Tuesday, November 6, 2012

Job creation and tax policy

The biggest conservative lie in this and past elections is that cutting taxes creates jobs.  The opposite is true.

this is a shorter excerpt from my recent Culture of work article (the second part).  Focused on just tax policy.

Job creation
Wealth only trickles up.  If there is a sufficient number of people with money, then producers will find a way to go take that money from those people.  Even if the producer sells expensive yachts, it is that producer's advantage to have a society of 300M people each with at least $10k income, than a society with more concentrated wealth, because other producers will go and take the money from lower income members, and pass it along to producers who can be yacht customers.

Only the wealth of customers is relevant to job creation, because producers will borrow any lacking funds, and our banking system supports unlimited borrowing.  Having wealth has a near zero impact on job creation.  The only reason ever to invest money in a project is if you believe there are customers for that project.  The more concerned you are about the future viability of the customer base, the more you are likely to cut investment, and protect your long term financial independence through fear that you will never make production profits again.

The absurdity of tax cuts for job creators
Once a business takes off and becomes profitable, it is extremely rare for it to fund future investments by requesting more investor money.  They  instead fund investment through their existing profits.  Higher corporate tax rates necessarily and directly creates more jobs and investment because any spending directly lowers a company's tax bill even when it fails to produce desired revenue gains.

More generally, the only other element than customers that assists job creation is reduction of risk for investments.  Higher tax rates and better tax deduction for operational and investment losses can significantly boost investment.  Lower corporate tax rates does the complete opposite.  At a 0% tax rate, every penny you spend on a losing investment is a penny lost.  At a 90% tax rate, every dollar you invest, only costs 10 cents after tax.

High corporate taxes never discourages profitable work, because corporate owners can avoid corporate tax bills by giving themselves salaries.  Ideally dividends should be tax deductible as well.  

While increasing the tax rates on high personal incomes can cause some financially independent people to work less, that choice is also job creating.  If many doctors and lawyers find that the tax rate on income above $250k is too high for them to work past $100k or  $250k income, then that leaves room for other doctors and lawyers to work to take customer money.  If 4 lawyers make $250k instead of 1 lawyer making $1M, then that is 3 extra cars, vacation homes, and boats that can be made for them.  As a society, we never need worry that someone will not bother to come take our money, and so we do not need to empathetically defer to these 1st percenter problems.

If it is a crime to deny the holocaust where you live, the penalties for the lie of claiming that lower taxes are economically and socially useful should be 100 times harsher, because the lie if believed can and will destroy the economic and social future of any civilization.

High taxes are not slavery
High taxes are good for all of you and all of us.  In the US, government spending is $6.3T.  Over 40% of GDP.  Those of you directly employed by the governments or its contractors can get 100% of your income from government sources, but the rest of us get 40% of our income as a result of your government funding.  We either sell directly to general consumers, 40% of whom are government funded, or we sell to other producers who've already taken their money.

The government labour force is also 33% of the total labour force.  Eliminating all government spending necessarily directly results in a 40% reduction in  private sector incomes either through job losses  or pay cuts.  The 40% lesser private sector necessarily causes a secondary 40% cut in the private sector because there are an additional 40% fewer customers.  It keeps spiraling downward.  After just those 2 rounds resulting from elimination of government spending, 66% of previously employed people would be unemployed.  Or, incomes would be 66% lower.

Opposing government spending is perfectly valid when it is useless, wasteful or evil.  Its even valid to object to useful spending when it is awarded through politicized favoritism where the winners and losers, even if justifiable, are arbitrary.  But no matter how wasteful or evil, any spending is more economically beneficial than no spending, because you may sell groceries or insurance to the warmongers.  The objection to evil and wasteful spending is that useful spending could be made instead.

The only argument for lower taxes is idiocy.  Eliminating everyone else's taxes will lower your pre tax income by at least 66%.  Since your tax rate is well below 66%, you are much better off with taxes than without.  If the profits and wages you took from society are not considered theft, then neither are taxes.  Giving a relatively small portion of your profits and wages back to society, is simply an intermediate step in the circular process of you taking the money back from them.

While the Congressional Research Service has recently published a paper showing that lower tax rates on the highest incomes never results in economic growth, they used a correlation/data analysis approach.  In economics, you have to prove policy through human nature.  Both approaches are often used to support lies, and most people tend not to understand either, so there is value in data analysis approaches confirming human nature based proofs.

Basic income and social dividends is the correct social spending of taxes
Basic income allows greater job creation because it takes more people (jobs) to go out and take money from many people 100s or 1000s at a time, than the effort required to take money from politicians/bureaucrats millions or billions at a time.  If you are not a military contractor, you can make much more money if 1M people are given 10k each, than if one military contractor receives $10B.

Basic income can lower the risk involved in studying and starting a business.  Education alternatives can be priced down to what is affordable without student loans.  Basic income can help support the design/development phase of a new business.  If may also enhance volunteer work due to enhanced freedom of choice

Basic income can also create jobs by eliminating the need for minimum wage and a few other employment regulations.  Basic income solves the culture of slavery by paying everyone.  Anyone that wants to work or wants more money than what is required for basic survival, will still choose work.  Although the culture of slavery creates a demand for low paying jobs out of the necessity to volunteer as a slave or starve, those companies that need low paying jobs tend to have low income customers.  Taxes and basic income both enhance demand for those businesses, and essentially subsidizes any employees wages.  If someone was content to work for a company for $15k per year before basic income is implemented, they should be content working for them for a total of $20k in employment + basic income.... At a cost savings to the company, and thus enabling the company to afford hiring additional workers.


  1. The strangest part of the election platform by Romney, and now a position by Boenher on the fiscal cliff negotiations:

    Keep tax rates the same (or lower) but reduce loopholes and deductions. There is no reason to make it a campaign highlight, because there is no reason for anyone to find that appealing.

    The first, and most obvious, reason this is stupid is that it is like a campaign promise to keep car sticker prices low, but increase additional fees in the fine print. It increases the cost of a car just as much as a sticker price increase.

    The second reason it is stupid is that tax policy shouldn't primarily be concerned with maximizing the government's empire and revenue. Some deductions are useful economic and social policy. Encouraging home ownership, charity, and compensation for investment losses can all be legitimate social goals, and worth encouraging through tax deductions.

    There's not much of a social rationale for the "carried interest" preferential tax treatment, but increasing deductions and increasing the "sticker price" tax rates is actually the right approach for economic recovery.

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