Yesterday I looked at the Republicans' claim that tax hikes hinder economic growth, and tax cuts stimulate it. By looking at the actual data, it's clear that any correlation or causation is spurious at best.
Today we'll look at another Republican talking point in the debate over the federal budget: that tax cuts destroy jobs and tax cuts create jobs.
Let's go to the charts:
As you can see, after Ronald Reagan cut taxes in 1981, US non-farm (farms are highly volatile, due to the seasonality of agriculture, and so are excluded when looking at employment trends) payrolls fell every month for about the next year and a half.
After he raised taxes -- in 1982, 1983, and 1987 -- job growth was mostly positive. It's true that employment is a lagging indicator, meaning it picks up after companies are already earning more, so it could be argued that the 1981 tax increase was responsible for the job growth in late 1983 and beyond.
But if you want to argue that, you'd also have to accept that tax increases also resulted in job growth. Take a look at the record of Bush41 and Clinton:
Job losses slowed, and job gains hastened, following tax increases. There were also periods of slack growth and loss, so it's tough to argue for causality in either direction. It's possible that, with other policies and factors external to government action, the increases or decreases in taxes were a factor, but from Republican claims you'd think there'd be a sharp drop after each of the arrows in this chart.
I'm not going to make another chart for Bush43; his appalling record should be fresh enough in our memories that we don't need to look to know that the 2001 and 2003 tax cuts he enacted, which Republicans specifically claimed were intended to motivate hiring -- the 2003Â tax cut was titled "The Jobs and Growth Tax Relief and Reconciliation Act" -- did no such thing.
Moreover, Bush43's tax cuts were targeted toward the wealthy, the excuse being that it's rich people who do the hiring (which doesn't quite mesh with claims that small businesses create 2/3 of the jobs, since small business owners' income is their companies' profit, not revenue -- but never mind).
What's the effect of tax cuts for the rich on job creation? The Congressional Budget Office says little to none.
What would help boost the economy? CBO Director Doug Elmendorf says, "A temporary increase in aid to the unemployed would have the largest effect on the economy per dollar of budgetary cost."
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Reid has had the unenviable task of driving the Senate with the parking breaks on. In the entire time of Obama44, there have been only 72 days when Reid had a filibuster-proof majority. Conservatives like to deny or minimize obstructionism, but there is no doubt that it has become a standard practice for the GOP. While I have been frustrated with Reid more often than not, I do not claim to know what battles he has had to fight, or how hard he has fought them.
There is every possibility, just as our grandparents or great-grandparents became famously frugal after the Depression, we will remain fiscally careful. At the moment Americans average debt to income ratio has only gone down to 111%. It has quite a ways to fall before the economy picks up.
A few of the things which could hurry the process along are a cramdown provision in the bankruptcy law where the judge could write down the principal of the mortgage on a primary residence. Another is a manditory lowering of the interest rate to prime on any credit card or line of credit the consumer cancels or closes to new borrowing. A third is a payroll tax holiday timed to coincide with the jobless rate.
The idea with the most bang for the buck, however, is mandating all lenders of any property--personal or commercial--which is underwater must write down the principal to the appraised value. The owner would then have to pay back 50% of any equity realized--up to the amount of the previous write down--when the property was sold.
Allow me to clarify:
If I am a successful businessman and earned an $10 million last year – I am going to take that money (less my expenses) and invest it – because that very strategy over the past 25 years has helped get me to the point where I am today of earning $10 million dollars.
Now if I only get to keep say $6 million of my earnings, then there is $4 million less available for the next guy who is trying to start a business (small business perhaps?).
4000 people running around with a $1,000 check from their favorite politician does NOT help the guy who needs $250,000 of capital to purchase the equipment he needs to produce his innovative new product that the 4000 people might buy with those checks.
The checks themselves of course will most definitely sustain economic activity – for at bit at least – until the tank runs out and the inevitable failure occurs. You MUST have GROWTH – without it you dye.
We need CAPTIAL for growth and government is taking that away from business/individuals in the form of taxes and at the same time, proposing penalties for an entrepreneurs who risk everything they have to build up a successful business and make a-gasp - profit
Apparently you missed the last important election in 2010?
There's another critical one coming up in 2012.
You need to participate next time.
Forgive me for sounding jaded at the age of 25, but it is kinda of difficult when it appears everything that ever gets done in this country is for the benefit of the industrial power elite regardless of who is in power.
Annualized Growth Rates, Before and After TAX CUTS
Clinton
1993 to 1996 Real GDP = 3.44%
1993 to 1996 Real GDP per capita = 2.22%
1997 to 2000 Real GDP = 4.44%
1997 to 2000 Real GDP per capita = 3.26%
1993 to 2000 Real GDP = 4.01%
1993 to 2000 Real GDP per capita = 2.81%
Bush
2001 to 2004 Real GDP = 2.62%
2001 to 2004 Real GDP per capita = 1.68%
2005 to 2008 Real GDP = 1.75%
2005 to 2008 Real GDP per capita = 0.79%
2001 to 2008 Real GDP = 2.31%
2001 to 2008 Real GDP per capita = 1.36%
Where there is adequate economic activity the first order effect of a tax cut is to provide a temporary economic stimulus. That first order effect is, later, overwhelmed by the negative effects on government income.
Raising taxes on the wealthy and using those taxes to directly create American jobs (not overseas jobs, not military jobs where the money is spent overseas) directly stimulates the economy. The effect of that stimulus can be short term (the, as noted payments to the unemployed), or considerably more long-term due to the effects of an investment (Hoover Dam, national highways, etc.) What creates the stimulus is not the taxes, but rather the spend that creates DEMAND.
http://www.presimetrics.com/blog/?p=268
http://www.econ.berkeley.edu/~saez/derive.pdf
But, alas, I cannot actually find this.
What is the title?
Thank you.
"top rates should not be lower than 50% and may be as high as 80%."
Pretty much as they were before Reagan and Laffer.
I think you mean "tax increases destroy jobs and tax cuts create jobs"
You will never convince anyone of anything using gibberish like this.
Who are the Republicans you are referring to? I think you have stated a policy directly opposite to what most of them believe.
Yesterday I looked at the Republicans' claim that tax hikes hinder economic growth, and tax cuts stimulate it. By looking at the actual data, it's clear that any correlation or causation is spurious at best.