Guest post by Kalen Smith:
At the start of his first term in 2001 George Bush initiated a series of tax breaks that would go on to play a key role in expanding the national deficit. Since they were first enacted, the tax cuts have cost the government approximately $2 trillion in revenues.
Republicans and other conservatives claimed the tax cuts to wealthy individuals and large corporations were necessary to help job creators to encourage growth and lower unemployment. Of course, not everyone agreed and many Democrats were quick to counter the argument with a few of their own. They say that tax breaks for the rich stop the redistribution of wealth and hinder job creation.
Neither party offered any justification for their position instead merely expecting us to read between the lines and form our own conclusions off of vague innuendos. So, if we are to find rhyme or reason with either argument, we must find it ourselves…
The Republican Argument
Republicans want us to believe tax breaks encourage the wealthy and large corporations to spend more, grow GDP and expand their businesses.
The Democrat Argument
Democrats seem to believe ending tax breaks to the elite will help redistribute the wealth. Government can spend more on infrastructure and create more jobs in the process.
An Impartial Opinion
Both party’s arguments are clearly biased and flawed. Republicans call for extended tax breaks as a thinly disguised argument for protecting their privileged constituents. Meanwhile, Democratic fiscal policy has proven wasteful and equally ineffective in creating jobs.
The Flaws In The Republican Tax Cut Argument
There are a couple of holes in the Republican’s call for tax breaks. First, they assume tax breaks will encourage Corporations and the wealthy to spend more, but research data from Moodys suggests rich Americans save most of their tax breaks. In the second quarter of 2001, the savings rate among wealthy Americans was negative 2 percent. In the first quarter of 2002, the savings rate was 2.8 percent.
The same flaw holds true for large corporations. Last year, corporations saved more money than in any year since the Federal Reserve started keeping records almost 50 years ago. They saved 26% more of their cash in 2010 than in the year before. They have been reluctant to hire new employees on concerns of a global slowdown in economic growth.
The tax breaks have clearly been a futile effort to inspire job growth. Most likely, supporters of tax cuts have known this all along. From 2001 to 2006, only about 2.8 million jobs were created. Much of this growth was due to additional government spending, which the government somehow managed even with the tax breaks. The period from 2000-2008 was the slowest year for job growth since the depression.
If anything, this points out that tax breaks curtail job growth. Opponents to the tax breaks would argue that we could cut taxes and job growth would follow. However, there are many other factors that limited job growth up to 2008. The tax breaks are probably not to blame, but they clearly didn’t jumpstart the jobs rally we were all hoping for.
Digging a little deeper, the job growth that would be inspired by cutting taxes would be miniscule at best.
The Flaws In The Democrat Tax Rise Argument
Any job growth from raising taxes would be the result of short-term government projects and stimulus spending. The results of the last stimulus package were less than impressive. According to the White House’s Council of Economic Advisors, the stimulus package cost taxpayers $278,000 per job created or saved.
Most of the jobs created by the stimulus package were temporary positions. The purpose of these jobs was to create an opportunity for employees to get by until the economy improved. The real unemployment rate is now over 16%. Even President Obama has admitted that the ‘shovel ready jobs’ created in the stimulus plan weren’t “as shovel ready as we expected.”
According to a poll from Pew Research Center last year, nearly two thirds of Americans felt the stimulus package failed to create jobs. Most Americans would probably be hesitant to watch additional tax dollars wasted on a second stimulus plan.
Keeping The Real Goal In Site
The rival parties will no doubt continue to waste their time arguing on tax policy, this is, however, an endeavour that offers no benefit to jobseekers. In the mean time, hopefully, enough politicians from both sides will work on a real solution on job creation.
Kalen Smith writes about financial affairs and budgeting at www.MoneyFile.net, a personal finance blog in the saving and financial advice sector.
