Tax cuts to create jobs

Discussion in 'Politics' started by Bardox, Aug 8, 2011.

  1. Bardox

    Gold Member

    Joined:
    Jul 1, 2009
    Messages:
    2,145
    Albums:
    2
    Likes Received:
    348
    Gender:
    Male
    Location:
    U.S.
    I've been hearing over and over about taxs and job creators. Just curious as to how many people actually believe that making tax cuts and loopholes in the tax code for the "job creators" really causes a growth in the employment rates of america or any nation for that matter.

    Do you believe this honestly works or do you believe it is an out right lie? Please don't spout out a party line. Just give your own thoughts here.
     
  2. Jason

    Gold Member

    Joined:
    Aug 26, 2004
    Messages:
    9,929
    Likes Received:
    640
    Gender:
    Male
    Location:
    London (GB)
    Tax cuts are a form of economic stimulus so yes they will tend to promote growth and jobs - though the correlation isn't direct. For example there's always the risk that US consumers who get an income tax cut will buy more imported goods and create the jobs in China.

    The most effective tax cuts to create jobs are in corporation tax and in some specialised areas of the taxation of financial services. For example there is an argument for cutting tax on bankers' bonuses to get international banks to relocate - it is a form of bribe. Politically this sort of tax cut is difficult as the media and opposition will criticise, but it does work. Politicians have to decide whether they want what is best for their country or best for their ratings.

    Tax cuts are only possible when a nation does not have debts of the level of the USA. If the USA tries this then the markets will move against the USA and catastrophe will follow. Rather it is essential that the USA increases taxes (while also cuting spending). There might be a little room for selected, highly specialised tax cuts which clearly promote growth. Right now in the UK we desperately need a reduction on the taxes on the mega-bonuses paid to senior bankers because the prize up for grabs is getting banks to relocate from Frankfurt to London. Personally I would go for 0% on bankers' bonuses - but it won't happen because the media would crucify any politician who suggested it.
     
  3. OhWiseOne

    Verified Gold Member

    Joined:
    Nov 15, 2010
    Messages:
    4,493
    Albums:
    10
    Likes Received:
    133
    Gender:
    Male
    Location:
    Florida
    Verified:
    Photo
    I do believe tax cuts work. Increased taxes in my opinion create two issues.

    One, when you increase taxes on the work force it reduces the amount of spendable income which equates to less goods and services sold. Which trickles down to reduction in the work force by manufacturers.

    Two, if you increase the tax burden on corporations they don't absorb those increases they pass it on in form of increased costs of goods.

    Short opinion, just my thoughts.
     
  4. dandelion

    Verified Gold Member

    Joined:
    Sep 25, 2009
    Messages:
    7,886
    Albums:
    2
    Likes Received:
    598
    Gender:
    Male
    Location:
    UK
    Verified:
    Photo
    I do not believe that cutting taxes on companies will get one penny extra invested in growing those companies. A company decides whether an investment is justified on the cost of doing it or raising the money as compared to the return they expect. Having ready cash makes no difference to this choice. No one just throws away spare cash on something which is not justified anyway. Ditto rich entrepreneurs.

    The only way tax cuts may make an effect is if they are personal cuts to individuals who will spend that money in ways which will then grow the national economy. If it gets used to pay off the mortgage then it hasnt helped the economy (though it may have helped the individual). This rather suggests you need to give money to the poor, who will spend it. I suppose you could give out meal vouchers to boost the restaurant trade.

    Paying companies to go somewhere they dont otherwise want to go has a very bad track record of success. The kind of company you may attract will be the very first to leave again when conditions change. Country 1 cuts tax to attract business. Country 2 cuts tax to get it back. Country 1 cuts again. Country 2.... Result? neither country 1 or 2 gets any benefit from having those companies. Far better to persuade their own clever people to work in a different company which wanted to be here anyway. Subsidising banks to come to britain is no different to subsidising cotton mills or coal mines.
     
  5. dandelion

    Verified Gold Member

    Joined:
    Sep 25, 2009
    Messages:
    7,886
    Albums:
    2
    Likes Received:
    598
    Gender:
    Male
    Location:
    UK
    Verified:
    Photo
    And thus, looked at through the opposite end of the telescope, the pointlessness of giving them tax breaks, which they will just pass on in cheaper goods. So we all get cheap socks because of a government handout.


