Do Tax Cuts For The Wealthy Create Jobs?

The Democratic theory says we need to invest in our country in order to create jobs. This includes rebuilding our infrastructure, giving assistance to people who have been laid off during tough economic times, targeted tax cuts to stimulate small businesses and helping companies develop new technology. It also includes spending money on education, training, and projects that put people to work.

The Republican theory says the government should not be responsible for creating new jobs and should not spend money on job creation. Since the wealthiest Americans are job creators, if we cut taxes for corporations and the wealthy, they will use that money to invest in their businesses and that will create jobs.

To see how well these two approaches work, let’s compare the record of the most recent two-term Democratic and Republican presidents by looking at the unemployment numbers from the Bureau of Labor Statistics.

Bill Clinton raised taxes on the wealthiest Americans and invested in our economy. Republicans said this tax increase would cripple our economy, kill jobs and balloon the budget deficit.

However, that tax increase was followed by the seven best years of economic growth in our country’s history. Everyone prospered, including the poor, the middle class, and the wealthy. The stock market tripled in value. There were 22 million new jobs added to the economy, the federal budget was not only balanced but we had a surplus and, according to the Census Bureau, the percentage of Americans living in poverty fell every year during the Clinton years – from 14.5% to 11.3%.

Link: Census Bureau Poverty Statistics.

In fact, the growing budget surplus that remained when Clinton left office was projected to pay off our national debt within 20 years and there was talk of using the surplus to shore up Social Security and Medicare for the next century.

George W. Bush took a different approach. He stimulated the economy by cutting taxes - mostly for the wealthy.

Bush wiped out the budget surplus and instantly created a record high budget deficit which eventually doubled our national debt to $11 trillion. During his eight years as president we had two recessions and a net gain of about 2 million new jobs. According to the Census Bureau, the percentage of people living below the poverty level increased for five of Bush’s 8 years in office. By the time Bush left office, our shattered economy was losing 750,000 jobs per month.

Bush’s final year in office left us with a budget deficit of over one trillion dollars.

So maybe that was just Bush. Let’s look at the Reagan tax cuts. In 1981, when Reagan was sworn in as president, the unemployment rate was 7.5% and falling. That summer Reagan signed a 25% tax cut. At the time it was the biggest tax cut in history. Soon the unemployment rate started to go up again.

By the end of Reagan’s first year as president, unemployment was up to 8.5%. By the end of Reagan’s 2^nd year, unemployment was up to 10.8%. It wasn't until March, 1983, over 2 years into his presidency, that unemployment started going down. Three years after the Reagan tax cuts were signed, unemployment finally dropped down to where it was before he took office.

Link: Historical Unemployment rates

Although some people want to rewrite history to suggest that Reagan was an economic genius, he took an improving economy and made it much worse for 3 years before it finally began to improve.

At the beginning of 2013, President Obama raised taxes on the top 1% of earners. Anyone making more than $400,000 a year saw their top income tax rate rise from 36% to 39%. There was also a slight increase in the Capital Gains tax.

Republicans opposed this tax increase and predicted it would kill jobs, increase the federal deficit and put the economy into another recession. What actually happened in the two years from January 2013 to January 2015 was that unemployment dropped from 7.9% to 5.4%. An average of 200,000 jobs were created per month and the federal budget deficit was cut in half. Job creation was so robust that the year 2014 was the best year for job growth since 1999.

It's important to mention that under Presidents Reagan and Bush the annual federal budget deficit grew profoundly bigger during their time in office adding trillions to the national debt. Under both presidents Clinton and Obama, the budget deficit actually shrank. Clinton wiped out the deficit entirely and gave us a budget surplus while Obama inherited the biggest deficit in history which he reduced by nearly 70% in six years.

If, as we've often been told by Republicans, tax cuts for the wealthy were truly the best way to create jobs, one has to wonder why the Bush record on the economy is so pitiful compared to that of Bill Clinton.

The Bush tax cuts remained in effect for over ten years while our economy slid into the worst recession since the Great Depression. Taxes for most Americans were lower than any time in over 60 years. If the Republican theory is true, then we should have been creating more jobs during that time than ever before.

Both Presidents Clinton and Obama raised taxes on the very wealthiest 1% and both of those tax increases were followed by years of economic growth, reduced deficits and job creation.

By any objective standard, the Republican claim that tax cuts for the wealthy are the best way to create jobs has been thoroughly disproven.