How does lowering taxes for the super rich and corporations create more jobs in the U.S.? Reagan and George W did it and it didn't work. Why would it work this time?
I don't know whether it works at all or not. Under the Reagan tax cuts, some successful corporations in my city laid people off instead of hiring additional people - one huge fast food chain did give all employees a small bonus, then closed two restaurants and eliminated some benefits across the board. Under the W. tax cuts, some companies here did create more jobs, while others laid off workers and gave management raises. Then the minimum wage increased 1/24/09 and additional workers were laid off.
I can't say whether tax cuts will work this time, either. Perhaps if the minimum wage does not go up again at the same time?
On paper it works great, but then again on paper Communism is awesome too. The main reason it never works is because people are greedy. A perfect example of this is all the bailout money banks got a few years ago.
The rationale for voodoo economics (I mean supply-side) is that if companies have more money, they will then be able to invest in more the factors of production (labor (jobs), new factories, new stores, whatever the case may be).
However, corporate profits are at RECORD highs. Lack of money isn't the issue. It's a lack of demand for the products. Unemployment is high, wages are stagnant, and the machination of industry is continuing at breakneck speed. Supply-side can only work if a lack of money is an actual issue, and in terms of multi-national corporations, it is not.
How is demand going to be stimulated? That's the question, and that was the idea behind the Recovery Act. Invest in some public sector work (roads, bridges, and keeping firefighters and police from losing their jobs), and when people get money from their temporary work or not losing their job they thought they would, they will then go buy more products. When people are buying, demand is rising, and businesses are more likely to hire.
Paul Krugman, a highly respected economist on the left who doesn't buy into the traditional assumptions of most others, has argued that the stimulus wasn't big enough to plug the hole in demand. One could also argue it wasn't targeted as effectively as it could have been.
The only way tax cuts are going to do anything to stimulate demand is if they are targeted at low-income earners, who will then immediately spend the extra money in the market. The middle class and working classes are the ones who drive demand, not the wealthy. Reduce their tax burden to lower than it already is, which is already pretty low, cut taxes on small businesses, and then the economy MAY begin to recover a little faster.
I'm confused, record profits but no demand for the product?
Not enough aggregate demand for them to hire obviously. Many companies have become just as profitable as before the recession, with a lower number of workers. Increased productivity,along with a lack of demand, resulting from lower wages, that would allow the employees to shop at other corporations or small businesses that aren't so profitable right now, has led to a decrease in hiring in many of these profitable and not so profitable companies.
http://www.businessinsider.com/adam-smi … uin-2012-6
http://www.businessinsider.com/corporat … low-2012-6
Sooner28: That was a great explanation of demand side economics and why supply side trickle-down won't work in this environment. That's a keeper.
I don't know about loweing taxes for the super rich. That will just increase the amount of cash that they have sitting in investments. However, when you lower taxes for the poorer and middle class people, that does create jobs. Poor and middle class people spend more than they save. In fact, poor and middle class people spend more than they make (credit cards). That is why they are poor in the first place. So, giving these people more money through tax cuts almost guarantees the increased circulation of money in the market place. This increased circulation is called demand. This demand is what creates jobs through consumption of goods (supply). Increased demand equals an increase in the need for supply. More demand equals jobs. Somebody has to make the goods that the poor and middle class people consume.
You should read "A Governor's Story" about the Michigan Governor who cut taxes nearly 100 times. She lamented that Michigan should have the lowest unemployment rate and best job creation rate in the country. But it lagged far behind states with higher taxes and more regulations. A cautionary tale perhaps.
Cutting personal taxes but leaving corporate taxes at the highest in the world is what Bush did...
Cut corporate taxes drastically and watch what happens.
We would see increased interest in American investments. International and Multinational investors would be much more interested in American investments if it didn't mean they had to pay 10-30% more in taxes on their profits than they have to in other countries.
The net result would be more businesses, more employed, more government revenue, more GDP, and an increased standard of living for the population as a whole.
A decrease in corporate taxes though, should come with a change to a territorial tax system. If we did those two things, we could see GDP growth over 5% for the next several years.
But those tax cuts are still in place...where are all the jobs?
No, corporate tax cuts are not in place. Our corporate taxes are still the highest in the world.
Sure, CEOs don't have to pay as much of their income into taxes, but they have to pay WAY more than that in corporate taxes to be located here.
Don't even know what you are trying to say anyway.
a Wall Street Journal article stated,"With Tax Break, Corporate rate is lowest in Decades"
Along with the corresponding article I thought it was rather self explanatory.
Again, the article is subscriber content.
Anyway, effective rates are lower, even without any change in the laws, due to the recession. Companies are still realizing the losses.
That rate has nothing to do with the rate that new businesses pay.
I tried your link and you have to join before you can read
I deleted bad link. I got the article when I originally posted the link , now I cant either. Point being ,you can't state we have the Highest corporate tax rate in the world and then ignore all of the deductions and loopholes in the US tax code. It's not like IBM is filing a 1040 EZ
Our government, and the OECD, have found that the US tax rates are the highest, or top 5 in the world, after factoring in all deductions and credits. Those reports are old too, nearly a decade, and countries have dropped rates since then.
