Who Creates Jobs? Taxes, Spending, and Class War

Republicans oppose spending for unemployment compensation and for plugging holes in states’ Medicaid and education funding, but they fight to extend the Bush tax cuts for the top 2% of income-earners—those making over $200,000.  This, according to the Wall Street Journal, is not “class war,” but President Obama’s proposal for increasing taxes on that top 2% is.

The Journal opposes the President’s proposal because it “means raising [taxes] on the Americans most likely to take the risks that spur economic growth.”  The Journal pointedly asks: “Mr. Obama and Nancy Pelosi think they can play their usual class war card to justify raising taxes on the rich, but that’s risky political business with unemployment at 9.5%.  Who do they think will create new jobs—people making less than $200,000 a year?”

Rich people create jobs by investing in companies (little ones they own themselves or big ones they own stock in), and it’s these companies who actually hire workers and pay them a wage.  This is true.  But it’s like saying that the light coming from the ceiling of my office is caused by the light switch on the wall.  Without turning the switch on, there will be no light, but the ultimate creator of that light tracks back to a power station and a national electric grid that hooks into the wiring behind the walls of my building.  In an economy, consumer demand is the power station, the grid, and most of the wiring.  If there is not enough consumer demand, businesses have no reason to hire new workers—just as there is no reason to switch the light on if nobody is using the room.

The reason companies aren’t hiring more now isn’t that they don’t have the money.  It’s the lack of consumer demand.  Businesses are currently sitting on huge piles of cash.  According to Bloomberg Businessweek, the 3,000 largest publicly traded U.S. companies “have $2.9 trillion in cash and short-term investments” they don’t know what to do with.  Workers and consumers (and most state governments), on the other hand, are struggling to pay last month’s bills and to provide for basic necessities.  The latter is the primary cause of the former.  That is, not enough money in the hands of workers and consumers means a lack of profitable investment opportunities for business and rich folk.

That’s why extending unemployment compensation, among many other things, will create more jobs than any tax cut.   Using the Congressional Budget Office’s estimates of the job-generating capacity of different policy options, here’s the proposed cost and predicted job growth for the three policies currently in dispute:

POLICY

Amount passed or proposed Number of jobs likely created in 2010-2011
Increased aid to the unemployed $34 billion 300,000 to 600,000
Increased aid to states $26 billion 80,000 to 180,000
Tax cuts for top 2% $70 billion 70,000 to 210,000

Thus, given that the tax cut desired by the Journal is twice as big, extending unemployment compensation creates from 6 to 8 times the number of jobs as the tax cut would.  Aid to states creates about 3 times as many jobs.

You can turn this around and say that a $70 billion tax increase on the top 2% could lead to the loss of as many as 210,000 jobs, and that would be true (given the CBO estimates).  But if the government used that $70 billion in new revenues for increased aid to the unemployed, it would create more than 1.2 million jobs–or a net gain of about a million.  Why wouldn’t we as a nation want to do that?

On the other hand, you might note that the Obama 2010 “stimulus” package, totaling $60 billion, is predicted to produce a maximum of 780,000 jobs.  That’s helpful for some of the 14.6 million who are currently unemployed (as officially calculated), but it’s not enough.  Democrats are doing the right things to stimulate the economy, but not nearly at the magnitude necessary to get it growing strongly enough to reduce unemployment anytime soon.

As I pointed out in March, the Obama White House was dismissive of a much stronger 2nd stimulus plan proposed by a coalition of unions, the National Urban League, and the Center for Community Change.  That one would have spent $400 billion (on the same kind of things the administration is spending it on) and would have created 4 million jobs.  The White House dismissed it on political, not economic, grounds.  Something of that magnitude would never pass Congress, they said.

The problem with strictly political calculations is that it’s often politically stupid to propose and pass something that is not substantively adequate to the size of the problem.  After bitter fights with Republicans, the President added more accomplishments to his resume this summer by passing one more temporary extension of unemployment benefits and a state bail-out package that will leave states still woefully under water.  After his impressive string of legislative “victories,” however, he now owns the current state of the economy, which the majority of Americans see as “on the wrong track.”

The President should take advantage of recent bad economic data on GDP growth and unemployment to admit his mistake.  That by itself is always refreshing in a president.  And if he’s going to be accused of “class war” for merely restoring Clinton-era tax rates on the top 2%, why not do enough taxing and spending to deserve that charge?

