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Why Tax Cuts Don’t—and Won’t—Create Jobs
Last Friday, December 3, the U.S. Department of Labor announced that the unemployment rate had risen once again. A full three years after the current recession began in December 2007 there is no end in sight as to when the jobs markets will recover. This is in stark contrast to the full recovery of corporate profits and bankers bonuses, now back roughly to where they were in 2006-07, according to U.S. government data.
Senate majority whip Richard Durbin of Illinois and Senate minority whip Jon Kyl of Arizona discuss the Senate's lame duck agenda on CBS News' 'Face the Nation' Sunday in Washington. Reports suggest that the Democrats are the verge of caving to GOP demands to cut taxes for the richest US taxpayers. History and economics suggest this is catastrophic news for the economy. (Chris Usher/Reuters) Banks now have a hoard of cash reserves of more than a trillion dollars, according to the business press. However, as U.S. Federal Reserve Bank data show, as the biggest 19 U.S. banks recovered in 2009-2010, their lending to small and medium businesses declined steadily. Nor has that lending recovered in 2010. Without bank lending to small businesses-the main engine of job creation in the U.S.-there can be no job creation.
Similarly the largest companies, the S&P 500 non-bank corporations, are also sitting on a hoard of cash. At last estimates, an amount of $1.84 trillion in liquid assets, according to the Financial Times business daily.
So with all that cash, why aren't banks lending and big companies investing and creating jobs, one might ask?
The even more important question is: if banks and businesses have that record hoard of cash on hand why should their taxes be cut, in effect increasing even more that hoard of cash that isn't being invested? Won't they just continue to hoard the tax cut too?
The idea that cutting business and wealthy investors' taxes originated in 1961 with then President John F. Kennedy. But at that time business investment tax cuts were tied to proven job creation. Businesses had to prove they added jobs before they could claim the tax cut. That was changed with Reagan. Now businesses could get the tax credits even if they didn't create jobs. Their taxes were cut even if it meant they reduced jobs. By the time of George W. Bush, businesses could claim tax cuts for investments made offshore. GM cut hundreds of thousands of jobs in the U.S. while adding thousands in China. Ford cut jobs while adding them in St. Petersburg, Russia. Corporations could claim the investment tax cuts, even if jobs were created offshore and simultaneously eliminated in the U.S. In effect, U.S. taxpayers were paying US corporations to send their jobs overseas.
Between 2001-2004 George W. Bush pushed through a series of annual tax cuts for investors and corporations that amounted to a total of $3.4 trillion over the recent decade, according to the Center on Budget and Policy Priorities. Every tax cut bill passed between 2001-2004 was called a jobs creation bill. More than 80% of the $3.4 trillion eventually accrued to the wealthiest 20% of households and corporations, and most of that to the top 0.1%, or 100,000 households, and the S&P's largest companies. And what did George W. Bush's business-investor tax cut produce in terms of jobs? The period 2001-2004 witnessed the weakest jobs creation on record following a recession. It took a full 46 months just to recover the level of jobs in the U.S. that existed in January 2001, when the recession began. Estimates today after the current recession are that it will take 7-8 years to recover the lost jobs, if even then.
Another, more recent test of the "business tax cuts create jobs" idea happened in the spring of 2008. Bush and Congress passed a $168 billion stimulus bill as the recession of 2007-2010 began to deepen. About $90 billion of that comprised tax cuts. What jobs did it create? None. The jobs market collapsed in the second half of 2008 at a rate of nearly one million a month for six months, a rate of job loss that roughly paralleled that of 1929-30.
The Obama stimulus bill of 2009 is yet another example of why tax cuts in general, and business-investor tax cuts in particular, do not create jobs. Of Obama's original $787 billion stimulus passed in February 2009, about half were tax cuts and more than $225 billion were specifically business-investor cuts. Twenty months later we have virtually no net job creation. Private employers have created about 900,000 jobs in 2010, the majority of which are part time or temporary jobs. For its part, the federal government has created no net new jobs since Obama came into office, while State and Local government have laid off hundreds of thousands over the past year and even more cuts are planned for 2011. The U.S. Labor Department's most conservative estimate of unemployment (called the 'U-3' statistic) today is 9.8% and 15.1 million jobless. The Labor Department's more accurate estimate (called the 'U-6' statistic) today is 17.0% and roughly 23 million jobless.