Out corporate tax rate is simply higher. We average 29% for new investments. The OECD averages 20%. There are countries in the 0%-10% range. We don't stand a chance competing with them.
Let's be real in this scenario instead of the smoke and mirrors that big business is perpetrating. The whole thing of lowering corporate taxes is not about creating more jobs as they claim. It is the hold out by big business to get Obama out of office and start the de-regulation and raping of the treasury by putting less in then they should. There is a reason why other countries have less corporate tax rates than the US. They have much smaller economies and less empire to support. The US has the biggest consummer market in the world and other countries business' are crazy in love to tap into it.
If we are to believe that big business will open their pockets then low and behold the whole system is fixed and the theory is proven once and for all as thousands of jobs are created now that the money flood gates are opened. But just as Romney is hairy on the particulars of his methods of creating these jobs we are told to vote him in and then all will be revealed. In other words TRUST HIM! The same can be applied to the lesser tax rate for big business. Trust them to turn loose the money if it happens.
Remember Gekko from the movie Wall Street "greed is good" when you think that there is something benevolent about lowering the corporate tax rate to create more jobs. Those jobs are where the greed went, overseas.
Think of it this way.
Here, your business might have to pay $5 billion in tax every year, and you pay $1 million in personal.
Somewhere else, your business only has to pay $1 billion in tax every year... just think about how much more you can pay yourself, even with twice the tax rate, in that country. It doesn't achieve the intended goal when the larger tax burden(corporate tax) is the highest in the world.
Even simply cutting the corporate tax rate provides no incentive for American businesses to hire American workers.
That foreign investment you talk about all the time.
Wouldn't those foreign investors find a company even more attractive it the company was posting an even bigger profit?
Which could be achieved by
a) taking the reduction in tax rate and investing in the cheapest workforce possible (e.g., outsourcing), or
b) taking the tax reduction and pocketing it, as companies have been doing throughout the recession. They've got the cash, they're just not translating it into jobs.
There is no direct correlation between giving businesses more money in their pocket and job creation.
The incentives have to be job-creation specific.
If tax breaks are the mechanism, they have to be tied to creating jobs here in the US.
MM, if the demand exists, businesses will try to fill it. With a job-specific credit, or with an open credit.
That's a whole nuther ballgame. "If the demand exists."
That makes it sound like there's this demand that's been sitting waiting for the white knight company to come and fill it but the white knight company is waiting for the foreign investors who will only invest if the corporate tax rate is low enough.
Where? They are in Texas where business is treated right! Democrats should look in Michigan, it's a liberals dream.
I thought Bush's tax cuts for the rich that were supposed to be there to get businesses to create new jobs were still in place?
They should have been cut for businesses too,
Specifically, what was the tax cut for the rich? Are you referring to the 4% which is on par or less than many of the middle class got? I know you're smart enough if you do the math that 4% turn those millionaires into the superrich. Just like if you raise that 4% like Obama wants to do those funds only cover the interest rate on the debt for 10 days.
Not at all! Lowering taxes is the bulk of the deficit, followed by the war, followed by tarp. All products of the previous administration. I voted for President Bush, believing lowering taxes would create jobs. It damn near bankrupted this country! So again, if we follow that mindset, the next time we might not be so lucky! Next time may be the "Great Depression II".
Have you noticed who has been President for almost four years? Has Obama ended the wars? He had a congress who would have done anything he wanted and he didn't end the wars. He didn't even need congress to end them and still didn't do it. Bush isn't at fault for that...right?
Well ......Hell , lets just raise the taxes year after year and we can all go onto the system ! Theres always welfare , or your back is killing yoou go onto dissability ! Food stamps will gettcha beer and cigarettes won't it ? Lets all just walk in the garden of social programs and stop this incessant need for self supporting ! Ohh No ! Thats already the norm !
CBO states that the combined effect of cutting spending and raising taxes would send us into a recession.
They say that because both actions have negative impacts on the economy.
So, if lowering taxes doesn't help the economy, how can raising taxes hurt the economy?
I understand it's a matter of supply and demand. If taxes are lowered for the super rich and the corporations, they will be able to produce new products. That's supply. But if the middle class does not have money to pay for those products, how does that create demand?
Where if taxes are lowered for the middle class and raised for the super rich and corporations, it does two things. It gives the middle class the money to create demand for new products and taxes from coporations and super-rich are added to the revenue which lowers the budget deficit.
The corporations and banks are cash flush right now. Banks won't loan money to businesses because the can earn more from derivatives. Manufacturing is always looking for the cheapest labor they can find. Thats why they oursource labor.
@peoplepower73, I agree. Tax imports higher also and reward corporations with tax breaks if they create jobs by investing in new businesses. We need to bring back Made In America. Not just lower corporation taxes who continue to hire overseas!
In other words we're scr**d You got it !.......Our leaders don't have a clue ! Why then ,do you and I?
ahorseback: They do have a clue. The republican agenda is to lock up the government until they get their man in the white house. And then pay back all the big pharma, big insurance, big banks, big oil, and all the other big moneyed special interests that have funded their campaigns. They do this by reforming government to fit the needs of the entities that got them into to office. They could care less about the man on the street and his or her causes. They just need them for the votes, because that's how the system gets them elected or re-elected. To answer your question, we get it because we don't accept any of this political theater on blind faith.
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