Cutting taxes on the Rich will not create JobsPosted: June 15, 2011
The current economic voodoo requires we believe that if we cut taxes for the top 10% of earners, they will turn around and hire people to work for them. This is bullshit. Give a business owner more money in his pocket and he is unlikely to hire additional workers or buy more equipment unless there is a reason to increase output/capacity. The managers of Acme Widgets are always going to try to produce enough widgets to meet demand with the least number of workers possible. Adding capacity without demand will cause Acme to go broke.
The adherents of ‘supply side’ will argue that the owners of Acme might invest that extra million in a new business venture (perhaps starting Acme Services). They are unlikely to do so unless there is a market for whatever services Acme offers… and if the underemployed are not buying new widgets, they are unlikely to buy other items… so the smart bet is that Mr. Moneybags will put his money to work in the international money market. Unfortunately, if Mr. Moneybags increases his investment from 1 million to 2 million, it is unlikely that his bank will hire more tellers or security guards to work at the local branch. Increases in Mr. Moneybags’ portfolio will make his brokers and bankers happy, but will not require significant additional people working at the bank or brokerage. More money in the banks and in the market will only create jobs if there is something for all those employees to do.
One could also argue, I suppose, that Mr. Moneybags might spend his additional money on ostrich skin boots, gold plated toilets, ivory golf tees and similar trappings of wealth. And if you own a jewelry store on Rodeo Drive, perhaps the tax breaks are good for you. But luxury goods make a lousy basis for an economy simply because there is only a small number of people who can afford to buy such things.
The only way to create more jobs is to get the middle and lower classes spending again. This probably means things like raising the minimum wage and eliminating the Bush tax cuts would be a better strategy than the course of action chosen by both the Republicrats and Demmicans. The middle and lower classes (who make up more than 90% of the US population) tend to spend almost as much as they earn and will buy ice cream cones, cars, ipads, gasoline and similar items in greater numbers than the rich ever will, even though the rich may be willing to pay premium prices. Additional demand for all of these things will spur business growth and revenue for the state. Although under this scheme, the rich might have less money, they will actually be more inclined to increase the size of their pool of employees in the businesses they own because the demand will be there… and if the demand is there, the smart people will invest (and thus make more money for themselves). Money doesn’t cause business growth; demand does.