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Tue Dec 11, 2012, 09:32 PM

Tax Cuts for the job creators DO produce job growth. (job creators: the 'bottom' 95%)

It's another nail in the coffin of Trickle Down - Supply Side econocomics.

Research by Laura D'Andrea Tyson (Ph.D. in economics at the Massachusetts Institute of Technology in 1974. She taught economics at Princeton for three years, is now a professor at Univ. of California, Berkeley) shows there is no correlation between tax cuts for high income earners (top 5% and top 10%) and job creation in ensuing two years but that there IS a correlaion for tax cuts for those in the bottom 95% in income distribution and job creation in the next two years following the tax cuts.

(all emphases my own)

The graph below, based on our research, shows the relationship between the cumulative change in income and payroll tax liabilities for the top 5 percent over a two-year period as a share of gross domestic product and employment growth in the two years after the change.


The graph and the regression analysis on which it is based reveal that there is no link between income tax cuts for the top 5 percent and subsequent job creation. (We also examined the relationship between tax cuts for the top 10 percent and subsequent job creation and found the same result.)


Tax cuts for everyone else are a much more effective path to job creation. Our research found a statistically significant and positive relationship between tax cuts for the bottom 95 percent and job growth at both the national and state levels. The graph below shows the relationship for the national data. Our results indicate that almost all of the stimulative effect of income and payroll tax cuts on job creation in the short to medium run result from such cuts for the bottom 95 percent.

Lower-income taxpayers spend a higher share of their tax cuts. Many of these taxpayers often have more difficulty borrowing money and tapping into their housing wealth than higher-income individuals. These demand-side forces explain why consumption goes up much more after tax cuts for the bottom 95 percent than after equivalently sized cuts for the top 5 percent. An increase in consumption, which still accounts for about 70 percent of G.D.P., fuels increases in demand, and that leads companies to create more jobs. In survey after survey, businesses confirm that changes in demand are the primary determinant of their employment decisions.

Investment also increases after tax cuts for the bottom 95 percent, suggesting that shifting moderately size tax cuts to the bottom 95 percent from the top 5 percent isnít a zero-sum trade-off between consumption and investment.

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