The idea that tax breaks for wealthy create jobs is hooey; in fact it’s taxing the wealthy that creates jobs.

I’m a little late to mention it, but the usually estimable Charles M. Blow added to the massive evidence that lowering taxes on the wealthy does not create jobs, nor build additional wealth, but in fact destroys jobs and wealth.

In his “charticle” (chart plus short article) titled “The Pirates of Capitol Hill,” first published in the New York Times of Saturday, August 16, Blow presents a chart that tracks the marginal tax rates on the highest incomes and gross domestic product (GDP) since 1913, a good start date for the modern industrial state in The United States.

The marginal tax rate, BTW, is the amount of tax paid on an additional dollar of income. The marginal tax rate is the highest rate, but people will only pay it on the amounts earned above the highest cut-off point, not on all their income.

In these past 98 years, whenever the marginal tax rate for the wealthy went up, so did GDP. Whenever marginal tax rates on the wealthy went down, so did GDP.  The only time that GDP has ever declined in this country coincides with the times that we have had the lowest marginal tax rates on the highest incomes. In other words, when the wealthy pay less in taxes, our rate of GDP growth takes a swan dive and we sometimes even get GDP shrinkage.

The explanation for the relationship between low taxes on the wealthy and poor economic performance is easy: For every dollar that the government spends, it will put 100% of it back into circulation, either as salary to its own employees, benefits to citizens or payments to its suppliers.  All this circulation of money back into the economy creates jobs either directly or indirectly.

But when someone who already is rich gets the money, that money is likely to exit the productive economy, because it will likely go into:

  • Traditional investments: The only time that buying a stock or bond significantly helps create jobs is when the bond or stock is a new issue, that is, when the money goes to the company to create the jobs.  When you buy existing stocks, no additional money goes to the companies whose stock it is, and therefore no additional jobs are created. 
  • Financial machinations, such as options and other hedging, which create no additional companies or jobs beyond a relatively few highly-paid financial whizzes.
  • Art work and other high-end goods for which the price of the object primarily represents non-productive added value that sits in the product rather than being circulated around the economy.  To put simply, when you buy a Picasso for $45 million it creates fewer jobs than when 4.5 million people pay $100 each for a nicely framed print of the painting. 

To those who say that the wealthy do in fact use a goodly portion of the additional money they have under low tax regimes, I respond in three ways:

  1. That’s not what the statistics say.
  2. But not as much as the government does, since the government spends 100% of what it takes in.
  3. Do they now? (Read with sarcasm!)  My analysis of 35 years of analyzing business news media has been that the wealthier one is, the more likely one will finance job-creating ventures with OPM—other people’s money.

Blow ends his article with “But the spurious argument that cutting taxes for the wealthy will somehow stimulate economic growth is not borne out by the data. A look at the year-over-year change in G.D.P. and changes in the historical top marginal tax rates show no such correlation. This isn’t about balancing budgets or fiscal discipline or prosperity-for-posterity stewardship. This is open piracy for plutocrats. This is about reshaping the government and economy to benefit the wealthy and powerful at the expense of the poor and powerless.

Amen, brother!

 

opedge
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