Question about tax cuts and job creation

[Darth Wong]

I often hear it said by conservatives that the best way to spur job creation is through tax cuts, not public works programs. Leaving aside the long-winded debates about whether this is true, I have a question, which I don't believe I have ever heard asked or answered when people debate this idea:

If tax cuts are meant to spur job creation, why are those tax cuts not tied to job creation? Why should a company which employs people in China be getting the same tax cut as a company which employs people in Wisconsin?

If that's the goal of tax cuts, then why not turn them into tax credits, tied to the number of people you employ locally?

[Phantasee]

I don't see how personal tax cuts lead to job creation. Don't most people incorporate their business? Which means that if they're making over $250k, that's from their own paycheque/dividends from their company. Which isn't job-creating money, really.

[Surlethe]

Won't payroll tax cuts specifically cause local employment to rise? Not that that's the only kind of tax cut. In positive terms, it seems like how much a tax cut stimulates local employment vs overseas employment depends on two things: what kind of tax cut it is and how the economy responds to the tax cut. For example, a payroll tax cut will target local employees and get higher local employment. How a corporate income tax cut affects employment, however, will depend on how the corporation decides to distribute its newly-gained income. There's a multiplier effect here. It can send part of it to shareholders and reinvest part of it. The part sent to shareholders is partly invested and partly spent; the part reinvested will go either overseas or stay home. The part that stays home will either go toward expanding employment or expanding/repairing the capital stock. These are just the direct impacts, obviously, but we can probably ignore higher-order effects. The magnitude of the proportions (what fraction goes to actually hiring new employees?) is an empirical question, but it seems to me like it would be small.

In terms of local jobs vs. international jobs, from a utilitarian perspective, why should local jobs be worth more than jobs overseas? The political argument is obvious, but the moral argument doesn't seem as clear-cut to me.

[Alyrium Denryle]

Won't payroll tax cuts specifically cause local employment to rise?

From a utilitarian perspective, why should local jobs be worth more than jobs overseas?

They are not. However they are preferable if the sphere of concern for your decision making is local. Granted I am taking a more pragmatic approach there.

[aerius]

I don't see how personal tax cuts lead to job creation.

In theory, it means people will spend more of their money on stupid stuff, which creates jobs since more people will have to work to make and sell the stuff.

[ray245]

I don't see how personal tax cuts lead to job creation.

In theory, it means people will spend more of their money on stupid stuff, which creates jobs since more people will have to work to make and sell the stuff.

However, doesn't that depends heavily on the people's mindset? When a recession as big as this hits, most people won't spend additional money no matter how much tax cuts they are getting.

[Patrick Degan]

In terms of local jobs vs. international jobs, from a utilitarian perspective, why should local jobs be worth more than jobs overseas? The political argument is obvious, but the moral argument doesn't seem as clear-cut to me.

Simple: a large unemployment rate in a locality directly impacts the overall performance of the economy and the ability of the government of that community to finance vital city services due to a reduced tax base. Unemployed people cannot hang onto their homes or stand a major financial crisis such as a family illness (no insurance), which means increased mortgage defaults, which means lowered property values, which in some cases may lead to blighted neighbourhoods and further plummeting property values as a result, which means again a much reduced tax base from which to draw revenue to finance city services. Which impacts negatively upon the provision of those measures which ensure quality of life and even basic needs such as police protection, public transit, garbage collection and sewage repair and maintenance. Since this situation depresses quality of life overall for an entire community, the utilitarian position would be to favour local job creation to maximise benefit for the largest number of people, both directly and indirectly, in that community.

[TrailerParkJawa]

I've often seen conservatives saying tax cuts will favor the small business man. If his costs are lower he is more likely to hire more staff. So I don't think they are actually refering to lower taxes for companies that have outsourced to China. However, when I hear this I think that most people working jobs at small business' are not highly paid so do we really get the boost from that sorta of job creation, assuming it really happens?

[ray245]

I've often seen conservatives saying tax cuts will favor the small business man. If his costs are lower he is more likely to hire more staff. So I don't think they are actually refering to lower taxes for companies that have outsourced to China. However, when I hear this I think that most people working jobs at small business' are not highly paid so do we really get the boost from that sorta of job creation, assuming it really happens?

Yeah, but is the tax cuts drastic enough for him to start hiring a bunch of people all of a sudden? If a business is not doing well, no matter how low his taxes are, it won't motivate him to hire more people.