    Thus the importance of having purchase taxes as high as possible and personal taxes as low as possible. Though, of course, it is necessary to put income taxes on the rich who otherwise do not get taxed at all on what they save and do not spend.
     
  6. Thedrewbert

    Thedrewbert Member

    Joined:
    Aug 16, 2005
    Messages:
    579
    Albums:
    2
    Likes Received:
    23
    Gender:
    Male
    Location:
    Pittsburgh
    Tax cuts for "job creators" don't create jobs. Customers create jobs. We can cut taxes on Exxon to zero and they won't create one single job that they didn't already plan to create. They make $4billion in profit a quarter, if they see the value in hiring someone they'll do it... tax cut or not.

    On the smaller end of the scale, the owner of a McDonalds franchise is not going to hire an extra burger flipper just because of a tax cut. He would need to have an increase in customers to justify hiring someone.

    One of the tax cuts that really created jobs was the rebate to increase the energy efficiency of your home. The furnace and window manufacturers were hiring like crazy when that came out because they had a huge influx of customers.

    Create customers = creating jobs.

    edit: And since wealth always trickles upwards, the rich still get their cake too.
     
  7. rawrg

    Verified Gold Member

    Joined:
    Nov 12, 2005
    Messages:
    411
    Albums:
    6
    Likes Received:
    150
    Gender:
    Male
    Location:
    Lenexa (KS, US)
    Verified:
    Photo
    A big problem right now is that there's less demand for goods, so why hire new people if you're already operating efficiently? Another problem is that investors are viewing the stock market as too volatile, and there are even questions being raised about investing in government bonds now. On top of that, there are new regulations coming down the pipe, with the new healthcare legislation, that haven't been set in stone yet. So employers are trying to stay as liquid as possible by holding on to cash.

    People are also saving money, because they don't feel confident in their ability to get another job. I know that I worry every day about keeping my job, and if I lost it, it'd probably be months before I could land another one. It's simple statistics. When a general entry level job posting gets 400+ resumes thrown at it, most of them qualified for the position, then chance becomes a huge factor. In good economic times, a job posting like that might've gotten 40-50 applications. And that's not because there are 10 times the unemployed, but because there is a constant glut of unemployed that apply to everything that's not a specialty career. My fiance had to apply to over 300 positions before finally getting a job as a cashier at a car wash, and she's got a degree.

    So corporations and people are hoarding money for a rainy day rather than spending or investing it. In a word, this sucks. It's a stagnant economy where the money doesn't flow. The solution is pretty simple: get the money to start moving forward again. But how do we do that? Keynesian economics works both ways, you can either cut taxes, which increases the amount of money in the economy, or you can increase government spending on the domestic economy in the form of grants, projects, etc.

    Typically cutting taxes is viewed as a more free market approach, whereas the government spending leaves the decision making up to government officials. Personally, I don't think Washington has the morals to appropriate that money to anyone other than constituents, usually corporate in nature. Now this could still help the economy. After all, big companies employ lots of people, and these are the guys donating to both political parties. Still, I tend to think that tax cuts in the right areas are more effective than trying to have a centralized government try to do all the logistic planning and decision making.

    Personally, I think one good way to stimulate the economy is to offer temporary payroll tax cuts on all net hires for the year, so if you hired 10 people, but fired 3, you get a tax credit for 7 people granted they've been employed for a given amount of time (probably a year). The government still makes revenue, because the cuts are only cuts, not exemptions, for new hires only. It also sweetens the deal for an employer who's sitting on money afraid to make a move for fear of it being a poor investment. If more people get hired, demand for goods goes up and then more natural hiring can take place.

    In addition, if you raise taxes in the right areas, while still offering these shelters, you can direct the flow of money. If you're the IRS, and you tell Joe Millionaire, "Look, I'm going to tax your income over a million at 50%, OR you can invest it in the stock market as tax free capital, and only pay 5% on capital gains. And if you leave that original investment in the market for 5 years, I'll only tax it at 20% when you decide to withdraw it later." Now that's a pretty attractive offer for the millionaire. He'd have to take a huge hit in the stock market to actually lose money because of the savings he gets on his capital in the form of a tax break. And where does that money go? To a business of his choosing, and that business uses the money to grow their operation. So by manipulating taxes, a government can be a positive guiding force in the economy without mandating it, thus offering a bit of structure without being totalitarian.

