Digging a Hole (or, A Marginal Policy)

November 24th, 2010

Tax cuts for the rich create jobs, it’s true,

But it’s the least effective way, job creation to do.


With all the money tax cuts for the rich will cost

And all the revenue that will be lost,

We’d be better off burying that money in the ground

Than pursuing an economic policy so unsound.


The job creation effect of that would be much greater

(Not to mention we could dig the money back up later).

And though the super-rich would have slightly less cash to enjoy,

Think of all the hole diggers that program would employ.


Bush tax cuts for the rich made our economy what it is today–

It’s time to let them fade away.

Otherwise, the hole we’re in will just get deeper and deeper,

And harder to get out of as the walls get steeper.


Of course, the rich don’t really care–

They’re not the ones stuck down there.

***

According to the Reaganomics “trickle down theory” of economic growth, income tax cuts create jobs in two ways: (1) they give business owners a greater incentive to invest, since they can keep more of their profits, and (2) they give the rich more money to spend, and that spending creates jobs (e.g., an extra Lamborghini, and someone to wash it).

While both of these impacts are real, neither gives you much bang for the buck compared to other job creation/economic growth measures.

Most job creation is by new businesses (not the fake small businesses Republicans trumpet all the time).

These new businesses generally don’t have income to offset in their early years, so income tax reductions aren’t the best way to encourage them to create jobs.  And as a general rule, if it’s going to be profitable for a company to invest and grow, the company will do that. If you’re a business owner considering an investment that will make $100K profit, will you chose to not make that investment just because you’ll have to pay an extra few thousand of that profit in taxes? The impact is marginal.

And the increased spending impact? Again, the worst of all possible job creation measures. People who make millions or billions of dollars per year already have plenty of disposable income. When they get a tax cut, economic statistics prove that they spend a very small portion of it. In contrast, people at the lower end of the economic totem pole are then very ones strapped for cash in a recession, and tend to spend much more of any additional disposable income. Who spends the most of an extra dollar of income? The unemployed do, which makes unemployment compensation the single best demand-side job creation measure. That’s why Republicans were so supportive of extending unemployment benefits. Oh wait, I got that mixed up. It was the Dems who suppored unemployment  benefit extension. Republicans opposed it. Other highly cost-effective job creation policies: infrastructure investment and state and local public sector job protection. Coincidentally, Republicans opposed those too.

So do Republicans realize that tax cuts for the wealthy won’t really help job creation. Yes, many do (though they’d never admit that publicly), and the rest just chose not to look at or believe the economic data that proves this point. Why? Because it’s not really the job creation they care about. They don’t support tax cuts for the wealthy to reduce the unemployment rate. They support tax cuts for the wealthy so that their fat cat supporters can continue to get more and more wealthy, regardless of what that does to the rest of the country.

As it turns out, we are digging a hole, and the deeper it gets, the harder it’s going to be to get out of. But the Republicans and their wealthy supporters don’t care. They’re not the ones in the hole.

***

Speaking of holes, here’s a scene from that excellent movie. Do the Republicans, like Warden Walker, really have a secret reason for all that digging?

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