So what did John Q. Taxpayer get for all that tax cutting? Certainly not jobs, but instead a huge deficit bill now coming due. Nonetheless, the debates in Washington now still focus on more tax cuts in 2011. So long as that's the focus, the U.S. unemployment situation will continue to stagnate or worsen.
44 Comments so far
Show AllI give you my money and you say: "No jobs."
I am allowed to keep my money and you say: "Nice try, no jobs."
This is all about taking other people's money, really. Be honest. Just for once. It won't hurt.
The author needs to add the job reducing effect caused by tax cuts whereby the wealthy and corporations use the money not paid in taxes (and the interest-free money the Federal Reserve gives them) to speculate in the unregulated commodities market, thereby driving up prices (primarily food and energy prices) and we all know what results...businesses lay off more workers to enable them to pay the higher prices, and workers have less discretionary money to spend when they are paying more for non-discretionary food and energy. This cycle diminishes, not enhances employment opportunities.
Why would the wealthy and corporations invest in the Main Street economy when unregulated speculation has far less risk and far higher returns ?
Excellent points. This is exactly what happened in the run-up to the Great Depression of the 30's. Wall Street beats Main Street by millions of dollars.
One could add that much of this money is spent in lobbying and giving money to candidates.
"This is all about taking other people's money, really."
All of Economics is about taking other people's money.
q
Ah yes. The usual "its wrong to tax billionaires, to feed hungry starving families, because its immoral line, better to let the families starve". Nice mouthpiece of the corporate ruling elite you are.
The fact is, its not their money to begin with. Very few, to no, billionaires have actually made that wealth from actual work of their own hands, rather, they, the elite Capitalist class who owns things, and therefore controls workers and wealth, stole it from the working class. The money going into the pockets of elites is usually money that represents the labour of common working people. The capitalist elite reward themselves for simply owning things, and ironically push down the wages and drive into poverty the common worker who does the real work. That is the definition of capitalism, wage slavery where a capitalist elite by controlling resources enslaves worker and then steals the money generated by other peoples work. The US south is sort of an epicenter of capitalist, worker enslavement thinking and, constantly elects fascist Republicans who believe in crushing the poor and starving people to death who are no longer valuable to the elite, all to enrich wealth elitist plutocrats, it is no coincidence that the south was the stronghold of slavery and the plantation system, as modern capitalism is the same thing as the slave plantations of the old south, it is the same model.
No one really owns the earth, their ownership of vast resources and sections of the economy is invalid, control over wealth and workers which they use to exploit them, and then they use the money they stole from workers to buy the elections and elect fascists who hate workers, and wish to assure that the workers who were exploited to enrich the elite, are left to die when no longer valuable to the elite, adn the elite will not have to give back a dime of the money they stole from workers to help those they have exploited. The control of money allows them to control the country entirely, including the media, and to purchase the government, and to fill peoples heads with their Fox news propoganda to assure the corporate elitist plutocracy continues, that Republicans adn conservative policies dominate the country, and to totally destroy government of the people and for the people to be replaced by a vicious corporate plutocracy where wealthy elites control everything.
To create jobs, you must raise the marginal taxes on the extremely overpaid back to Eisenhower-era levels (>90%).
This incentivizes entrepreneurs to reinvest business profits rather than taking them out as profits, bonuses, or salaries -- presto, job creation !!
Brian, that is just too simple. How about a 2010 'I LIKE IKE' campaign? Now we have to figure out a way to convince glenn beck it's his idea and The People will go for it! Or fenagle it into a video game?
The >90% rate was not created during the Eisenhower-era but by FDR to pay for WW2 expenses.
