Rich People’s Taxes Have Little to Do with Job Creation

More details on how the American Dream turned into a 30-years-and-continuing national nightmare...



By Michael Linden
AmericanProgress.org
June 27, 2011

Last week we pointed out that even though conservatives seem obsessed with the top income tax rate, overall economic growth was actually stronger during periods of higher tax rates. But maybe we missed the point. Maybe what conservatives are really concerned about is job growth, not overall economic growth. Maybe they have some convoluted argument about how the tax rate for rich people is incredibly important for creating jobs.

SNIP...

Apparently, conservatives believe that a key driver of overall job growth is the tax rate that rich people pay on their last dollar of income. They argue that these very rich people are the ones who “create” the jobs and therefore taxing them at even slightly higher rates will make them less likely to invest, expand their businesses, and hire more people. That sounds plausible, but it turns out to be completely baseless.

In fact, they are just as wrong about this as they are about the relationship between marginal tax rates and overall economic growth. In the past 60 years, job growth has actually been greater in years when the top income tax rate was much higher than it is now.

For instance, in years when the top marginal rate was more than 90 percent, the average annual growth in total payroll employment was 2 percent. In years when the top marginal rate was 35 percent or less—which it is now—employment grew by an average of just 0.4 percent.

CONTINUED...

http://www.americanprogress.org/issues/2011/06/marginal_tax_employment_charticle.html

So. What do the rich DO with all that extra dough they've got lying around?

If the potential profit margins are so small that taxes would scuttle the project then it probably isn't profitable enough for the capitalist anyway. It is the market and percieved demand which drives investment.

What do they do with it? For the most part they invest it back into the enterprise which must grow or die. Thus we end up with monopolies.

When the Reaganomics was new, I was a young man and I can remember how the conservatives of the day repeated the line that tax cuts would create jobs. Few politicians or pundits followed up on the claim.

I also remember reading one report that disagreed. The contrarian claimed that the rich would use their tax savings to make money -- not create jobs. He or she was quite correct.

Today we see the trend on steroids, where the money is invested in Wall Street -- where the rate of return is more important than creating jobs.

For instance, contrast how little profit Ford Motor Company makes on sales of hundreds of billions compared to Goldman Sachs making billions just by shuffling stacks of paper back and forth between connected friends.

Financial services has a relatively healthy profit margin. Manufacturing (and retail and just about everything else, apart from Health Care) has high labor and capital costs, so it's running at a few points, at best.

Now where is the Smart Money going to go?

Looks like there's good return on education, health care is legal blackmail, fracking gas is big and there's the perennial favorite, supplying the military.

They'll always find something, they have to. Until every worker, every resource on this planet is used up, to creat more capital.

Thank you.

At the risk of sounding like a frustrated loser in the great class wars:

A Look at the Numbers: How the Rich Get Richer

How the rich get richer.

— By Clara Jeffery
Mother Jones
May/June 2006 Issue

IN 1985, THE FORBES 400 were worth $221 billion combined. Today, they’re worth $1.13 trillion—more than the GDP of Canada.

THERE’VE BEEN FEW new additions to the Forbes 400. The median household income has also stagnated—at around $44,000.

AMONG THE FORBES 400 who gave to a 2004 presidential campaign, 72% gave to Bush.

IN 2005, there were 9 million American millionaires, a 62% increase since 2002.

IN 2005, 25.7 million Americans received food stamps, a 49% increase since 2000.

CONTINUED...

And the numbers over the past six years continued on the trend lines.

And I'm as mad as Hell that we were lied into accepting their horse shit! :grr:

They buy 2.5 million dollar photos of http://newsfeed.time.com/2011/06/28/last-remaining-billy-the-kid-photograph-auctions-for-2-3-million/">Billy The Kid.

more jobs would be created. So, higher taxes on the rich mean more jobs; lower taxes on the rich mean fewer jobs. That is what is shown by the graphic, that LOWER taxes on the rich do not lead to job creation -- it is not that taxes on the rich are unrelated to job creation.