    However some people would argue that government spending is the key. New government contracts for construction projects could create jobs, and if the infrastructure they build facilitates trade, then in the long run it can create a stimulating effect. Also, if we cut safety nets, we risk cutting demand down to a dangerously low level, causing an even bigger slowdown. People on unemployment, welfare, WIC, social security all make rent payments, buy groceries, buy gas, etc. If they're forced to go home and live in a relative's basement, then they consume less because they keep their car parked for weeks at a time, they aren't paying rent and they live off of leftovers, driving down demand. And let's not think all these people are just deadbeats. It's actually really hard to find a job right now.

    Both arguments are completely valid, and if you think that one is completely false, rather than simply one being more effective than the other, than frankly you're probably an extremist who will never change their views. The current approach by the government is actually somewhat balanced, despite what pundits would point out. I'm confident that there will be further increases in government spending on projects that will create jobs, and I'm also confident that they'll cut the capital gains tax to give investors incentive to buy stock and put money into the economy again. I'm also confident in some form of payroll tax cut for net hires, to get more people back to work.

    But what do I know? I'm a construction worker.
     
  8. conntom

    Gold Member

    Joined:
    Feb 23, 2008
    Messages:
    2,176
    Likes Received:
    146
    Gender:
    Male
    Location:
    Boston (MA, US)
    Tax cut= more money in economy, people buy things, this puts people to work, working people with money pay taxes on income and things they buy. Rich with more money use it to make more money paying people in the process, again more end result tax revenue for country.

    Tax Increase: Gov't takes more money. Gov't uses such money in wasteful ineffective ways, also redistributes money to ineffective portion of society or to other countries - money evaporates, incentive to make money deteriorates - less income for gov't so gov't tightens control on money until ecomomy is driven into the ground.

    OK, thats my take. No party lines.
     
  9. dandelion

    Verified Gold Member

    Joined:
    Sep 25, 2009
    Messages:
    7,886
    Albums:
    2
    Likes Received:
    598
    Gender:
    Male
    Location:
    UK
    Verified:
    Photo
    Which is why he does it already. The trouble is, going out and buying $1milion of shares does not put one penny into the hands of a company. It puts $1million into the hands of the previous owners of those shares, which is quite likely some sort of financial institution. All you did was contribute to the ponzi scheme which is the stock market. Companies tend to grow because that is what companies do if they are any good. Unfortunately it is pretty close to coincidence whether the underlying value of a stock, as a tiny proportion of the total value of that company, has any relationship to what it cost to buy. Mostly companies are worth less than they cost to buy, because there are asset strippers, who make money by buying up a company, putting it out of business and selling off its assets. The system does not allow such low profit industries to continue to exist. Great, eh?
     
  10. karoo

    karoo Member

    Joined:
    Oct 21, 2008
    Messages:
    375
    Likes Received:
    4
    Gender:
    Male
    Location:
    ga usa
    The less anyone is taxed the better, whether an individual or corporation, rich or poor. People can better decide how to effectively use their money than the government can.

    What would increase revenues would be, to make the tax code uniform and fair. Eliminate all loopholes, and end all corporate welfare. The so-called flat tax and "fair tax" have their pros and cons, but either would be superior to the Byzantine piece-of-crap tax system we have now. Too many regular working people get screwed, and too many big businesses (GE for example) get off.

    Right now, what's holding back job growth (at least one major factor) is the fact that businesses are facing too many unknowns in terms of, what their future tax and regulatory burdens will be. So they're hedging their bets and holding off on hiring and investment.

    Another huge problem with increasing taxes is the incredible degree of corruption in the federal government. Timothy Geithner (treasury sec) is a tax cheat. He's also in charge of the IRS, which takes our money at the point of a gun and gives it to Bank of America, AIG, GM, Chrysler, studies of shrimp on treadmills, uses it to bail out European banks, ad nauseum. Did I mention maintaining imperial military adventures to the tune of trillions, off the books? I don't favor redistributionism, but what good could all those trillions of dollars have done if just given instead to the American people? I would argue vastly more good than bailing out elite financial institutions, fighting pointless wars, bailing out Europe, etc? People advocate the state, the government, but wake up people, they are not for us! The government has turned on its own people. I'd rather starve the government, not feed it.
     
