Cutting taxes won’t create jobs
Bob Grover
Friday, October 14, 2011
Conservatives in Congress are sharpening their axes in an attempt to hack at the nation’s deficit while refusing to raise revenue. Also, it appears that Governor Brownback will try similar strategies in Kansas, relying on the theory that cutting taxes for individuals and corporations will increase jobs.
A recent editorial from The Wichita Eagle printed in The Gazette (Oct. 1 and 2, 2011) speculates that Governor Brownback will reduce or eliminate the state income tax in an effort to spur job and population growth. The Eagle editorial asks whether the tax cuts will really pay for themselves by generating new revenue, or will the revenue generated by income taxes have to be replaced by “more regressive taxes,” including extension of the one percent sales tax.
Since the economy is a pertinent but controversial topic, I sought the advice of nonpartisan economist Rob Catlett from the Department of Mathematics, Computer Science, and Economics and the Director of the Centers for Economic Education and Community Research at Emporia State University.
Catlett confirmed that high tax rates on economic activity can serve as a disincentive for economic activity; higher tax rates diminish the incentive for individuals, families, and even organizations (e.g., proprietorships and partnerships) to earn additional income. However, when everything else is held constant, reducing tax rates will reduce the government’s revenue and add to near-term government budget deficits or reduce reserve funds.
The George W. Bush administration cut tax rates for higher income individuals that increased their disposable income, but the increases enjoyed by the wealthy did not proportionately “trickle down” to middle and lower income people. Tax cuts can result in individuals or corporations saving the tax cut; consequently, these funds are not injected into the spending stream.
Catlett noted that the current tax structure imposes relatively low marginal tax rates on high-income earners. Until the1960’s the highest marginal tax rate for the highest earners was approximately 90 percent. This does not mean that multi-millionaires paid 90 percent of their entire income in personal income tax; instead, they paid far less on the first dollars of income and as much as 90 percent on the last dollars of income. The rate was lowered to 70 percent and generally stayed there until the 1980’s, when it was lowered again to 50 percent. President Reagan proposed another reduction to about 28 percent, and it has fluctuated a bit in recent years.
Adding another bracket for those with annual income over $1 million, or adjusting deductions, exemptions, loopholes, or the like for those earning over $1 million each year as proposed by President Obama, is a far cry from the much higher marginal tax rate in decades past. That was also a time when our challenges with deficits were not as ominous.
During our conversation, it became apparent to me that increasing taxes and increasing government spending short term would boost the economy by the amount of the increases; decreasing spending and decreasing taxes will reduce economic activity by the amounts decreased. Trying to both craft a stimulus and cut budgets are counter productive in the current lagging economy with large national government budget deficits.
Consequently, the approach of cutting spending without the infusion of new sources of economic activity will not spur the economy to create jobs, although the national debt could be reduced. Based on rhetoric coming from Washington, I speculate that most members of Congress either did not study economics or do not remember what they learned in Economics 101.
According to the Wichita Eagle, Governor Brownback and his staff are working with Arthur Laffer, the former Reagan adviser. In the past, Laffer has recommended what many called a “trickle down” or “supply side” economic philosophy. In short, this approach attempts to unleash high-income earners with the incentive of significantly greater disposable income. This approach coincided with a severe recession in the early 1980’s and resulted in nearly tripling the national debt in the Reagan era.
Kansas does not need a replay of the “trickle down” tax cut approach, especially without careful analysis of past attempts and an analysis of the impact on Kansas residents of all income levels. Historical data and economic principles suggest strongly that additional revenue is needed nationally and in Kansas. Budget cuts and tax cuts won’t create jobs nor stimulate the economy.
The nation and Kansas are at a critical juncture with our economy. Let’s dispense with rhetoric intended to create “sound bites” to score political points. Instead, we need the application of sound economic reasoning to create jobs for Kansans.
A recent editorial from The Wichita Eagle printed in The Gazette (Oct. 1 and 2, 2011) speculates that Governor Brownback will reduce or eliminate the state income tax in an effort to spur job and population growth. The Eagle editorial asks whether the tax cuts will really pay for themselves by generating new revenue, or will the revenue generated by income taxes have to be replaced by “more regressive taxes,” including extension of the one percent sales tax.
Since the economy is a pertinent but controversial topic, I sought the advice of nonpartisan economist Rob Catlett from the Department of Mathematics, Computer Science, and Economics and the Director of the Centers for Economic Education and Community Research at Emporia State University.
Catlett confirmed that high tax rates on economic activity can serve as a disincentive for economic activity; higher tax rates diminish the incentive for individuals, families, and even organizations (e.g., proprietorships and partnerships) to earn additional income. However, when everything else is held constant, reducing tax rates will reduce the government’s revenue and add to near-term government budget deficits or reduce reserve funds.
The George W. Bush administration cut tax rates for higher income individuals that increased their disposable income, but the increases enjoyed by the wealthy did not proportionately “trickle down” to middle and lower income people. Tax cuts can result in individuals or corporations saving the tax cut; consequently, these funds are not injected into the spending stream.
Catlett noted that the current tax structure imposes relatively low marginal tax rates on high-income earners. Until the1960’s the highest marginal tax rate for the highest earners was approximately 90 percent. This does not mean that multi-millionaires paid 90 percent of their entire income in personal income tax; instead, they paid far less on the first dollars of income and as much as 90 percent on the last dollars of income. The rate was lowered to 70 percent and generally stayed there until the 1980’s, when it was lowered again to 50 percent. President Reagan proposed another reduction to about 28 percent, and it has fluctuated a bit in recent years.
