"The reason unemployment is high clearly has nothing to do with taxes" - Bruce Bartlett - NYT

[Bill USA]

http://economix.blogs.nytimes.com/2012/05/01/taxes-and-employment/

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The reason that unemployment is high clearly has nothing to do with taxes. Consequently, there is no reason to think that reducing taxes further will do anything to raise employment by reducing the tax wedge.

Additional evidence on this point comes from a new study by the Organization for Economic Cooperation and Development on taxes paid by average workers in its 34 member countries. The data below are for a single worker without children.



As one can see, the United States is a low-tax country with a total tax wedge of 29.5 percent. Three-fourths of O.E.C.D. countries have a larger tax wedge on average workers.

I have also included the latest data on the percentage of workers employed as a share of the working-age population. I think this is a better measure of the health of the labor market than the unemployment rate, which goes up and down for a variety of reasons unconnected to taxes.
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Bartlett further points out that the Republican controlled House Ways and Means Committee report says the Republican Small Business tax cut bill will have little impact on the economy -


(all emphases my own_Bill USA)

SMALL BUSINESS TAX CUT ACT Mr. CAMP, from the Committee on Ways and Means, submitted the following R E P O R T



The bill will potentially have small, temporary stimulative effects.
It will temporarily increase after-tax income for the owners
of certain firms with fewer than 500 employees, enabling these taxpayers
to increase their purchase of goods and services. Because
the economy is currently operating at less than full employment,
this additional demand is likely to have a temporary stimulus effect,
resulting in a small increase in real Gross Domestic Product
(‘‘GDP’’) during the time the provision is in effect (in 2012 and for
some taxpayers part of 2013, depending on their taxable year). The
size of this stimulus effect depends on how much of the after-tax
income the business owners choose to spend, which is uncertain.
The size of the tax reduction ($45.9 billion) is quite small relative
to the size of the economy (0.003 percent of projected GDP in 2012),
which means the stimulus effect will also be quite small. As the tax
reduction expires, the stimulus effect also expires.

In addition, the bill provides an incentive to shift profits to the
period when they are taxed at lower effective rates. Firms have an
incentive to shift sales, and, if necessary, commensurate production
and employment, into the period of the tax deduction. However,
this incentive is partially offset by associated adjustment costs,
such as additional overtime or hiring costs, and additional wear
and tear on equipment.[font size="+1"] The formula for determining the amount
of the business deduction makes it possible for firms to maximize
the deduction bonus without increasing output. Firms might not
need to increase their productive capacity to take full advantage of
the tax benefits of the bill.[/font] To the extent that firms could increase
sales and or payroll to take advantage of the extra deduction without
increasing longer-term costs, they can be expected to do that.
Thus, the bill is likely to result in some acceleration of sales into
the current taxable year, but very little change in output over the
budget period.

[Scuba]

1. "Everyone knows Social Security is broke."

"Tax cuts for the wealthiest are needed to ease uncertainty."

[AnotherMcIntosh]

2. The NYT is wrong. There is a correlation. Without high tax rates, the super-rich are allowed

to hoard their wealth to the exclusion of ordinary Americans.

When ordinary Americans cannot participate in sufficient numbers in the American dream, fewer goods and services are purchased and everyone below the super-rich category suffers.

The overall economy in this country will continue the way that it is until the super-rich are no longer allowed to hoard their wealth.

Impose a 100% estate tax rate on all estates above $5 million unless the decedent's wealth was used for employment purposes in this country.

Impose a 200% tax on all transfers of wealth out of this county.

Bring back the 91% tax rate for the income received by the super-rich. If that is not enough, raise it some more.