Monday, June 11, 2012

Will You Create Jobs With Your Tax Reduction?

I think I’ve mentioned repeatedly on this blog that I’m neither an economist nor an expert on tax policy. As anyone who reads this blog regularly will recognize, I’m driven more by social issues. But it does appear that “the economy” (whatever that may really mean) is going to be the primary issue in the upcoming election. And so I want to take a brief look at one of the ongoing memes of the current political debate: The notion that giving tax breaks to “job creators” will help to spur job growth.

You see, I don’t think that this is really true. Oh, sure, some people may decide to create jobs. But will those jobs be created because the business owner got a tax break? That’s the real question isn’t it?

Look at this way: Let’s say that you’re the owner of a widget factory and you’ve been making a few million dollars each year (your own income, not the income of your company). And now let’s say that President Romney gives you a tax break. Are you taking that money, reinvesting it in your company by hiring a new employee or three … or are you taking the family to Cabo or on a cruise? Here’s what I think: You might use that money to hire a new employee … but only if you thought that there was going to be an increased demand for widgets. Just because you get a tax break and get to put more money in your pocket doesn’t equate to the idea that more people will be buying your widgets, especially if the widget purchasers are still looking for work or paying more so that you could have your tax break. And why would you hire more widget builders if you’re not going to actually sell any more widgets?

Or think of the plastic surgeon. Will he hire more nurses to help him perform more rhinoplasties or breast enlargements because he now has more disposable income? Or will his decision to hire more people be almost entirely dependent upon whether there will be more demand for his services? I mean, why would he want to hire more nurses if he isn’t going to, you know, need them?

Certainly home builders aren’t going to hire more guys with hammers until there’s more of a demand for new homes and stores won’t hire more sales clerks until there are more people shopping.

And a law firm isn’t going to hire more lawyers unless it has work to put on their desks.

You see, just hiring people doesn’t actually create work for those new employees to do.

So just where is it that these so-called “job creators” are going to be creating new jobs?

Perhaps tax breaks for the wealthiest will lead to new jobs as first class flight attendants (or in private plane production) or at high-end hotels. I suspect that the company that makes residential car elevators will be able to thank Mitt Romney for the uptick in business. Maybe manufacturers of other high end products (Rolls Royce, Rolex, and so forth…) will need to gear up production. But will tax breaks for millionaires (or billionaires) really spur job growth in the manufacture of most consumer goods or foodstuffs? Will it have a direct impact upon the demand for new housing construction or the auto industry? Will pharmaceutical companies see a sudden surge in hiring just because their top shareholders now get to keep more of their incomes? Will the banks suddenly be willing to lend more and correspondingly need to hire more tellers and loan officers?

I don’t think so.

Try this: If you know someone who makes enough money that they would see a tax break under President Romney (or a Republican Congress), ask them precisely how many new jobs they will create because of that tax break. And then ask them why that tax break will spur them to create new jobs. Ask why a tax break is more important to job creation than demand for their goods or services. Ask if they created new jobs during the 90s when taxes were higher than they are now. Why then but not now? And ask them if they’re willing to pledge to create those new jobs with the money that they save in taxes. See how they respond to that.

Thinking just about those whom I know personally and who would benefit from a tax break, I’m not sure that any of them would create jobs just because of that tax break. Maybe I’m wrong. I’d love to hear from them and hear about the jobs that they’d create if only they didn’t have to pay so darn much. Um, right.

Finally, and most importantly, if you hear a politician tell you that it is important to give tax breaks to “job creators”, don’t just accept that claim without more. Ask the politician to explain precisely what sorts of jobs will be created and why. Ask whether those jobs will be created here in the US or in Chinese or Mexican factories. And then ask the politician for empirical evidence that supports their claim that this sort of hyper-trickle down economic theory will work. Because all of the data that I’ve seen suggests that, in fact, it doesn’t work.

I think that we need to find ways to put more money in the pockets of consumers. With more disposable income, they’ll be more interested in purchasing goods and services. And the businesses that supply those goods and services will need more employees to help produce and provide the goods and services. And those new employees will, in turn, consume goods and services themselves, and so on and so forth. Millionaires and billionaires don’t need the aid; the poor and working class families, by contrast, do.

The point is to grow the size of the pie, not grow the size of the piece of the pie enjoyed by the wealthiest.

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At Friday, June 15, 2012 11:01:00 PM , Anonymous Karin said...

It's pretty straight forward....DEMAND creates jobs, not tax cuts for the wealthy. If that were the case, we would be flush with jobs. Hell, I'm still waiting for Bush's 2 tax cuts to result in new job growth or ANY job growth. Not to mention the circle jerk this causes with the deficit. Reduced revenues = more borrowing = more debt. But of course it's not about tax cuts for the wealthy, I believe it is ultimately the goal to use the deficit to cut SSI and Medicare/Cade programs.

But then again what the hell do I know. I'm just a filthy liberal! :)


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