Anyone who thinks that the rich can be counted on to have any patriotism or even any sense of ethics on their own is deluding themselves. The only reason this country dug it's way out of the great depression was because of escalating tax rates on the rich who had caused the economic fall in the first place. WWII was just icing on the cake, the economic numbers from back then tell the story.
Money NEVER trickles down, it only trickles up. Once it's there, you have to give those rich people an incentive to invest it back in the country, or they will do what they have been doing for the last 30 years, they will use it to screw YOU. Unless they are given a choice to invest it or lose it through taxes, they will continue to hoard the money. Why do you think that between the rich and big business, there is over 4 TRILLION sitting there, doing NOTHING while the rest of us look for work and try like crazy to hold onto the work we still might have? And the republicans want to give these scum tax breaks that will add up to $3.6 trillion over ten years (and don't kid yourselves, do you REALLY think the republicans will let these things go away in two years? NOT very likely.)
The reason the economy sucks is because the rich have all the money. And they ain't sharing. It's really that simple. There isn't anything left for the vast majority because the rich kept it all for themselves after stealing it from you and I. They want your SS money, too, and the way it looks, they will get it. God help this country, it had it good and threw it all away at the whim of an actor. Welcome back to the 15th century.
Good article. We've been going at this backwards for 30 years.
Businesses expand and hire when they have demand - prosperous customers. On the other hand, our public policies have pushed workers aside in order to please businesses and investors.
Over the last 30 years, the toll has mounted up; stagnant wages, home foreclosures, layoffs, closed factories, reduced pensions, increased costs for medical coverage and education. Small wonder why households aren't spending!
Policies that force a downward spiral cannot simultaneously produce prosperous customers.
In the long run, consumption cannot increase faster than income. By now, it's been the long run.
Well said. It's very tough to make up time, when we insist on going the wrong way. As a good coach once told his center, you can make up for a lot of speed, if you take the first step in the right direction.
Try this slogan for a two year extention. ONE TERM. Stop the Wars. NoBomba.
Here is a thesis. The richer you are, the more you believe tax cuts create jobs. The median income of members of congress is $911,000/yr. They are the rich. Not only do they and their friends benefit from tax cuts, they have an instinctive class based view that they alone are the wealth makers and stakeholders and should be rewarded. The rest of us are fodder. So what if we suffer. We don't make contributions, we are fodder.-- Why should they care about us?
Well, there the Democrats too. Even they realize there only so many steaks they can eat a day. And that one may be enough to still live the good life. Unless the bizarre here has taken gigantic proportions, which I admit is always possible.
Well, like many another pundit, would be or not, I would like to advise President Obama on what he can do regarding the tax cuts. It appears rather simple and obvious to me, so I'll pass my advise along. Is President Obama reading?
Okay. The Senate already voted on tax cuts for the middleclass which the Republicans filibustered because they weren't extended to the rich.
Fine and well, That shows where the Republicans are.
So let all the tax cuts expire, let them all go up on everyone in January. Then what?
Why, come back to the Congress on January 2 or 3 with a bill which will extend the cuts to the middleclass. Without including them for the rich.
The tax cuts will all be gone by then. So let the Republicans vote against the new extended cuts for the middleclass. Let them offer a filibuster to protect the interests of the rich.
And let them win. And let them live with the results of their victory.
And in a month, return with another bill which will extend tax cuts to the middleclass. And let the Republicans filibuster them again.
And do that over and over again.
Get the idea?
Do the Republicans want that kind of attention, that kind of focus on their tax reduction policies? Can they finally be shamed into voting for an extension for the middleclass? When the beneficiaries they're fighting for are so obvious?
That's called poker, that's called fighting.
Once the House is in Republican hands your scheme will come to a grinding halt because tax laws cannot originate in the Senate.
Raise the top end taxes high enough to make hoarding in Corporate Money Bins pointless. We should concentrate on rebuilding America's infastructure that has been neglected ever the 'gipper' was in office.
