Tax Cuts and Jobs

In the current US presidential election, the issue of tax cuts comes up again as a political agenda. The reason presented for tax cuts is none other than the creation of more jobs. How important is the linkage between tax cuts and jobs? I think it is insignificant at best.

Let’s first look at the motives of tax cut. Who wants to pay a lower tax rate? The answer is clearly everybody. Who wants to pay lower taxes most? The answer is the rich because they pay most taxes thus they have the highest stake. Who need government services more? The answer is the majority of citizens who earn average or lower incomes. So it’s not hard to understand that tax cut is the constant motive of the rich minority. They don’t want their money spent on supporting lower income groups, and must find a way to seduce them for support of a tax cut. The Republican Party has the reputation of advocating tax cuts in every election. Worse, the Party always proposes a flat rate of tax cut that favors the rich. Let me show you the gross unfairness below:

According to the tax table published by the Internal Revenue Service, a single person earning an average income of $50,000 a year pays about $8,500 in federal income tax (17% rate). By contrast, Mitt Romney, the Republican Presidential Candidate, made $13.7 million in 2011 and paid $1.9 million in federal income tax (14% rate). Is this fair between these two incomes? Warren Buffett, for one, says it’s not fair for him to pay a lower rate than his secretary. This case once again shows that the US taxation is highly regressive, far from progressive as it should be in all other developed countries.

Worse still, under the Bush tax cut enacted in 2001, every taxpayer is entitled to the same rate of tax cut in the name of fairness. For instance, a 10% tax cut would require the government to refund $5,000 to the average-income person mentioned above. As for Mitt Romney, the government would have to refund him $1.37 million! It’s obvious that the government is subsidizing the rich with a flat rate tax cut for all.

Furthermore, the average-income person needs the tax refund more than Mr. Romney. Chances are he will spend the $5,000 refund quickly to buy the things he needs, thus re-circulating the money back into the economy. On the other hand, Mr. Romney may want to buy one more expensive painting or a pleasure boat someday, or he may want to put the money away in his Bermuda or Swiss accounts.

A tax cut means less revenue for the government. It will lead to a corresponding reduction in government expenditure if the budget is to be balanced. The rich want to push for reduction in social security and health care because they don’t need government help in those two areas. In this way, the burden is shifted to the middle and lower income groups, who constitute the great majority of voters.

In a democratic society, a political agenda must present an official reason in order to get votes. Since a tax cut to directly benefit the rich minority cannot sell, they need to frame the issue in such a way that attracts the majority vote.  How? A smokescreen must be invented to link tax cut to something that the majority understands. What is the trick? Just bombard the masses with the fantasy idea that tax cuts will create plenty of jobs!

If you are a small or medium business owner, what is the reason that makes you hire more workers? You must be able to see business is improving that your current staff won’t be able to handle the bigger load. The same applies to big corporations, too. But corporations have one more choice  – They can hire overseas where wages are cheap. If a business owner or manager starts to hire more workers just because of a tax cut, he has no business common sense at all, and his operation is destined to fail. In general, a company simply does not hire more workers because of a tax cut. Therefore, a tax cut for the rich creates no new jobs. Giving the rich the same rate of tax cut as lower-income groups is equivalent to welfare for the rich at the expense of the great majority.

So, don’t let yourself be fooled into believing that tax cuts for the rich and big corporations will create jobs. If you belong to the majority making average or lower income, you are doing yourself a big disservice by voting for somebody or something that is detrimental to your own interests.

September 2012

This entry was posted in Business/Investment, Economics/Politics. Bookmark the permalink.

5 Responses to Tax Cuts and Jobs

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