Thursday, August 16, 2012

Job Creators

The antidote to big lies is clear, eloquent common sense. And there are a lot of big lies out there now (though, alas, scant eloquent common sense). One of the biggest is that we need to tax the rich less so they have extra money to create jobs.

Consider: The rich were taxed upwards of 90% in the 1950s and 1960s, the time of fantastic growth and full employment. And for the past few decades, the rich have been taxed unprecedentedly lightly, yet employment has fallen.

And consider: Business owners never hire because they have extra money lying around. They hire when they need more hands on deck to meet increasing demand. And demand is fueled by a large and prosperous middle class. The middle class - the engine of the economy - spurs job creation.
"We've had it backwards for the last 30 years. Rich people don't create jobs. Jobs are a consequence of an eco-systemic feedback loop between customers and businesses. And when the middle class thrives, businesses grow and hire, and owners profit. That's why taxing the rich to pay for investments that benefit all is such a fantastic idea for the middle class and the rich."
Duh. That's not class warfare talk (the talker - a TED talker, to be specific - is uber capitalist/zillionaire Nick Hanauer). It's not liberal propaganda. It's just simple, eloquent truth.

(Please pass that link around; Hanauer's six minute video is over in a flash, and every word is the essence of pure common sense. I've never seen this explained better. In fact, I'm not sure why I'm typing this or why you're reading this. Go watch his video, instead!)

Another great point from Hanauer:
"Anyone who's ever run a business knows that hiring more people is a course of last resort for capitalists. It's what we do if - and only if - rising consumer demand requires it."
Yep. Payroll is an expense, and expenses are resisted in business. You only hire when demand forces it. And demand doesn't come from rich people. Rich people don't consume in direct proportion to their income disparity. As Hanauer says, he doesn't own 3000 cars.

It's obvious to any Economics 101 student that the brightest future for the 1% involves a thriving middle class and a solid public infrastructure. Those elements are the fuel for any business or investment. Dismantling the safety net is bad for them. Propagating poverty is bad for them. Paying 5-10% more taxes - i.e. returning to the level of taxation in the 1990's when those guys were doing mind-bogglingly well, so we can shore up crumbling infrastructure - would, in the end, be the best possible thing for them. No one proposes a return to 90% rates. Just bring Buffett to parity with his secretary. Isn't that the most reasonable, common sensical proposal ever?

[Note: the 90% tax rate figure is misleading. See Noah's comment, below, for an explanation. However, my point stands: taxes were vastly higher before, when the nation experienced unparalleled growth, and, anyway, no one's advocating for a return to Eisenhower's rabid Communism]


Kirk said...

Well said, Jim. "The rich create jobs" is the mutant offspring of "trickle down economics."

Richard Stanford said...

Its even more backwards than that.

By lowering personal taxes, we're saying, "Hey, if you want to get money out of the business to sit on it for a while (or send it elsewhere), do it now! Its almost free!" When income taxes are higher it makes far more sense to not take the larger incremental hit and to re-invest that money in the business by hiring or making capital improvements.

Even taking the arguments at face value, higher taxes promote more job creation. Its not as if salary isn't a 100% deductible expense, after all...

Noah said...

I don't disagree with your overall point, but the claim about 90% tax rates is wrong. Even though the highest tax rate used to be very high, there also used to be tons more loopholes in the tax code.

I didn't have time to search for data from the 50s and 60s, but I quickly found data from 1979, when the highest tax rate was 70%.

In 1979, the effective tax rate on the top 1% was 21.8%. That is, if you divided the total federal individual income taxes paid by the top 1% by the top 1%'s income, you get 21.8%.

In 2005, when the highest tax rate was 35%, the effective tax rate on the top 1% was 19.4%, really not significantly different from 21.8%.

So I think it's misleading to claim that higher tax rates lead to more prosperity, because tax rates were never really that high.

See the bottom table on page 2 of this document for proof:

Jim Leff said...

Noah, good point on loopholes, thanks for the correction. I've noted it in the article.

The 1970s comparison is interesting, but I suspect you'll find a significantly higher tax rate in the 50's and 60's....if only because no one - including those who'd desperately like to - is out there refuting it.

But using the shock value of "90%" is, indeed, inaccurate, and, really, unnecessary to the argument I'm making.

Anonymous said...

so, this has nothing to do with the topic, so no need to approve the post, just wanted to send you a fun food-inspired link for your enjoyment.

in the middle is a great exposition on umami

i apologize if autotune offends your musical ear, but it wasn't created as a song. could be sung tho :)

Jim Leff said...

Great vid (auto tune aside), thanks. But my email is posted atop the Slog for this sort of communication.....

Anonymous said...

@ Noah
While you report the top 1% in 2005was paying an average of 19.4%, we also know (if you can believe him) that one member of the top 0.01% was paying only an effective rate of 13%

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