Hey. If tax cuts for the rich are beneficial and will create jobs, many jobs, then why haven't the Republicans come up with a simple solution to get by the impasse? All they would have to suggest is that such beneficial spending on the part of the super rich, creating jobs, etc., could be deducted from their income taxes. There would be many obvious benefits to that. An incentive to invest and create jobs, for one.
Obvious and simple. So why haven't they suggested this solution? That too should be obvious. it's not jobs they're worried about. it's the figures on the personal balance sheets indicating how many billions they have. That's all.
NEW LAW
All excessive wealth shall be confiscated and passed on down to the next class lower.
Excessive wealth being any wealth greater then what
is owned by those who are slowly starving to death.
End starvation and this law shall be abolished.
Spoken like a true "Communist."
Er, a Communist today being anyone who believes in government spending, or solutions to our collective problems.
Reminds me of a line in Grapes of Wrath. One farmer asks another, "Who all these Communists we're always hearing about? Who are they?" And the other farmer answers, "They're people who believe you should get paid ten cents an hour instead of five." And the first farmer jubilantly replies, "Why, then, I'm a Communist!"
I paraphrased, slightly.
Pure communism is everyone paid equal, while pure
capitalism is starvation wages for all but the rich.
But ours is a democracy, so its starvation wages for
all but the 51% most aggressive and wealthy.
I am always astonished when I read what people believe that socialism/communism is. Wake up please. It has nothing to do with the redistribution of wealth although that might be a side-effect. Their fundamental tenet is that the working class must expropriate all means of production (make themselves the owners of) and run the economy themselves. This has not happened permanently anywhere in the world primarily because the working class never wanted to be in the driver's seat. If that continues socialism/communism will never happen anywhere in the world.
Pure communism may be a lovely thing but,as practiced in this world it is nothing such, only more oppression in actuality.
"Banks now have a hoard of cash reserves of more than a trillion dollars, according to the business press."
Most of that will be gone after the CEOs distribute hundreds of $Billions to themselves and their loyal and hard-working, closed-mouth staff.
The exuberant smiles of dick durbin and jon kyl in the included photo are the smiles of a job well done where even with smaller majorities of the dims, the republicans will control congress and damage the economy even further for their rich fuck friends with the ever greedy hands out for more.
As for the dims, shit they were on board all the time, the crime board that is.
o? I haven't the coolness of prudence to speak about this lousy sorry and totally traitorous fool who has 2 more years to totally wreck this country and with the teaparty and the rest of the conservative lot of them, meaning the dims, it can happen before 2012.
I definitely want to see the unemployment benefits continued
we'll just have to print more money to pay for it
but at least printing more money is a flat tax, makes everyones money worth less by same proportion
and when it ALL goes to the needy, then it is a major stimulus
rather see the rich pay for the unemployment benefits especially since they are the ones taking all the money from these otherwise would be employed people
but since the won't extend unemployment benefits and print money to pay for it
but since they won't extend unemployment benefits and we'll just have print money to pay for it
Printing money for unemployment benefits ruined the German economy in the late 1920's. It is the worst thing the Feds could do.
$900 Billion Dollars down the drain
From the latest report, it appears Obama has given the Republicans most everything they wanted.
Perhaps the only thing the Repub's didn't get was a stoppage of unemployment insurance benefits extension, which costs about $56 billion a year and it will be extended 13 months.
For $56 billion and some change (let's call it $60B), Obama gave up about $850 in lost revenue (tax cuts to everyone and additional tax cuts to boot) that will last 2 years just in time for the next election season.
Some compromise!!! To get about $60 billion, Obama gave up $850 billion in government revenue.
Sources of $56B & $900B:
http://www.mlive.com/news/bay-city/index.ssf/2010/12/post_51.html
http://www.miamiherald.com/2010/12/06/1960775/obama-gop-reach-deal-to-extend.html
true, but we need to extend the unemployment benefits
that 56 billion will turn into 5 or 10 times that at least by multiplier effect
and if they shop that money at small businesses instead walmart
even more
I hope you aren't arguing that $56 billion in government spending is going to provide us with more than $56 billion in tax receipts through your multiplier argument. Obviously if that were the case, nobody would have to work as the government would just give away money to everyone.
