Debunking the "Tax Cuts Create Jobs" Argument

[Yavin4]

Let's say Corp. A made $300 million in profit, and on that profit, they paid 15% in taxes or $45 million.


Now, let's say that the corp. tax rate was eliminated entirely. So now Corp. A keeps all of their profit. What will Corp. A do with it's additional money:

There are many scenarios, let's look at a few:

1) Open up a new plant and hire more workers.

2) Use their tax savings to merge with Corp. C, and thus make an even greater profit by eliminatin redundant workers.

3) Further enhance their tax savings by maximizing profit with job cuts and layoffs.

4) Further enhance their tax savings by maximizing profit by moving jobs offshore.

5) Pay out bigger dividends to shareholders.

6) Pay out bigger bonuses to management.


I could go on, but one look at that list tells you, that "creating more jobs" is only one possible option. In fact, the other non-job creating options are far better, more profitable choices.

The whole idea that tax cuts = higher job creation rates is nuts.

[rfranklin]

1. The biggest problem is that they can't find any facts to back it up...

because the greatest job creation has come at times when taxes were higher. Even under their darling Reagan we had the greatest tax increases in history. We had tax increases under Clinton and employment soared. We had tax cuts under Bush and the result was zero net job creation. Fucking ZERO!

[The_Casual_Observer]

2. So far it's been #'s 2-6 all along, so why believe anything will change it?

[mchill]

3. Doesn't only "Demand" neccessitate opening up a new factory

and hiring new workers? :)

[DenverDad]

5. Exactly!

I never heard ONE company say that they laid off workers or downsized because their taxes were too high.

[taught_me_patience]

9. Tax cuts to consumers means discretionary spending increases

thereby increasing demand.

[Wounded Bear]

4. I kind of like the "reality" argument....

The Bush tax cuts have been in effect for 10 years and our unemployment rate is at its highest rate ever, and is under-reported at that.

Reality has a known liberal bias.

:shrug:

[DenverDad]

10. That does seem to be the best argument.

The reality and facts "propaganda".

[Zoeisright]

6. The best debunking is opening your eyes.

We've had a 30 year experiment in it, and that theory has failed miserably. Over and over and over and over again.

[HughBeaumont]

18. Living in Northeast Slow-Hio, I've had a front-row seat to the Trickle-On.

As have the good folks up north in Michigan.

Yet our asshat voters put guys like Bob Taft, Jon Katshit, Mike DeWine, George Voinovich and Rob Portman in office . . . again . . . and again . . . and again.

[taught_me_patience]

7. Tax cuts to consumers do indeed create jobs

by stimulating demand. Nearly all forms of fiscal stimulus, whether tax cuts, transfer payments, or direct stimulus is TEMPORARY. The effect of bush tax cuts wore off a long time ago, just like the effect of the 700B Obama stimulus will wear off eventually.

If you are talking about supply-side tax cuts for business, then you have a better argument that those tax cuts don't produce jobs. However, an argument could be made that if you cut corporate tax rates to below the top income rate, small business will be incentivized to keep reinvesting profits into the business instead of taken out as ordinary income. This would surely lead to job creation.

[Wounded Bear]

11. "The effect of bush tax cuts wore off a long time ago"

You lost me there. The Bush cuts were just doubling down on the Reagan cuts, and they are still dragging us down.

The fact is, if you "let wealthy people keep their own money"......they tend to keep their own money.

The economy requires circulation of money in transactions. When too much of it is siphoned off and hoarded by a small sector of the economy, the rest of the economy suffers. High marginal rates encourage reinvestment and discourage the kind of astronomical salary figures the CEO class have been receiving lately.

[taught_me_patience]

12. You don't think the Bush tax cuts had a positive affect on demand?

The recession of 2001 was one of the shallowest ever, due to quick monetary action by the FED, Bush tax cuts, and high levels of Government stimulus (mainly through defense spending). However, I'll say again, all that stimulus was temporary, and over the long term, the Bush tax cuts hurt the economy because it lead to over-speculation in 2004-2008. The playbook to deal with recession is ALWAYS the same... loosen monetary policy, cut taxes, increase government spending... Keynsian economics 101. Bush and Obama have done nearly the same things in response to recession.

[Wounded Bear]

15. Perhaps, but it was minimal and short lived....

More infrastructure spending by both would have been much better IMO.

So, yeah, I guess the "good" effects of the Bush cuts wore off quickly. The bad effects live on.

[taught_me_patience]

16. Yep I agree with that. n/t

[GKirk]

8. My responses

1) Open up a new plant and hire more workers. <------- possible but as someone else mentioned, there has to be some demand shown

2) Use their tax savings to merge with Corp. C, <---possible

3) Further enhance their tax savings by maximizing profit with job cuts and layoffs. <---can be done regardless

4) Further enhance their tax savings by maximizing profit by moving jobs offshore. <---can be done regardless

5) Pay out bigger dividends to shareholders. <--if they do taxes will be paid by the shareholders

6) Pay out bigger bonuses to management. <---most disturbing

[kentuck]

13. It is a nonsensical argument....

When the tax rates are as low as they are at present. If they were 70-90%, they might create more investment if rates were cut? Might?

But the present profits from low tax rates are used in various ways but not to expand business or to create jobs. Except perhaps overseas? They might give huge bonuses to their CEO's. They might look for a little vertical integration and buy up all their competition they can with their excess profits. They will not necessarily give anything to their employees. Most do not believe money is a factor in increasing production. They also look to invest in the stock market because they can make more money on the stock market nowadays than they can by expanding their businesses.

[Dj13Francis]

14. well duh...

Like, everyone who isnt a total moron knows that.

[jwirr]

17. And even if it does create jobs it is too often overseas with slave

labor problems. They take the money and invest it in overseas businesses. It is called outsourcing. This does not help the USA at all. It actually hurts us because it takes money out of our economy and puts it in someone else's economy.

[trotsky]

19. Doesn't take nearly that many words.

Taxes on the rich are the lowest they've ever been. So where are the jobs?

[socialist_n_TN]

20. I thought that the last 30 years of practical experience

had debunked that pretty thoroughly.

[Curmudgeoness]

21. How many times, in how many ways, do we have to debunk

these myths? And sadly, why do we even have to.

[moondust]

22. It made more sense back in the 50s, 60s, and 70s.

After WWII when companies were still growing, expanding and making capital improvements to meet the demands of a burgeoning U.S. middle class. If you build a new plant or expand an old one you create contruction jobs and then add additional employees to staff the new facility.

That whole dynamic changed roughly in the 80s when they started building and expanding facilities offshore and staffing them with dirt cheap foreign labor.