[Rye]

Simple: a large unemployment rate in a locality directly impacts the overall performance of the economy and the ability of the government of that community to finance vital city services due to a reduced tax base. Unemployed people cannot hang onto their homes or stand a major financial crisis such as a family illness (no insurance), which means increased mortgage defaults, which means lowered property values, which in some cases may lead to blighted neighbourhoods and further plummeting property values as a result, which means again a much reduced tax base from which to draw revenue to finance city services. Which impacts negatively upon the provision of those measures which ensure quality of life and even basic needs such as police protection, public transit, garbage collection and sewage repair and maintenance. Since this situation depresses quality of life overall for an entire community, the utilitarian position would be to favour local job creation to maximise benefit for the largest number of people, both directly and indirectly, in that community.

That doesn't answer his question, as all of that applies equally to everywhere else too. Why does the more distant and likely empoverished and vulnerable community matter less than those in first world poverty? There's no easy answer here, save that utilitarianism isn't all that important when you have a surplus of species members.

[Patrick Degan]

Simple: a large unemployment rate in a locality directly impacts the overall performance of the economy and the ability of the government of that community to finance vital city services due to a reduced tax base. Unemployed people cannot hang onto their homes or stand a major financial crisis such as a family illness (no insurance), which means increased mortgage defaults, which means lowered property values, which in some cases may lead to blighted neighbourhoods and further plummeting property values as a result, which means again a much reduced tax base from which to draw revenue to finance city services. Which impacts negatively upon the provision of those measures which ensure quality of life and even basic needs such as police protection, public transit, garbage collection and sewage repair and maintenance. Since this situation depresses quality of life overall for an entire community, the utilitarian position would be to favour local job creation to maximise benefit for the largest number of people, both directly and indirectly, in that community.

That doesn't answer his question, as all of that applies equally to everywhere else too. Why does the more distant and likely empoverished and vulnerable community matter less than those in first world poverty? There's no easy answer here, save that utilitarianism isn't all that important when you have a surplus of species members.

The question is not "which group matters less". The question is, rather, where action can have the most immediate impact and later the increased indirect impact to bring about the most benefit to the maximum number of persons. Impoverishing your own community in favour of the distant community in a zero-sum operation (i.e. outsourcing jobs) is not going to achieve that end, as recent events have demonstrated.

[Darth Wong]

How did this question get derailed into a discussion of the global ethics of local job creation? The fact is that local tax cuts are often sold as local job creation initiatives, and I am asking a question about their efficacy with respect to that stated purpose. It's completely irrelevant whether you think that stated purpose suits a global ethical system.

[LapsedPacifist]

Obama's Remarks on Bdget

Now, I think it's very important to understand: We won't be able to bring down this deficit overnight, given that the recovery is still taking hold and families across the country still need help. We will continue, for example, to do what it takes to create jobs. That's reflected in my budget; it's essential. The budget includes new tax cuts for people who invest in small businesses, tax credits for small businesses that hire new workers, investments that will create jobs repairing roads and bridges, and tax breaks for retrofitting homes to save energy.

[General Zod]

I never understood the tax cuts = jobs thing myself. How do tax cuts make sure that the employer is going to bring in more revenue to justify hiring new employees? It really doesn't seem like the cuts are going to be enough to offset the costs of a new hire.

[Darth Wong]

Obama's Remarks on Bdget

Now, I think it's very important to understand: We won't be able to bring down this deficit overnight, given that the recovery is still taking hold and families across the country still need help. We will continue, for example, to do what it takes to create jobs. That's reflected in my budget; it's essential. The budget includes new tax cuts for people who invest in small businesses, tax credits for small businesses that hire new workers, investments that will create jobs repairing roads and bridges, and tax breaks for retrofitting homes to save energy.

I guess that means it's just a pinko-commie-leftist-homo-jizzporium-Muslim-Kenyan-ObamaCare idea to actually tie tax breaks to specific localized actions rather than just cutting taxes on rich people and assuming they will magnaminously spread some of their bounty to the unwashed masses.

As an aside, why do people put up with this rich person "cut our taxes or we'll leave and take all our money out of the country" attitude? Why doesn't that kind of attitude generate some kind of angry backlash, from the people who can't fuck off to the Cayman Islands with their vast fortunes at will? And why is the government perceived to be impotent against this threat? Can't they simply outlaw the practice and then seize assets or use extradition treaties? Or at the very least, inform these fuckers that if they do this, they will never be allowed to set foot in the United States without handcuffs again? I would tend to think that even a rich douchebag might be taken aback at being told "You are banned forever from the United States. You can never come home, ever, not even to visit."

