Weird Tax Myths #1: Tax Cuts Create Jobs

[Donnachaidh]

http://www.smirkingchimp.com/thread/larry-beinhart/33119/weird-tax-myths-1-tax-cuts-create-jobs

MYTH #1: Tax cuts create jobs. Tax increases cost jobs.

All Republican politicians, and many Democratic ones as well, make the claim that tax increases will prevent small business people from hiring. Indeed, it may force them to fire people.

Alright, we expect politicians to say loony things.

But we have a right to expect reporters to break out in hysterical laughter, economists to call their nearest media outlet to say how ridiculous that is, and competing politicians to explain why they're wrong.

That doesn't happen. And that's the weird part. Because it's pretty simple.

Let's do some basic economics. Real basic.

Taxes are not paid on revenue.

Taxes are paid on profits.

Profits are revenues minus costs.

Labor is a cost.

More at the link ---

[prairierose]

1. Simplicity itself...a good explanation .....

that even a repugnant Senator should be able to understand. Or maybe not. :eyes:

[LiberalFighter]

2. And where were the jobs the last 10 years the current tax cuts were in effect?

[Statistical]

3. False claim. Keynesian economics says economy is driven by demand not supply.

Thus if taxes rise paychecks will be smaller (because witholding tables will update) and people feeling "poorer" will spend less, or cut back further on unnecessary purchases.

For example a family sees post-tax income drop by $100 per week. They cut back eating out from 3 times a month to once a month. Well restaurants see less business so they let 5% of the workforce go. Those people go on UI which only pays a portion so their demand is reduced.

The goal is to increase aggregate demand to the point that business HAVE to hire. Business only hire when not hiring cost them more money. Wait a second Statistical how can hot hiring cost business money? Simple lost oppertunity. When plant is at current "full" capacity (based on reduced employment) and demand outstrips supply capacity the business will lose lost sales unless it hires people to expand production.

UI helps in the same affect. When a person loses their job their aggregate demand will decrease no matter what. UI provides a buffer. While their demand may falll 60% it doesn't fall 90%+.

Govt direct spending (by saying building a bridge) also boosts aggregate demand. The parts, material, labor, and skill for the bridge have to come from somewhere. The govt is replacing lost private sector demand with "artifical" public sector demand.

It is all about boosting aggregate demand.

[TheKentuckian]

4. who the hell is paying another $100 a week?

Let me tell ya, they aren't going to change their habits much because their income can easily bear it.

The distribution of these tax cuts is poor and puts most of the money in the hands of the top 20%, who already have the bulk of resources so the increase in overall demand is not increased enough to justify the expenditure and the service on the debt.

[Statistical]

7. Losing child tax credit is $600 per child. Losing making work pay is $400 per worker.

Marriage penalty can easily be up to $2,000 on a family where both spouses work. Losing 10% bracket is $300 in higher taxes. A little here and little there it adds up. So depending on how many children in the family, and how much income it is entirely possible for someone to see $100 per week reduction between two workers.

Still that isn't the point. Maybe not $100 per week maybe it is $50 per week ($25 per worker in a couple) or $30 per week. The point is aggregate demand is lost.

I 100% agree that as you get richer each marginal dollar has less aggregate demand. Thus tax cuts for the rich are not effective but nobody is contemplating ONLY tax cuts for rich expiring. It is tax cuts for EVERYONE expiring.

If taxes rise aggregate demand is reduced. Period. You won't find even the most liberal economist who would say otherwise.

[TheKentuckian]

8. The cuts are poorly targeted to create demand. The drag of the interest combined with overall weak

multiplier effect and impact of cutting off other more critical needs while stoking the flames of structural collapse makes for a dicey investment.

While I won't dispute some reduction in demand, I don't believe the difference works out as a rational use of resources. I can't call it since I expect overall demand to decline in any event. My best guess is the long term negative isn't nearly worth the short term blip of increase it can have over nothing. The cratering effect of the unemployment benefits is troublesome but that piece of the overall pie is pure blackmail to tie to a tax package.

That one I'd take to the hill and take the Constitutional option on. Not indexing the extensions to the unemployment rate is approaching unforgivable. How is it even a discussion that we would not continue benefits in a situation worse than the emergency that led to the extensions in the first place?

Leaving the 99ers to rot is extreme in this environment but discontinuing what is set up. How is this not a distinct argument that we are ready to have?

Often space is gained in negotiation when everybody understands some lines that will bring costly ramifications.

[Kablooie]

10. Yes. Lowering taxes on the middle class increases jobs. Lowering the upper decreases them.

[soryang]

5. Business investment tax credits and deductions won't stimulate

...economic growth unless the marginal tax rates upon corporations and wealth are increased. It takes the carrot and the stick. This tax principle is called "use it or lose it." Without increases in marginal tax rate increases on higher incomes, wealth is permanently alienated from commerce and hoarded in uneconomic venues.

Increased marginal tax rates stimulate economic growth. Reduction in payroll tax and unemployment benefit extensions maintain economic activity, but they do not stimulate growth. Without marginal tax rate increases on wealth, the structural economic problem of declining growth and lack of economic competetiveness is not even being addressed.

Business tax credits and deductions do very little unless used to offset high marginal tax rates. If marginal tax rates on the rich and corporations are not raised they will not invest at all, because they can keep their money without tangible capital investment programs.

[jwirr]

6. oh, it is not a myth. Tax cuts create all kinds of job - overseas. nt

[Qutzupalotl]

9. Hear, hear!

K&R