  11. rawrg

    Verified Gold Member

    Joined:
    Nov 12, 2005
    Messages:
    411
    Albums:
    6
    Likes Received:
    150
    Gender:
    Male
    Location:
    Lenexa (KS, US)
    Verified:
    Photo
    But can we not agree that it drives up the values of stocks, motivating companies to issue more if it's short on capital? Even if they're not short on capital, if there is a glut of available capital, it may motivate a company to move forwards with plans sooner than later. Also, that wealth being held onto in the form of cash doesn't contribute at all to the economy. If the market goes up, lenders, who are heavily invested in the stock market, do better. This in turn makes credit more available for people to make moves, such as starting construction projects, buying homes and cars, etc. So overall I think the pros outweigh the cons.

    But again, what do I know? :D
     
  12. dandelion

    Verified Gold Member

    Joined:
    Sep 25, 2009
    Messages:
    7,886
    Albums:
    2
    Likes Received:
    598
    Gender:
    Male
    Location:
    UK
    Verified:
    Photo
    I dont believe companies are suffering from lack of cash. The british government moans that banks are refusing to lend, but the bank of england wrote a report saying companies are refusing to ask for loans and repaying them as fast as they can.

    All the stock market is really doing is encouraging a false belief that a stock is a piece of paper guaranteed to become more valuable. It isnt. We have been through a period of more and more money being placed in this way and it will reach saturation point. A bubble is always driven by the belief it is guaranteed to make money, when in reality it can only make money if someone is willing to buy it from you for more than you paid. Just checked and apparently the FT 100 share index peaked in 1999 and has been below that ever since. But naturally, dealers make money every time a share changes hands and clever people always make money from the pack as prices fall and rise. It is a transfer of wealth from investors to middle men.
     
  13. phillyhangin

    phillyhangin New Member

    Joined:
    Jun 30, 2008
    Messages:
    211
    Albums:
    1
    Likes Received:
    4
    Gender:
    Male
    Location:
    Philadelphia, PA
    Well, that's true if you're cutting taxes for people on the low end of the income scale as more of their income gets spent right back into the economy. It's less true when you cut taxes at the upper end of the income continuum, because they're more likely to simply invest the savings into the stock market or interest-bearing instruments.

    Investing in the stock market is okay if it involves purchasing new stock (either an IPO or additional shares issued by a company) because that money goes to the launch or expansion of a company; it doesn't really do much (other than earn stockbrokers a commission) when people "invest" in shares that have already been on the market since the issuing company does not get to use any of that money for its operations.

    Goverments also spend money on public goods - things which the market economy does not provide efficiently due to lack of a clear price signal. So some government spending on core services is always required, and that does require taxes because of the current government financing scheme.

    The "ineffective portion of society" is quite an offensive phrase if you're using it to describe people who were laid off through no fault of their own and who cannot get a job due to the scarcity of open positions relative to the huge number of people who are looking for work; however, if you are using it to refer to things like bloated contractors with no-bid contracts and so forth, I fully agree.

    Also remember that the Federal Government supports a huge number of jobs either directly (Federal employment) or indirectly (through government spending). Those jobs, in turn, create demand for goods and services, which then supports further jobs. Cutting government spending means cutting jobs - not exactly wise during a recession when demand is weak and the number of job seekers already far exceeds the available positions.

    As a short-term solution, I feel that the government should maintain spending to avoid increasing the ranks of the unemployed and further weakening demand. As a medium-term solution, I feel that the government should redirect its spending in a way that increases our productive capacity and/or stimulates local demand so that when spending cuts occur, the private sector can absorb the unemployed. As a long-term solution, cut spending.

    That's my take on it - your mileage may vary.
     
    #13 phillyhangin, Aug 8, 2011
    Last edited: Aug 8, 2011
  14. Thedrewbert

    Thedrewbert Member

    Joined:
    Aug 16, 2005
    Messages:
    579
    Albums:
    2
    Likes Received:
    23
    Gender:
    Male
    Location:
    Pittsburgh
    except when it doesn't.... like the Bush tax cuts didn't.

    A person making 250k a year isn't going to go out and buy another car or hire an extra landscaper just because they got a tax cut. They were the only ones who got tax cuts worth a damn thing.

    I am solidly middle class. My tax cut was enough for me to upgrade from Kraft Mac -n- Cheese to Velveta Shells -n- Cheese. Not exactly economy stimulating.

    Directed tax programs, like the energy efficiency credits, do the most good.
     
  15. Thedrewbert

    Thedrewbert Member

    Joined:
    Aug 16, 2005
    Messages:
    579
    Albums:
    2
    Likes Received:
    23
    Gender:
    Male
    Location:
    Pittsburgh

    That scenario, while possible, doesn't really happen very often.
     
Draft saved Draft deleted