tax cuts for the rich have always slowed the economy. However, it is even worse now that so much of speculation by the rich goes into building factories abroad which are used to ship US jobs oversees.

Charlene said...

It is my opinion that all the tax cuts need to be eliminated. Go back to 2000 and set the rates there. I have no fear the rich will pay more taxes. They hire clever tax experts and work the system anyway. Prosperity will be built on the back of working Americans and small businesses. It always is. Cut out welfare for corporations and eliminate paid lobbyists. Then stand back and watch.

dmarks said...

Lib: If rich Americans don't invest in foreign factories, rich foreigners will. And foreign factories will still be built. And jobs "won't be shipped overseas", but people in other countries do earn them by being better at them.

Charlene: Good point. The rich won't pay them. They will move their money around, and people down the line will suffer. The people pushing for further overtaxation of the rich in order to satisfy "class warfare" always overlook this. And then you get results like the "luxury tax". It was intended to screw the rich. But I saw firsthand as the working class got screwed by this one as boat factories were closed and people were laid off because rich people weren't buying boats.

"Cut out welfare for corporations and eliminate paid lobbyists. Then stand back and watch."

I agree with the first. Too bad President Obama does not. He has voted for or signed into law the hugest dollops of corporate welfare in American history. As for the second, I'm not sure how to restrict this.

As for Dworkin, before you raise taxes on anyone, spend the money wisely. More and more, tax money goes directly to pay government workers millionaire wages. And public sector unions cause massive waste by putting greed first and public service last.

Arthurstone said...

Actually jobs will go overseas not by 'being better at them' but because they do them cheaper.

And not only do they do them cheaper but their governments allow them fewer safety protections, fewer environmental regulations, no social safety net, no ability to organize and an endless list of other 'benefits'.

dmarks said...

Arthur: Someone who does the same thing for less money is better at it.

"no ability to organize". They are free to give whatever money they want to unions. Or not. "No ability to organize" means that they have free association, and are not forced into political organizations against their will and interests.

As for the rest of it, it fits so well into the racist arguments of Pat Buchanan and the like against free and fair trade (even if you are not a racist). I happen to know many people in foreign countries, and they are happy for the opportunities, and greatly resent arguments such as yours. The "ugly American" does not necessarily know better, and paternalistic attitudes are resented.

Shaw Kenawe said...


Are you aware that many countries in Asia (India is one) employ children who work in terrible conditions (some without pay) in sweatshops?

It difficult for the US to compete with countries that deal in child slavery.

Knowing a few foreigners is not evidence of anything. That's merely anecdotal examples.

Child Labor

The International Labor Organization (ILO) has estimated that 250 million children between the ages of five and fourteen work in developing countries. 61% in Asia, 32% in Africa and 7% in Latin America. Many of these children are forced to work. They are denied an education and a normal childhood. Some are confined and beaten. Some are denied the right to leave the workplace and go home to their families. Some are even abducted and forced to work.

Here are links to read how companies like Nike and The Gap have used child labor to enhance their bottom lines.

dmarks said...

Shaw: Once you get rid of the child labor and slave (prison) labor (AND WE SHOULD!), you still have most of the workforce in those countries still working. No children or slaves among them. Wha then?

dmarks said...

Also, Here is a good example of pure waste spending in one state. Imagine if that $100,000,000 instead went to infrastructure. Instead, greed won, along with the concept of "public service" which means "how much can the public serve me?". Stop this before you forcibly take from people.