[General Zod]

The cuts wouldn't completely offset the cost, but only tip the businesses on the fence over to the hiring side of the line. One idea of the tax cut or credit is to shift the balance from "we could hire, but it isn't really worth it" to "let's go ahead and give it a shot". I* can understand this working in theory, but we'll see how it works in practice.

* Note that I'm no economicist, and my personal experience is all very small scale.

The other idea is that people will have more money, and thus spend more, providing demand for businesses to turn up their supply; there is more opportunity for the business to make the money and more work for them to do, so hiring people is both affordable and necessary.

Barack Obama mentioned this basic idea to Joe the Plumber (before anyone knew who Joe was) - spread the wealth around and it benefits everyone. Doing it though tax cuts always smells like bullshit to me though.

It still doesn't seem like a great way of encouraging growth to me. Working for a small business myself, the only way we wind up hiring new people is if we get a big enough increase in the workload that it becomes a burden to go without adding someone new. Naturally this means we need a lot of additional customers and more revenue; not tax breaks.

[Surlethe]

Can we split my global ethics tangent with Degan and Rye? Sorry about that.

I'm going to see if I can find any empirical studies of the local/international investment effects of income changes (since that's effectively what a tax cut is).

[Akhlut]

As an aside, why do people put up with this rich person "cut our taxes or we'll leave and take all our money out of the country" attitude? Why doesn't that kind of attitude generate some kind of angry backlash, from the people who can't fuck off to the Cayman Islands with their vast fortunes at will? And why is the government perceived to be impotent against this threat? Can't they simply outlaw the practice and then seize assets or use extradition treaties? Or at the very least, inform these fuckers that if they do this, they will never be allowed to set foot in the United States without handcuffs again? I would tend to think that even a rich douchebag might be taken aback at being told "You are banned forever from the United States. You can never come home, ever, not even to visit."

Because Americans love the rich and hate the gubmint, essentially.

Also, from what I can see, there's a large current of thinking in America that anyone can succeed if they apply themselves a little bit and get a few nice breaks. So, to that end, they don't want to vote against the interests in the rich, in the fear that one day they will become the rich and thus be denied their wealth in the face of government 'oppression'.

The fact that that almost never happens is irrelevant. Most Americans don't give a shit that it won't happen to them because they think it is possible it might happen.

Plus, as I said, Americans fucking love and idolize the rich. We have celebrities are who are celebrities because they are just so fucking rich. Would Paris Hilton be so popular in nearly any other country on earth because she gave a grainy night-vision handjob to her boyfriend and spent more money on her birthday party then a lifetime of wages accumulated by thousands of Somalis? Would Kim Kardashian become as popular as she is in Mongolia for fucking a rapper on videotape and...uh, not much else? Yet, in America, we fetishize (in every sense of the word) the rich and turn them into cult objects, so a lot of people don't want to harm their cult objects, regardless of how much harm actually occurs to them.

[ArmorPierce]

I often hear it said by conservatives that the best way to spur job creation is through tax cuts, not public works programs. Leaving aside the long-winded debates about whether this is true, I have a question, which I don't believe I have ever heard asked or answered when people debate this idea:

If tax cuts are meant to spur job creation, why are those tax cuts not tied to job creation? Why should a company which employs people in China be getting the same tax cut as a company which employs people in Wisconsin?

If that's the goal of tax cuts, then why not turn them into tax credits, tied to the number of people you employ locally?

Ultimately, it is mostly a lie in order to further enrich the rich. During bad times, the rich moves to protect and shield their money. Tax cuts for the poor, whom by necessity must spend more of their money for day to day living, is the more logical decision.

The logic behind it is that the government is inefficient and shouldn't be dictating to people how to spend their money and the individual man and the free market will do better than any socially crafted idea from the government.

[Drooling Iguana]

It's a pretty stupid idea to begin with. Businesses exist to generate profit, and a well-run business is one which generates the maximum amount of profit. One of the main tenets to profit maximising is to keep your expenditures to a minimum, which means, among other things, spending as little as possible on payroll. A business is going to try to have as few employees as possible while still serving their market base.

If you want businesses to hire more people you need to expand the market, which means putting more money in the hands of the poorer classes who are more likely to spend it. Giving more money to the owners of the businesses is going to do jack squat because businesses hire people because they need to, rather than simply because they can.

