Donald Andrew Henson II

Where Is The Evidence That Cutting Taxes For The Wealthy Creates Jobs?

In 2012 Election, American Economy, American Society on October 8, 2012 at 12:49 am

Before my conservative friends get all in a frenzy, remember that this is not a liberal website, but a secular one. Secularism, as defined by the man who coined the term, is “a form of opinion which concerns itself only with questions, the issues of which can be tested by the experience of this life.” In other words, one of the chief goals of secularism is to separate dogma from the debate; if you want to establish that something is true, repeating it hundreds of times might persuade the weak-minded, but has no effect whatsoever on those accustomed to basing beliefs on evidence.

Since Ronald Reagan, the conservative solution to every single problem has been to cut taxes. Known as ‘trickle-down’ economics in the ’80s (or ‘voodoo’ economics to George H.W. Bush, when he ran against Reagan in the 1980 Republican primaries), the assumption goes something like this:

Taxing those individuals who have realized the greatest financial success in our country is counter-productive, if not downright immoral. They are the movers and shakers, the job creators that keep the American economic system purring along like the finest luxury car. If we lighten their tax load, they will use that extra cash to do wonderful things, like build factories, hire employees, give to worthy charities, etc. This will, in turn, crank up the economy, and those new employees of those new factories will sing the praises of the ‘creators’ as they toil away for their weekly paycheck. Everybody wins – the rich benevolently bestow upon the lesser classes all the good things they have not the industry nor morality to produce for themselves.

Except – there’s absolutely no evidence that it actually works this way.

While every conservative politician will say ‘raising taxes hurts the economy’ or ‘cutting taxes creates jobs’, you’d be hard pressed to find a single study that supports this point of view – and hundreds graphs, charts, and studies that refute the idea.

Go ahead and do a Google search yourself – I’ll wait right here for a moment.

If you’re a conservative, you will obviously discount anything from the liberal sites like HuffPost or MSNBC.  But my search, “Do low tax rates create jobs?” turned up a great big ‘NO’ from pretty much every site I could find – at Forbes, here, and here; at US News and World Report; Business Insiderand a number of other sites not particularly noted for their liberal bias, all supported by data. In fact, the only ‘Yes’ answers I found were in the Wall Street Journal,  editorial commentary from conservative newspapers and blogs, and quotes from Mitt Romney. Not particularly in-depth economic analysis.

Take a look at these charts from the Center for American Progress:

This one shows that there is no correlation between the top marginal tax rate – what the richest Americans hypothetically pay – and the GDP. It does seem that lower tax rates flattened out the volatility in GDP, but didn’t cause it to spike upward. As a strong output generally indicates good employment conditions, it would appear from this chart that the effect of taxation on the economy was negligible.

This bar graph is astounding. It appears that when the top individual tax rate is ABOVE 39%, the number of jobs has grown around 2 to 2.5 percent. When the tax rate is lower than 39%, job growth has been minimal. How do conservatives account for this gap between what they preach and what the data shows?

And finally, a graph that shows growth rates rising when taxes are increased, plummeting when taxes are cut.

Now I’m not suggesting that raising taxes will automatically increase the number of jobs in this country – that’s something for honest, hard-working economists to decide. But a 5th-grader could look a these charts and see that the conservative mantra just simply isn’t true. Employment is a complicated thing, based on a lot of parameters. But one thing we do know is that when the economy is good, jobs are created. Raising taxes or cutting them may have a variety of effects, but creating or destroying jobs doesn’t seem to be one of them. Yet politicians are saying it hundreds of times a day.

Perhaps the idea of trickle-down or supply side economics would have been a valid economic theory in the 1950s. Back then, a successful man with excess cash on his hands had few investment choices. He could reinvest in his own business, help to start up another one, or invest in a stock market chock-full of good old-fashioned American companies. Any of those choices might have helped to improve the American economy, create jobs, etc.

But today, the world of finance and investment is radically different. So many financial vehicles today involve moving money around more than actually ‘investing’ it in to one place, and brokers and hedge fund managers often see a far better return in developing markets such as China or Russia. So the rich may still be job creators in a sense – it’s simply that the factories they are building and the jobs they are creating aren’t necessarily American. That money that wasn’t collected in the form of taxes, because of the idea that it would hurt investment, ends up building an Indian factory or collecting interest in a Swiss bank account.

One last thing that we know for sure about cutting the tax rates for the nation’s wealthiest (especially while fighting a couple of ill-conceived wars), is that it creates huge deficits:

I’ll admit that spending needs to be tackled as well – but there’s no question that if you take in less money, you’ll end up with more debt. What happens when governments face deficits? The have to fire policemen, teachers, firemen, and other government employees, meaning that unemployment rises.

So, as a secularist, I have to say that I’m still waiting for some evidence that cutting taxes for the richest Americans will help the economy. So far, that claim doesn’t make the cut. Got a chart or data to back up your claim? Share it with me.

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