Taxes and Jobs

Cross-posted at American Street

Scenario One:

Government man, handing briefcase full of cash to business owner: “Here’s a briefcase full of cash. Go hire more people.”

Business owner: “Well, we don’t really need anyone right now, but thanks very much for the cash.”

Scenario Two:

Business owner: “Gosh, there sure are a lot of people coming in to buy today.”

Owner’s spouse: “You nitwit, don’t you see that people are turning away because of the line that has backed up? Each time that happens you lose another $25!”

Business owner: “You’re right, Honey. Maybe I should go to the bank and borrow some money, or sell our car or something so we can hire a couple extra people.”

Scenario Three:

Business owner: “You know, if I hired a few more people to work on the shop floor, we could produce many more of our product. We’re selling everything we can make now.”

Owner’s spouse: “But Honey, if you made more money you’d have to pay part of it out in taxes. You know how bad that is.”

Business owner: “You know, you’re right again, Honey, I think we should just put this company out of business because we’re making too much money, which means we have to pay part of it in taxes!”

In the Washington Post today there’s a story that says a lot about how people in Washington and the media think these days. Link Between Taxation, Unemployment Is Absent:

“It has become conventional wisdom in Washington that rising tax burdens crush labor markets. Bush castigated his political opponents last week for “that old policy of tax and spend” that would be “the enemy of job creation.”

Yet an examination of historical tax levels and unemployment rates reveals no obvious correlation.”

Actually an examination DOES reveal an obvious correlation, but not the one of the “conventional wisdom” referred to in this aticle.

So what “conventional wisdom” are they referring to?

“Republican economists — and White House officials — contend that higher marginal tax rates stifle business investment, hiring and the desire to work. . . . “The bottom line is, cuts in taxes lead to economic growth, which leads to improvements in the labor market to levels that are better than they otherwise would have been,” said Mark J. Warshawsky, acting assistant Treasury secretary for economic policy.”


“But finding the proof in historical data is difficult, conceded Eric M. Engen, a Republican economist at the American Enterprise Institute. . . . Still, Burtless noted, some prominent conservative economists, including Harvard University’s Martin S. Feldstein, predicted wrongly that the Clinton tax cuts would choke off the 1990s recovery and kill jobs, while the millions of new jobs that Bush said his $1.7 trillion in tax cuts would generate have not materialized. The historical disconnect does not stop there.”

It’s “conventional wisdom” that tax cuts create jobs. (As contrasted with government programs to create jobs… perhaps employing people to retrofit buildings to be energy efficient…) But I think we know where that kind of “conventional wisdom” comes from, don’t we? It comes from right-wingers repeating a carefully crafted phrase over and over, and creating an atmosphere of intimidation and character assassination that makes people afraid or uncomfortable arguing the other – the people’s – side.

The great Thom Hartman wrote a piece the other day, Democracy – Not “The Free Market” – Will Save America’s Middle Class. I don’t want to quote from it too much because I want you to go read the whole thing. In fact, go to his website and read some of his other writings as well, and listen to his radio show. In this piece Thom writes,

“Here are a couple of headlines for those who haven’t had the time to study both economics and history:

1. There is no such thing as a “free market.”

2. The “middle class” is the creation of government intervention in the marketplace, and won’t exist without it (as millions of Americans and Europeans are discovering).

The conservative belief in “free markets” is a bit like the Catholic Church’s insistence that the Earth was at the center of the Solar System in the Twelfth Century. It’s widely believed by those in power, those who challenge it are branded heretics and ridiculed, and it is wrong.

In actual fact, there is no such thing as a “free market.” Markets are the creation of government.”


“Markets are a creation of government, just as corporations exist only by authorization of government. Governments set the rules of the market. And, since our government is of, by, and for We The People, those rules have historically been set to first maximize the public good resulting from people doing business.

If you want to play the game of business, we’ve said in the US since 1784 (when Tench Coxe got the first tariffs passed “to protect domestic industries”) then you have to play in a way that both makes you money AND serves the public interest.”


“Of course, they can’t explain how it was that the repeated series of huge tax cuts for the wealthy by the Herbert Hoover administration brought us the Great Depression, while raising taxes to provide for an active and interventionist government to protect the rights of labor to organize throughout the 1930s, 1940s, and 1950s led us to the Golden Age of the American Middle Class. (The top tax rate in 1930 under Hoover was 25 percent, and even that was only paid by about a fifth of wealthy Americans. Thirty years later, the top tax rate was 91 percent, and held at 70 percent until Reagan began dismantling the middle class. As the top rate dropped, so did the middle class it helped create.)”

So maybe there IS a correlation between taxes and jobs and the economy, but not the one the right-wing clucks want you to believe.

Some previous thoughts and questions… largely (and obviously) off the top of my head. Just to get people asking questions instead of accepting “conventional wisdom.” Economists will tell me where I’m wrong.

Who pays taxes now?

Do tax cuts “create jobs?”

Do tax cuts increase government revenue?

Do taxes “take money out of the economy” as Bush likes to say?

Do companies pass taxes on to their customers?

Tax cuts or spending increases?

And, of course, the most dangerous question, “Who is our economy FOR, anyway?”