Don’t Tax the “Job Creators”?

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“Don’t tax the job creators” has become a GOP mantra, pressed hard in this election year. In a recent post, Occupy and the Quest for Common Sense, I dismissed as nonsense the you-can’t-tax-the-job-creators pitch, arguing that it is just another formulation of the “trickle-down” economic pitch, and insisting that it’s a prime candidate for dismissal as contrary to “common sense” – and therefore absurd.

That sounds a bit arrogant, put that way, doesn’t it.  But I firmly believe most visitors to this site will likely understand why it’s wrong, without further explanation from me. Nonetheless, because some of our viewers may yet to have fully reasoned it out, and millions of Americans have been misled by the pitch, the matter deserves a more detailed explanation.

Employment is Caused by Stimulus, Not Austerity

One of the big impediments to the public’s understanding of why “trickle-down” is wrong is that there are countervailing forces in the economy:  As Obama fights to create private sector jobs with economic stimulus, especially in the Midwestern manufacturing belt, local state governors like Wisconsin’s Scott Walker and Ohio’s John Kasich work against that success by slashing government spending and cutting public sector jobs, actions that cannot and do not stimulate the economy and private sector job growth.  But now that the unemployment numbers are improving, these Republican governors want to take credit for declines in unemployment in their states, credit that properly belongs to Obama (no thanks to the austerity-driven Congress).

And they are doing so, with some success.  As I write this, for example, Obama is barely holding a slight lead in the polls over the potential Republican presidential candidates in Ohio.  Since the 2010 elections, unions and public workers in Ohio have been under a strenuous attack by the new Republican governor John Kasich, an attack rivaling the assault on jobs and workers waged by Scott Walker in Wisconsin.  Ohioans have been substantially repelled by Kasich’s anti-populist policies.

Now, however, unemployment in Ohio that had peaked at the end of the Bush administration has substantially dropped during the Obama administration:

Accordingly, Kasich’s job approval rating has gone up significantly since last summer (along party lines) from 33% last summer to over 40% today.  But with Ohio’s governor slashing government spending and public sector jobs, we have to ask: Why is Ohio’s unemployment going down? The “austerity” measures in Ohio have done nothing to stimulate economic activity and private sector employment in that state.  However, Obama has had remarkable success nationally in private sector job creation, something achieved without any fiscal policy help from Congress:

Much of that success is taking place in states like Ohio, Indiana and Michigan, and what appears to be Obama’s biggest success story is the provision of government financial support to America’s failing automobile manufacturing industry, avoiding a Chrysler bankruptcy and saving numerous contractors who would have gone under, taking the rest of one of America’s premier manufacturing industries – the vertically-monopolized automobile industry – down along with them.  Millions of jobs were saved, and many thousands more are now being created.

I promise a detailed report on this success story in the near future.  For now, the important point is that Ohio’s private sector job growth cannot be attributed in any way to John Kasich’s economically repressive policy of public sector austerity, which simply reduces consumer demand in Ohio and suppresses private sector recovery.  This is something the average Ohioan, however, probably does not know.

I’ve Googled Kasich to see if he is trying to take credit for the decline in Ohio’s unemployment, and sure enough, he is.  Kasich’s job approval rating has gone up (along party lines) from 33% last summer to 40% as the Ohio economy improves.  In December the Ohio Department of Job and Family Services reported that the state’s unemployment rate had declined to its lowest level since December 2008: “The economy is getting better, the job market is improving, and slowly but surely Ohioans are getting back to work.”  Kasich himself remarked:  “It is so encouraging to see Ohioans getting back to work. We’ve struggled for far too long but things are beginning to get back on track.” Eliminating any ambiguity about whether Kasich is taking personal credit for the upswing, House Speaker John Boehner, an Ohio Representative, added: “We have a long way to go in Ohio, but the governor’s policies are taking our state in the right direction.”

The same game is being played in Wisconsin politics.  Scott Walker has initiated one of the most draconian attacks on public sector employees and state government in modern American history, alienating Wisconsin voters and prompting an historic recall petition. In his fundraising drive to defeat recall, Walker (Donate to Scott Walker) now argues:

The reforms that we have put in place in Wisconsin over the last 12 months have helped private businesses create thousands of jobs, turned a $3.6 billion budget deficit into a surplus, without raising taxes or cutting essential services, and led to 88% of Wisconsin job creators saying that Wisconsin is headed in the right direction, up from just 10% one year ago.

Despite these positive impacts, liberal out-of-state interests and big government union bosses are determined to continue their attack on Wisconsin’s taxpayers. Instead of continuing to move Wisconsin forward, they want to move Wisconsin back to the tired old policies of the past. 

This pitch is thoroughly misleading, and false.  Unless you raise taxes (which he did not do), you don’t eliminate a $3.6 billion state budget deficit, and more, without cutting spending and government sector jobs by over $3.6 billion.  When you do that, you reduce government employment and incomes, and that depresses the Wisconsin (and secondarily the national) economy.

Sure enough, throughout the summer, Wisconsin’s private sector sputtered.  Now, however, private sector unemployment is declining in Wisconsin and jobs are coming back. Walker takes the offensive, leveling an ideological attack on “big government union bosses,” which he says are attacking Wisconsin’s “taxpayers” and failing to move Wisconsin “forward.”