Adding another bracket for those with annual income over $1 million, or adjusting deductions, exemptions, loopholes, or the like for those earning over $1 million each year as proposed by President Obama, is a far cry from the much higher marginal tax rate in decades past. That was also a time when our challenges with deficits were not as ominous.
During our conversation, it became apparent to me that increasing taxes and increasing government spending short term would boost the economy by the amount of the increases; decreasing spending and decreasing taxes will reduce economic activity by the amounts decreased. Trying to both craft a stimulus and cut budgets are counter productive in the current lagging economy with large national government budget deficits.
Consequently, the approach of cutting spending without the infusion of new sources of economic activity will not spur the economy to create jobs, although the national debt could be reduced. Based on rhetoric coming from Washington, I speculate that most members of Congress either did not study economics or do not remember what they learned in Economics 101.
According to the Wichita Eagle, Governor Brownback and his staff are working with Arthur Laffer, the former Reagan adviser. In the past, Laffer has recommended what many called a “trickle down” or “supply side” economic philosophy. In short, this approach attempts to unleash high-income earners with the incentive of significantly greater disposable income. This approach coincided with a severe recession in the early 1980’s and resulted in nearly tripling the national debt in the Reagan era.
Kansas does not need a replay of the “trickle down” tax cut approach, especially without careful analysis of past attempts and an analysis of the impact on Kansas residents of all income levels. Historical data and economic principles suggest strongly that additional revenue is needed nationally and in Kansas. Budget cuts and tax cuts won’t create jobs nor stimulate the economy.
The nation and Kansas are at a critical juncture with our economy. Let’s dispense with rhetoric intended to create “sound bites” to score political points. Instead, we need the application of sound economic reasoning to create jobs for Kansans.
reddog (K. B. Thomas Jr.) says...
Peter Schiff testimony before congress on job's committee and notice that he isn't reading from notes.
http://www.youtube.com/watch?v=FLmD9T...
October 17, 2011 at 1:50 p.m. ( permalink | suggest removal )
reddog (K. B. Thomas Jr.) says...
Peter Schiff part 2.
http://www.youtube.com/watch?v=xZbQGp...
October 17, 2011 at 1:52 p.m. ( permalink | suggest removal )
reddog (K. B. Thomas Jr.) says...
10 reasons why job bill is a joke.
http://www.infowars.com/the-obama-job...
October 17, 2011 at 1:55 p.m. ( permalink | suggest removal )
reddog (K. B. Thomas Jr.) says...
Obama jobs bill hoax.
http://lewrockwell.com/armentano-d/ar...
October 17, 2011 at 1:58 p.m. ( permalink | suggest removal )
reddog (K. B. Thomas Jr.) says...
And now for the rest of the story.
http://charlesbutlerdotcom.wordpress....
October 17, 2011 at 2:06 p.m. ( permalink | suggest removal )
goodoleboy (anonymous) says...
http://tinypic.com/view.php?pic=1z4zy...
October 17, 2011 at 5:23 p.m. ( permalink | suggest removal )
reddog (K. B. Thomas Jr.) says...
What you see in other people is what you see in yourself, have a nice day.
October 17, 2011 at 5:45 p.m. ( permalink | suggest removal )
sail (anonymous) says...
Bob, you scare me,I wonder what your ilk would survive on if there were no republicans to fleece.
October 18, 2011 at 6:48 a.m. ( permalink | suggest removal )
goodoleboy (anonymous) says...
the data tends to agree with Bob the bulk of our deficits were run up under Presidents that subscribed to this theory(Reagan and Bush II), the deficit is such now that cutting taxes further will only result in more deficit.
October 18, 2011 at 11:16 a.m. ( permalink | suggest removal )
reddog (K. B. Thomas Jr.) says...
And now the rest of the story.
http://www.lewrockwell.com/blog/lewrw...
October 18, 2011 at 1:50 p.m. ( permalink | suggest removal )
tourguide (anonymous) says...
KB, I figured this is where you got your Political views. But Don't Stop buying JACK DANIELS , my stocks are doing well.
October 18, 2011 at 2:21 p.m. ( permalink | suggest removal )
Denise_Dorcey (anonymous) says...
Sail, because your ilk seem to gather a lot of fleece and need to be sheared, often. That's just the way it is with sheep...
October 18, 2011 at 4:53 p.m. ( permalink | suggest removal )
Denise_Dorcey (anonymous) says...
I don't normally add a link but I think it is helpful instruction at this point.
At this link you will find an example of the ilk I speak of:
http://www.facebook.com/#!/photo.php?....
October 18, 2011 at 5:13 p.m. ( permalink | suggest removal )
reddog (K. B. Thomas Jr.) says...
5 minute forcast---3.6 trillion dollars for fiscal 2011.
http://5minforecast.agorafinancial.co...
October 18, 2011 at 5:37 p.m. ( permalink | suggest removal )
Steve_Corbin (anonymous) says...
sail sail sail,
Watching the debate? I am so ashamed of our GOP.
This is the best we can come up with?
Aside from Ron Paul, haven't heard much in the way of concrete ideas for our country. Looks like another 4 years of "Hope and Chance".
I mean chance, not change.
October 18, 2011 at 8:51 p.m. ( permalink | suggest removal )
Steve_Corbin (anonymous) says...
I'm sure you can hear the champagne corks popping at the white house.
October 18, 2011 at 8:57 p.m. ( permalink | suggest removal )
Steve_Corbin (anonymous) says...
VOTE NO ON A COUNTY SALES TAX !
October 28, 2011 at 7:22 a.m. ( permalink | suggest removal )