The multiplier effect has to do with GDP growth, not tax revenue (which is an indirect by-product). The multiplier is higher when money is created by the Federal Reserve or banks, rather than borrowed from the Government (as in this case). I don't know where your 5 to 10 times comes from but it doesn't relate to tax revenue.
Either way, there is a better political way to get the $56 billion than giving up $100's of billions of tax revenue which we must borrow from. Obama, the pre-caver, doesn't even put up a fight. Amazing how little effort the Repubs have to exert to blackmail Obama and the Democrats. It is almost like Obama and the Dems are just going through the routine as a formality. The result is the unemployed and the rest of us are even more indebted as taxpayers.
I pieced together the above comment; however, now I've found another article and yes, Obama just sent $900 billion dollars down the drain. If the Republicans got all they wanted, what would have that cost for two years, perhaps still $900 billion if they could have stopped $56 billion or so in unemployment benefits; which it remains to be seen if they would have filibustered that as a stand-alone bill if the Democrats would actually force filibusters rather than give up in the event of a threat of filibuster.
http://www.truthdig.com/eartotheground/item/obamas_tax_cave_is_worse_than_expected_20101206/
Result: No compromise, no caving, rather a pre-caving without a fight. Motive? Could it have to do with our Senators being millionaires and not wanting to be taxed? Remember that next time you vote Democrat.
No, our president is not sending 900 billion dollars down the drain. He and his successor(s) will have to borrow an estimated 400 billion dollars from China and transfer these primarily to the high-income class.
And his successor(s), more than likely Republicans, will make those tax cuts for the wealthy permanent, then spread their propaganda to the uninformed that the dems are responsible for the continuing massive debt. It works every time.
I feel sorry for anyone who continues to hope the dems will ever grow a backbone. Jellyfish will have them before the dems do.
Several commentators on cable news last night averred that President Obama had to do this because his economic advisers had warned that letting the Bush tax cut die would badly hurt the economy in 2011. Now, that is rich! I seem to remember that the same advisers claimed that the stimulus package would create millions of jobs.
Oh, please... It will create plenty of high-priced consulting, lecture, and corporate board member jobs for the people who really count, the politicians who vote for it.
"[I]f banks and businesses have that record hoard of cash on hand why should their taxes be cut, in effect increasing even more that hoard of cash that isn't being invested? Won't they just continue to hoard the tax cut too?"
So true. If you want to create jobs, put more money into job producing projects like public works so that the money is targeted at job creation. If you want to spread more money through the economy, give it to people who can't afford to save it.
You make an interesting point. Even more interesting is the fact that fairly soon after Black Tuesday of 1929 most U.S. banks were flush with cash and refused to lend because they feared another crash which did come in 1931.
If you want to understand the character of our president consider the following. During his speech in which he announced the deal with the Republicans he accused the opponents in his own party of "political warfare with the unemployed as collateral damage" when the truth, the absolute truth is that it was the Republicans in Congress who carried out "political warfare with the unemployed as collateral damage" to begin with and all along. Mr. President you made a deal with political warriors who used the unemployed as bargaining chips.
Reader choose your own word(s) for such behavior. I am speechless.
"Estimates today after the current recession are that it will take 7-8 years to recover the lost jobs, if even then".
Jobs? These are simply shot down the memory hole. They are not coming back. An acquaintance of mine in HR for the State job sector routinely mentions how for every opening there are hundreds of qualified applicants.The current figures of 5-6 applicants per every job opening can't be correct, given the unofficial unemployment numbers, which is probably closer to 17%.
I get the eerie impression that the only jobs that will be available in America are those in the military or the hundreds of spy agencies. Maybe Homeland security will promote job growth by opening a new division--FEMA trailer logistics engineering for when the masses get really desperate.