By now, most Wisconsin voters probably see through this rhetoric, as they have already recalled some Republican state legislators and have labored tirelessly to get more than enough signatures for a recall of the governor.  The key thing is that Walker’s pitch is nothing but rhetoric, evoking the “tired old” stereotypes of the past that enabled the capitalist elites to take control of government.  Private sector unions have actually joined with the automobile industry, at great sacrifice to workers in salaries and benefits, to save one of America’s core industries, in an effort to stave off depression.  In no way does Walker’s rhetorical offensive even attempt to explain how big unions (and certainly not, as in the case of the “positive impacts” he wants to take credit for, private sector unions) are attacking taxpayers.

So I submit, with as much humility as I can muster, that this is just gibberish, utter nonsense.

The Job Creators

“Don’t tax the job creators,” on its face, is an argument by wealthy capitalists to keep their taxes low.  It’s a restatement of the “trickle-down” theory: Let them have more money and they will use it to benefit everyone.  It will trickle back down to the bottom 99%, in this case through job creation.  This is the Reaganomics myth.  The same argument is applied to rebuff efforts to raise taxes on the wealthy as to support even further tax reductions for the rich.  As extensively reported on this blog, here’s how we know it’s simply not true:

  • For thirty years after taxes on the rich were drastically reduced, wealth did not trickle down – it transferred up;
  • When taxes came down on the rich after 1980, thereafter in 30 years top 1% incomes almost tripled while the rest were stagnant, and the bottom 90% did not grow at all;
  • From 1979-2007, wealth totaling about $8.8 trillion (current dollars) transferred up to the top 1% as a result of their lower taxation, and the bottom 99% lost over 20% of its share of total wealth;
  • Taxation is the “brakes” on that process of wealth transfer, that is, the mechanism for countering the accumulation of profit and interest payments by the holders of capital, so that a level playing field can be maintained over time between capital and labor;
  • Now the top 1% has about 24% of all income, up from 9% in 1979, and it now captures 60-70% of all new income, so inequality continues to grow while unemployment continues at extremely high levels and prosperity for the bottom 99% continues to decline.

It is important to recognize that economic growth, for everybody (including the top 1%) is lower in this last 30-year period than it was before, when incomes and wealth were less unevenly distributed throughout society.  This makes perfect sense: When the bottom 99% is more active in the economy, it produces more and consumes more.

We also frequently hear a related argument, that too much government regulation constrains entrepreneurial talent, investment, and growth.  But that’s never been the case before, and the economy thrived in the halcyon days before deregulation came along in the Reagan years and thereafter.

What about job creation?  Warren Buffet and others, as reported extensively on this blog, have confirmed that investment decisions are not made by either wealthy individuals or their corporations on the basis of the tax rates they will pay.  Domestic investment decisions are made solely on the basis of the expectation that they will return a profit, and that’s strictly a pre-tax consideration. [1]  Firms decide to invest in production when there is expected to be “consumer” demand for what they make.

Obama’s success has been due to increasing consumer demand through a reduced payroll tax, which is a stop-gap measure borrowing against the future of Social Security and Medicare (as Bernie Sanders frequently reminds us), and working actively to promote the creation of jobs in the United States, rather than overseas.  And, when he helped the automobile industry survive, he simply used the government to create jobs, providing the tinder to start a fire that would hopefully become self-sustaining.

The government, in that case, was effectively the job creator.  And any fire will go out, if it cannot get enough oxygen.  Governors like Walker and Kasich smother the new fires of economic growth in their states by putting people out of work and reducing government programs and spending.  These are things, I maintain, that are not all that difficult to understand.

Trickle-down arguments are self-serving for those that make them, the rich.  Belief in trickle-down “Reaganomics” may be closely related to party affiliation. For example, John Kasich’s approval rating has grown to 40% this month, up from about 33% last summer, apparently largely on the basis of Ohio’s economic turnaround, and according to the Quinnipiac University poll reporting this increase, it is split down party lines: “Republicans support Kasich by a 71-19 percent margin, but Democrats disapprove of his job 70-17 percent,” with Independent voters more closely split.  Gov. Kasich approval rating climbs to 40%.  I still wonder why Republicans in the bottom 99% would subscribe to trickle-down nonsense if they knew better. Why is so much of the bottom 99% so willing to shoot itself in the foot on the basis of nonsensical ideas like the “don’t-tax-the-job-creators” mantra? [2]  I wish I knew; but it’s the major weapon in the class warfare being waged by the 1%, and we must do our best to disarm them of it.

JMH – 2/16/12

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[1] Corporate tax subsidies for companies who decide to invest in the United States are a bit different, because they can affect whether to invest overseas.  Regardless, if a product is not expected to return its costs, the investment will not take place anywhere.  No firm invests to lose money, and fewer firms will invest in service to the America as the American economy declines.

[2] Yesterday on The Ed Show on MSNBC, Ed Schultz asked his viewers to vote on whether they believed cutting taxes on the rich would lead to job creation.  Four percent said “yes,” and 96% said “no.”  Numbers like these are encouraging, but these are, after all, the votes of people who watch the Ed Show.

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3 Responses to Don’t Tax the “Job Creators”?

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  3. Quinn Grosz says:

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