[starfury]

The indirect reasoning of lower taxes = more spending = more work to do is more sound, but I'm skeptical of that too, especially if you are talking about cutting taxes on the rich. Talking heads say "you can't tax those who create jobs!!11!" referring to those rich people, but the math is just bullshit at that point. Those tax cuts don't affect the funds available to hire employees at all.

It may be bullshit, however it dovetails nicely for the whole trickle down idea of business having more money to spend to expand to sell stuff, nevermind that they may lack customers for their goods, I don't think that really enters into their thought at all.

The logic behind it is that the government is inefficient and shouldn't be dictating to people how to spend their money and the individual man and the free market will do better than any socially crafted idea from the government.

Again it seems to dovetail wonderfully into the idea of that law of the free market would magically creates jobs just by funneling money to them, even better if you are of the rich are the "said Business", and therefore more capable to begin then the evil goverment bureacrat and their red tape, which only hinders your rugged individualism and helps those incapable "business failures" to survive, The fact that it manages to greatly increase your wealth while not showing it obviously improving employment is because "those stupid regulations" held them back.

[Teebs]

I never understood the tax cuts = jobs thing myself. How do tax cuts make sure that the employer is going to bring in more revenue to justify hiring new employees? It really doesn't seem like the cuts are going to be enough to offset the costs of a new hire.

My economics degree says the theory is that people will keep on employing new workers until the marginal return of an extra worker is equal to the marginal cost of hiring that extra worker. Marginal costs increase with more workers while marginal returns decrease. Reducing taxes (at least certain ones) should reduce the costs of all workers and the marginal cost of hiring an extra one and so that extra one would get hired where they wouldn't without the tax cut.

How well it works in practice I don't know. I'd be inclined to think not very well at all, but this would depend heavily on which taxes were cut. For example, a cut in national insurance might have an effect since that's a per-worker cost, but a cut in corporation tax wouldn't.

[CmdrWilkens]

If tax cuts are meant to spur job creation, why are those tax cuts not tied to job creation? Why should a company which employs people in China be getting the same tax cut as a company which employs people in Wisconsin?

If that's the goal of tax cuts, then why not turn them into tax credits, tied to the number of people you employ locally?

Because the claim is not mechanistically driven. The theory behind tax cutting for job creation is that in and of themselves taxes are a hindrance towards hiring. That is the axiom of the entire belief. Once it is taken as an axiom there is no need, within the theory, to "target" the tax cuts as any such cuts will, by theory, result in job creation. In other words from an adherent's standpoint talking about targeting or linking tax cuts to actual job creation is like asking for turning on a light to be linked to raising the brightness of a room. Within the confines of the theory job creation follows from tax cuts as naturally as water flows downhill therefore linking them to actual jobs created is redundant. The valuation is placed on the jobs alone and not their locale, quality, sustainability, or other issues (that would be excessive hindrance of the free-market which gets in to that whole bug-a-boo).

[xammer99]

I never understood the tax cuts = jobs thing myself. How do tax cuts make sure that the employer is going to bring in more revenue to justify hiring new employees? It really doesn't seem like the cuts are going to be enough to offset the costs of a new hire.

My economics degree says the theory is that people will keep on employing new workers until the marginal return of an extra worker is equal to the marginal cost of hiring that extra worker. Marginal costs increase with more workers while marginal returns decrease. Reducing taxes (at least certain ones) should reduce the costs of all workers and the marginal cost of hiring an extra one and so that extra one would get hired where they wouldn't without the tax cut.

How well it works in practice I don't know. I'd be inclined to think not very well at all, but this would depend heavily on which taxes were cut. For example, a cut in national insurance might have an effect since that's a per-worker cost, but a cut in corporation tax wouldn't.

To put it in somewhat more practical terms...

1. Small businesses employ about 1/2 of US workers.
2. Most small business owners file their business taxes/income on their personal income taxes, not as true corporations.
3. An income tax cut results in more income for the business owner who can either take it as income or, hopefully, use the money to hire another worker whose productivity will result in more net income.
4. An income tax cut results in more income for the worker who will in turn consume more necessitating more production.

That's the theory, debate/whine/whatever about the results, but that's the model being operated off of.

[Questor]

2. Most small business owners file their business taxes/income on their personal income taxes, not as true corporations.

While I acknowledge that this is true, I really don't understand it. What is the motivation for doing this? Don't most states still require/encourage with tax breaks a separate corporate return?