Archive Hosted by the AFL-CIO

Job Creation by the Wealthy Mostly a Myth

May 09, 2011 By Myles Spicer, Minnesota 2020 Contributor

We hear this conservative mantra continually: “We must give tax breaks to the wealthy so they can create more jobs because the rich are the job creators.” Even now, as Minnesota works toward a balanced budget solution—where many agree that revenue is needed—conservatives are holding firm to their policy that “higher taxes will stifle economic growth.”

There is only one thing wrong with this premise and theory. It is not true! Broadly providing tax breaks to high-income earners simply because conservative policy says the rich will turn around and create jobs with the extra revenue has been proven to be false economics many times over.

So why keep insisting these policies are valid? It gives conservatives cover in avoiding the charge that they are merely attempting to make the rich richer. It also permits them to focus on deficit reduction through smaller government, concentrating more public services to fewer people. It excuses them from having to find a revenue solution to fund the broad public services that have made Minnesota a great state.

Granted, some targeted tax credits and tax breaks do stimulate growth. But they aren’t just blindly given to the wealthiest. Policymakers provide these tax incentives for specific job creation, research or innovation based on evidence or economic reasoning that they will strengthen the economy. Yes, some rich people receive the benefits but many go to middle and working-class Americans.

There is no correlation, however, in economic growth and blindly lowering taxes for the rich. In fact, some economists have found the opposite to be true.

Let’s take a national look. Since 1945, the federal deficit increased 4.2 percent under progressive administrations and 36.4 percent under conservative presidents, according to the Congressional Budget Office.

Even more relevant is the fact that these deficit increases coincided with conservative leaders who reduced taxes—most notably Reagan (11.2 and 5.9 percent deficit increases in his two terms); George H. W. Bush (6.5 percent); and George W. Bush (9 and 10.7 percent).

While it may be argued this is not necessarily related to “job creation,” it is related to increases in GDP (debt/GDP ratio) or relative economic robustness. These presidents cut taxes and increased debt but the economy did not grow accordingly. In short, as with historical “trickle down” strategies, it failed.

Minnesotans saw the same deflated numbers in economic growth under Pawlenty’s “no new tax” era.

  • Minnesota ranks 32nd in percentage growth in employment (Jan. 2002 to Nov. 2010)
  • Minnesota ranks 36th in the percentage growth in per capita personal income (2002 to 2009)
  • Minnesota ranks 42nd in the percentage growth in median household income (2002 to 2009)

Minnesota can’t keep coasting on the foresight of past generations. We must have new investments in education, health care and infrastructure.

Moving back to the wider economic perspective on tax cuts, University of Michigan professor and Harvard Ph.D. Joel Slemrod has noted that judging by the political scene in Washington, one would think that low taxes were the main source of economic growth in the United States and around the world…even most Democrats dare not demand that President Bush’s tax cuts be rescinded…but there is no compelling evidence that high taxes impede economic growth.

According to Slemrod’s findings:

“there is no supportive evidence for the claim that low taxes guarantee prosperity. In fact, if you just plot out the points (internationally), you will find a clear, positive correlation between high tax rates and prosperity, and that is because developed countries are the ones with the high tax ratios.”

The premise and the promise that giving substantial tax breaks to the very wealthy will stimulate the economy and “create new jobs” simply has no basis in fact or reality. What it has done, factually is increase deficits, like the $5 billion hole Minnesota is currently in and series budget gaps it has had to close under Pawlenty’s no new tax policy.

This further confirms the failure of trickledown economics and it has made the already wealthy, wealthier both in Minnesota and nationwide. While, “no new taxes” makes for snappy sound bites in conservative news conferences, it’s bad economic policy when it comes to creating new jobs, educating Minnesota’s students, providing health care, and building roads and infrastructure.

Thanks for participating! Commenting on this conversation is now closed.

2 Comments:

  • Ginny says:

    May 10, 2011 at 11:45 am

    It doesn’t seem to matter how often you put these statistics and evidence before the eyes of the conservatives: they don’t see it, they cover their eyes and ears like the iconic 3 monkeys, they see it but something in their mindset does not allow them to absorb, just like some people can’t absorb B12.
    We have plenty of evidence from the United States and Minnesota in the last 30-40 years, but somehow, it doesn’t sink in.
    We watched the nation prosper when taxes rose. We have watched our states and our country slide downward as taxes were cut for the last 10 years or so. Why doesn’t it sink in? Why do the conservatives keep saying taxes are “job killers,” when there is proof of the opposite?

  • KJC says:

    May 10, 2011 at 4:38 pm

    There are so many pieces to our economic puzzle.  When you are in a tough spot, as both our State and Nation are in, I recommend using this managerial saying “there are no crises, just illusions that are over.”
    And trickle-down economics, that idea that tax cuts for the wealthy creates jobs/is good for the economy has proven to be an illusion in a time of a global economy.  Let’s just admit it.
    Another managerial principle?  When tough choices need to be made, that can only be done with shared sacrifice.  Why? I a democracy you have to create some level of consensus.  So if there is no sense of shared sacrifice, no real consensus is possible when facing the tough choices.  One example of how NOT to do it?  A phrase like “no new taxes.”  That essentially says that some group is going to be exempt from having to put-in more (sacrifice.)  In the blink of eye, it’s all over… now the whole game (although few would admit it0 is to get into/create some kind of “protected” group… not be accepting of your share.  This kind of exempt-certain-groups while pretending to be a leader is why the cynicism and resignation about things is so high.  We all know the real truth: you lead by example, not empty rhetoric.
    Sadly it explains so much of the seeming intractabililty of our situation.  When we all lead by example, and hold those to account who are “ducking,” we’ll make progress.  To those who are now subtley thinking “fat chance,” that’s not going to happen?  I say we’re a great nation with awesome people, citizens that are better than that…