10
Nov
10

Trickle-Down Down

The finer points of economic theories have eluded me for most of my life. I’ve had enough book learning to understand that supply-vs-demand graph, but it pretty much ends there.

It’s a shame, really, because so much of what drives the current political debate is supposedly about the economy. And I know a lot of it has to be bullshit, but I don’t know enough to know what not to believe. So I usually dismiss most of it as political clap trap. Doesn’t matter what either party says on the campaign trail. Chances are it’s not going to happen anyway.

When I hear Republicans and Tea Partiers hammer away at their small-government/cut-taxes/create-jobs dogma, it makes me wonder if they’re as interested in the truth about how the world really works as they are in convenient populist political ideology.

So I got curious about that tent post of the Right, the axiom that, above all else, cutting taxes is an absolute guarantee of job growth. Is this true? Can it be proved?


I wasn’t seeing the connection between the two things. The assumption is that lowering taxes allows people to keep more money so they can consumer more goods and services, so businesses hire more workers to deal with increased demand.

And if you choose not to think about it any further, I guess that makes sense. But I read up on it a little this afternoon.

This is what makes more sense to me than the blind faith that lower taxes leads directly to job growth. When taxes are cut, and people of means find themselves with much more means in their pockets, they don’t necessarily buy more stuff. They’ve been buying stuff all along. They haven’t been tightening any belts. That’s you and me. No, these people just end up saving more and putting more money back into the financial markets. So, there’s little, if any, increase in demand.

(I guess, in that sense, tax cuts do create jobs — for bankers and index funds and lawyers.)

What’s more, businesses don’t automatically hire people because their taxes are reduced and they have more money in the bank. They hire people because they have to produce more to meet increased demand. But who’s increasing demand on consumer goods? Not the people getting to keep hundreds of thousands of more dollars. And not people like you and me who get a neat little bundle at the end of winter and throw it all at some credit card debt. Businesses exist to make money. If they don’t have to spend on labor, they won’t.

I found a guy on Yahoo Answers who thinks he has it all sewn up with a historic outlook. He’s going to school the “libs,” as he calls them, because he’s bought into the party line that lower taxes equals jobs. Thank goodness for a political ideology to hid behind. He can save himself the trouble of thinking things through.

His source demonstrates that strategic tax cuts can sometimes increase government revenue — and sometimes reduce it. It all depends on where the taxes are cut and where other taxes pick up the difference. And while this says an awful lot about revenue, it says nothing at all about jobs.

Jobs, jobs, jobs, people! It’s all we hear about. And I’m still waiting for a Republican to prove their theory to me.

I found a different historic outlook that actually considers the political record of Democratic vs Republican presidents and the effects their party’s tax promises have actually had on jobs growth. I’m finding this article and others like it very intriguing. (Pay particular attention to the long comment left by one reader.)

A politician on the stump shouting about taxes, making grand promises about lowering taxes and increasing jobs but offering no proof of a connection between the two phenomena — this doesn’t make sense to me. People who use facts instead of opinions and soothing platitudes to explain their position, and can do so with some measure of calmness — this makes sense.

I’m no expert. I’ve only just begin to look deeper into this. And I’m still willing to be convinced by people smarter than me. But I can say for now that nobody is going to convince me to vote for him because he screams that cutting taxes is going to create jobs. Try something else.

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