Response to
roundtable.nationaljournal.com
Message 28150333
I have started or helped start, dozens of businesses and initially hired lots of people. But if no one could have afforded to buy what we had to sell, my businesses would all have failed and all those jobs would have evaporated.That's why I can say with confidence that rich people don't create jobs, nor do businesses, large or small. What does lead to more employment is a "circle of life" like feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. And if no one had anything to sell, the consumers wouldn't be able to buy anything and you wouldn't have the "circle of life" either. Even in the absense of supply people are still going to want things. Perhaps simple desires covering only their most basic needs, but desire for things is there. You can have all this desire, all this unmet demand, or you can actually produce something. Production increases well being by meeting the demand, but it doesn't "use it up". Demand for any specific product may be totally satiated, but people's total potential wants can reasonably be treated as if they were infinite. Demand in the broadest sense will be there. Demand in dollar terms may at times not be there because of money supply or velocity issuesm but people still want things. There may have been over investment in one type of thing with people really wanting something else, or companies might have to figure out what people want, how to make it, or how to make it in greater amounts for a lower cost, but its the production that leads to an increase in wealth and economic well being.
Creating jobs, shouldn't really be a societal goal. We could draft everyone in to the army, or pay everyone to alternatively dig holes and then fill them in, and everyone would have a job, and also everyone would be horribly poor (unless they managed to create a lot of wealth in their spare time). A job that enables you to create value for others in exchange for compensation, does increase wealth. Businesses hire people to such jobs. Entrepreneurs find new opportunities to create value for others, opening up new ways to productively employ people. Investors provide the financial resources to let the businesses expand. Taxing something discourages it, and these activities are now exception.
When you have a tax system in which most of the exemptions and the lowest rates benefit the richest, all in the name of job creation, all that happens is that the rich get richer. The less then rich have lower rates than the rich, whether your talking average effective rate, headline statutory marginal rate, or effective marginal rate, whether your just talking about federal income taxes, or if your considering all federal taxes. In fact the US tax system is among the most progressive in the world. (Other rich countries often have more social spending as a percentage of their GDP, but they pay for a lot of it with things like VAT taxes, which place a heavy burden of taxation on the non-rich, compared to federal taxes in the US.)
Since 1980 the share of income for the richest Americans has more than tripled while effective tax rates have declined by close to 50%. Measuring from a highpoint just before a recession (https://en.wikipedia.org/wiki/Early_1980s_recession#Recession_in_the_United_States) to a low point, after only a small amount of recovery from a fairly deep recession.
Also note that even with those cherry picked dates, the rich have assumed a larger and larger percentage of total taxes paid over time.
If it were true that lower tax rates and more wealth for the wealthy would lead to more job creation, then today we would be drowning in jobs. Only if it was the only factor. One might as well say that if it were true that chemotherapy caused a reduction in deaths from cancer that we wouldn't see so many people on chemotherapy dying from cancer.
Another reason this idea is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the median American, but we don't buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. In the long run, and to a degree even in the short run, the economy is powered by producing more and coming up with new ideas. The very rich buying thousands of cars that they don't even care to have, would in direct gross terms "create jobs", but it wouldn't increase economic well being, when considering the opportunity costs of building the cars that no one really wanted that much (only so many rich people are going to be Jay Leno). At the bottom of a recession, where many of the resources used up to produce the cars might be idle anyway, its possible that the purchase could provide a short term economic stimulus, without causing harming production of other more useful things (by driving up prices for the resources used), but such a stimulus effect isn't a long term driver for the economy, and may prop up patterns of production and trade that no longer make much sense, delaying the restructuring needed for solid long term growth. And as you say there are only a limited number of ultra-rich people. Having them buy 3000 cars each, won't represent a lot of additional demand/stimulus (and will likely reduce their future demand, esp. but not just for cars), while if the government does it, it either generates a lot of additional debt (which is problematic at current debt levels, and with current demographics), or taxes the economy to pay for the production of those cars (taking away with one hand, what it gives with the other, while adding its own overhead to the process). |