FREEWILL
Crowsnest
“Socialism... is the working class nationalizing all
means of production, making themselves the owners
of it, and running the economy themselves. This has
not happened permanently anywhere in the world.”
Allowing the uneducated lower half of society to think for themselves, to be creative and for the first time ever to experience a freewill.
For a freewill is one that gives us the ability to pursue happiness as we perceive it to be. One that has the freedom, knowledge, resources and access to power needed to be enriched upon the enrichment of others.
"THE RULER ONCE DETESTED...HIS ACTIONS...WHETHER GOOD OR BAD...CAUSE HIS DOWNFALL"
....TACITUS
"Those who would be shepherds of the people best be watchful of rising 'tempest' and know the limit of inequity and abuse the flock might endure! Just as the Sun often burns of impending darkness, long unseen scandal or treason to the best interests not of the people will in time see rising sedition, warning of certain necessary changes in order to avoid the great "tempest rising".
Libels and Licentious discourse against the 'government', when increasing and open; with rumor and false news from government running up and down but add to the commotion and future trouble. Should government attempt suppression rather than change, only despising increases and brings the great wonder sooner.
They were in office, but disposed to dispense rather than execute the commands of their superiors; disputing, excusing, cavilling upon mandates and directions is a kind of shaking off the yoke and assay of disobedience; especially if, in those disputings, they which are for the direction speak fearfully and tenderly, and those that are against it audaciously.
When discord and quarrel are carried openly and audaciously, it is a sign the reverence of 'government' is lost. So when one of the four pillars of government are mainly shaken or weakened...religion, justice, counsel and treasure...men have need to pray for fair weather.
The surest way to prevent sedition is to take away the matter for its rise; for if there be fuel prepared, it is hard to tell whence the spark shall come that shall set it aflame. Usually seditions are of two kinds...much or growing poverty, and much discontent. Lucan noted well the state of Rome before the civil war:
Much devouring usury and interest accumulating rapidly...credit shaken...and war seeming profitable to many.
This same 'war profit to many' is an assured and infallible sign of a state disposed to seditions and troubles; and if poverty and broken spirit be joined with a want and necessity of the people, the danger is imminent and great; for the rebellions of the belly are the worst.
The causes and motives of seditions are...innovation in religion, taxes, alteration of traditional laws and customs, breaking of privileges, general oppression, advancement of unworthy persons, strangers and disbanded soldiers, factions grown desperate and garrisoning of foreign soldiers.
The first remedy, or prevention, is to remove, by all means possible, that material cause of sedition wherefor is spoken, which is...want and poverty in the society to which purpose serveth the cherishing of manufacturing providing good jobs while giving pride of producing necessities; the banishing of idleness with meaningful work; the repression of unnecessary excess and waste; improvement and proper husbanding of the soil and fauna; the prevention of con or excess price; the elimination of foreign tribute or taxes.
The multiplying of nobility or bureaucracy and other degrees of quality, in an overproportion to the common people, doth speedily bring society to discontent for they bring nothing to the common stock.
Above all things, good policy is to be used, that the treasure and moneys in a society be not gathered into few hands; for otherwise a society may have a great stock and the common people yet starve...and money is like muck, not good except it be spread. This is done chiefly by suppressing, or at least keeping a straight hand upon the devouring trades of usury, engrossing, great pasturages...and the like.
Sharp speech by past Princes have given fire to sedition:
Galba..."his soldiers were levied, not bought..."
Probus..."If I live, the Roman Empire will have no further need of soldiers..."
Let great Princes have great military background with a great military that has much respect both for, and by the greatest number of people within all economic class..."
...Deja vu
Suppose someone wanted to accomplish the destruction of a nation. Just collapse that nations economy and begin doing what Tacitus warned of and it would very likely begin happening.
Let's just nationalize these overstuffed banks and use their ill gotten coffers to balance the budget and start all over. UP THE REVOLUTION.