As the Institute for Policy Studies and others have shown, the top 5% are good for at least $500 billion in various tax increases that could be put to productive uses in a wide variety of ways.   As the CBO estimates show, taxing the rich kills some jobs, but not nearly as many jobs as are created by bailing out the unemployed, state governments, construction workers, autoworkers, transit workers, homeowners, and many others.  With that kind of increase in consumer demand, the businesses currently sitting on trillions of dollars would start hiring to produce all the things they could profitably sell.  In other words, ironically, a more robust class war would be very good for business.

Jack Metzgar


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9 Responses to Who Creates Jobs? Taxes, Spending, and Class War

  1. Pingback: helping poor people better for the economy - US Message Board - Political Discussion Forum

  2. Pingback: Who Are The Job Creators? - Page 3 - US Message Board - Political Discussion Forum

  3. Pingback: Buffet rule passage would cost us jobs - Page 9 - US Message Board - Political Discussion Forum

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  5. One of the most serious current impediments to job creation is the continuing backdoor bailout of financial institutions in the form of ZERO interest loans made by the Fed under the auspices of the Treasury. These loans total around $2 trillion, and are intended to allow the financial institutions to replenish their ravaged capital.
    The deleterious effect on job creation results from the lack of interest paid on savings/CD accounts. In a normal environment [where these massive loans to banks are not made at ZERO interest], those banks would fund themselves by raising time deposits AND PAYING COMPETITVE INTEREST on them.
    Consumer spending accounts for +/- 70% of GDP. Consumer spending is the linchpin in job creation. Much of the “lost” interest on time deposits would be recycled in the economy. If the interest paid on time deposits were to be in the range of 3% it would mean foregone interest to savers of
    roughly $132 billion[2.2 trillion X 3% X 2 years of this hidden drag on consumer spending] The Gov’t estimates that $200,000 of consumer spending generates one job It is a fact that there is a multiplier effect when
    money circulates through the economy,i.e.,the “lost” interest would largely be respent as it passes through consumers hands to business. Those businesses would create new jobs, and those wages would be spent by the new employees.
    It is hard to estimate what the multiplier would be, but given the dire circumstances of so many Americans, 3-5 times is not inconceivable.
    Allowing for the fact that the upper tier of “savers” would not spend the interest, but rather reinvest, the calculations get rough at best.
    Conservatively, if 2/3 of the “lost” interest gets recycled, and the multiplier
    is 4X, then we have lost over 1,750,000 jobs at the expense of the craven
    bankers who gambled [and continue to do so ] at that great derivative casino in the sky.

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  6. Thank you! says:

    I agree with your article 100%. It’s funny that politicians use the excuse of personal income of small business owners as the reason why 2% of America shouldn’t see an increase of tax. I highly doubt this is THE reason why few jobs are being created. Were people that concerned back in 2008? Trickle down economics is not the solution. We’ll see how everything plays out when 2013 campaigns start on Nov 3rd

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  7. Andrew Sayer says:

    Most of the income of the super rich is unearned (i.e. parasitic); it comes from rent, interest, dividends and speculation on existing assets, and depends not on creating goods and services which others can consume but on using their control of existing resources to extract wealth that others have produced. Any dollar that they ‘earn’ only has value only if goods and services have been produced somewhere by others for them to buy with that money. How else could they consume without producing? When they ‘invest’ in shares, in 99% of cases, the money goes to the previous share owners who sold them, not to the company which has to pay them dividends.
    Sophisticated defenders of the rich say they provide a service in moving money to where it’s needed through their ‘investment’ and speculation. They certainly move it around, but to where it is expected to make most profit, not necessarily where it’s most needed. The most profitable things have often been speculating on existing asset values rather than creating anything new that’s useful. Something that’s needed isn’t profitable if those with the need for it can’t afford it. Money follows money, not necessarily need.
    We can’t afford the rich!
    All the best with your campaigns!
    Andrew Sayer, UK

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  8. Bennett Steury says:

    Taxing the top 2% or even the top 5% seems like the best route for job growth. Even the rich, or maybe a small minority of them, have more money than they know what to do with to the point that they are going to give a share of their wealth away. At the urging of Bill and Melinda Gates and Warren Buffet in their Giving Pledge or Billionaire Challenge, over 40 of the country’s rich will be sharing their fortunes with charity. So, we know at least some of them would be more than amenable to increasing their tax rate to help the economy.

    What about the rest of the rich ? Well, they are probably in the group from the 3,000 largest publicly traded companies that are holding onto the $2.9 trillion you mentioned because they don’t know what to do with it. If the rich are not going to create jobs and spur innovation like they claim to be champions in, and instead sit on trillions while the country and its workers suffer, then they should be taxed: we can call it a “thanks for nothing” tax.

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