But notice that if the top rates dropped there'd be more growth as well. In other word, the chart you rely on for evidence for your claim also neatly falsifies your claim.

Possible inference: That this is a nifty correlation devoid of causal relationship. You scramble for one but it's a platitude wrapped in a hope.

For instance, during a long period of high marginal tax rates we recovered from post-war depression and had the largest gains in productivity and international trade ever. The US had strong unions, but since the economy was driven by trade and innovation a lot of growth was going to happen regardless. None of this had to do with taxes on the richest 1% nor did it have much to do with a lot of government spending. Much of it occurred before the Great Society.

During the last couple of years we've had the largest deficits ever and the largest stimulus ever--in absolute terms, inflation-adjusted terms, as a percentage of GDP. The government's dumped money into the economy by the truckload. It's done things to make sure that the poorest gets more money--except that the "manufacturing" that the poor and elderly spend their money on tends to be meat, vegetables, food, gasoline, rent, and the like. This is lauded as demand-side stimulus, but not much of it goes for the kinds of demand that the economists say we need. The middle-class tax cut didn't jostle loose more money--it maintained the status quo. And, because of a lot of possible changes coming along, I know that my family clamped down spending over a year ago. New stove? Nah. Redo the kitchen floor? Risky, we might need the money.

Try this: For every $10k that a upper middle class or upper class family takes in, traditionally 1/3 goes for additional discretionary spending: restaurants, new big ticket items, construction or landscaping, tourism. In the last 3-4 years, this group has cut spending and stashed away cash. As they get income increases, they don't increase their spending. The money doesn't go for food or cheap consumer goods imported from abroad.

Traditionally, pensions and the upper class investments have provided investment funds for start-ups and expansion of on-going concerns. That's also not necessary now: interest rates are as low as they go, the problem with banks isn't that they're not willing to lend but that there's a shortfall in applications. (Hence the rush to commodities--the money has to go somewhere.)

Lay off the workers from those companies and keep consolidating and reducing the workforce. Creating more profit. Eventually overproduction will create a crisis--for them--that they will offload on us. Rinse and repeat.

I tell as many people as I can that companies hire people, upgrade their facilities, buy new equipment, buy ongoing supplies and inventories, give to charity, pay for liability insurance, pay for business travel, and carry out R&D projects with PRE-TAX income.

In other words, they pay taxes ONLY on their gross receipts MINUS employee wages and benefits, costs of upgrading and acquiring equipment, costs of inventories and supplies, charitable contributions, insurance premiums, business travel expenses, research expenses, and a host of other things.

They pay taxes only on their PROFITS.

Hiring people actually reduces a company's taxes. So do charitable contributions.

No surprise that both hiring and corporate charitable contributions are down.

Most people don't know that, which is why they are susceptible to Republican propaganda.

We should all spread the word when a Republicanite claims that companies aren't hiring because taxes are too high. We should explain how companies are taxed, and if they don't believe us, refer them to any beginning accounting textbook.

The Schedule C filers. Bachmann came out the other day and said if you sold $250,000 worth of stuff your taxes would go up
No one called her on it..........

That's why those of us who do know need to mention it at every opportunity.

And that is: when taxes are high, "loopholes" also have to be high.

Before Reagan came along, taxes were really high, but there were enough loopholes and deductions in the tax code that someone who wanted to spend enough money in the right way (IOW in ways that would trigger those deductions) could get her taxes down to practically nothing. By rich people spending money, hiring people and churning the economy, dollars turned over fast enough to make the economy boil.

Reagan's first major act as president was to sign a tax cut that destroyed the economy. He tried to bring up the amount of revenue the government was taking in by getting rid of the loopholes which actually stimulate the economy, and either leaving the rates alone or lowering them.

That's why I've been saying for quite some time here that we need to screw the Republicans, screw Reagan, screw all the Republican ideas about lowering rates while removing loopholes, and just reinstitute the tax code we had when Nixon took office. The strange thing is, the country was in recession when Nixon took over but compared to today we were rolling in dough.