Sluggish private job growth indicates failure of tax cuts

EPI ^ | Jan 31, 2006 | Lee Price

[liberallarry]

Sluggish private job growth indicates failure of tax cuts
Changes in tax law since 2001 reduced federal government revenue by $870 billion through September 2005.  Supporters of these tax cuts have touted them as great contributors to growth in jobs and pay. But, in reality, private-sector job growth since 2001 has been disappointing, and a closer look at the new jobs created shows that federal spending—not tax cuts—are responsible for the jobs created in the past five years.

If tax cuts have created jobs at all since 2001, it will have happened in the private sector. Assuming that job growth in 2006 matches the Bush Administration's projections, the economy will have added about 2.0 million jobs to the private sector from FY2001 through FY2006. But how many of these two million jobs actually can be attributed to tax cuts and how many to increased government spending—particularly increased defense spending—in this period?

Based on Defense Department estimates of the number of private-sector jobs created by its own spending, we project that additional defense spending will account for a 1.495 million gain in private sector jobs between FY2001 and FY2006.  Furthermore, increases in non-defense discretionary

spending since 2001 will have added yet another 1.325 million jobs in the private sector, for a total of 2.82 million jobs created by increased government spending. Increased mandatory government spending—which is not even included in these estimates or the accompanying chart—would account for even more job creation. The mere fact that the projected job growth resulting from increased defense and other government spending exceeds the actual number of jobs projected to be added to the economy through 2006 clearly indicates that the tax cuts hardly seem plausible as the engine of the modest job growth in the economy since 2001. 

[liberallarry]

You wouldn't know a fact unless it hit you on the head, toilet-dweller.

[liberallarry]

Who to believe ...

Yes indeed. Who? That's why researchers are valuable.

[liberallarry]

See me Post #60. Do you agree?

[liberallarry]

I didn't get to listen to the SOTU...so I'm just now reading it. Two or three paragraphs down I found this

"We will choose to build our prosperity by leading the world economy, or shut ourselves off from trade and opportunity. In a complex and challenging time, the road of isolationism and protectionism may seem broad and inviting, yet it ends in danger and decline."

I'm sure I got it right.

[Let's Roll]

"researchers"? Is that what we call Soros funded lib/spinners now?

I have to hand it to you, ll - you do hang in there - seriously.

[liberallarry]

Researchers are the only way to get past spinners and shouters. Not perfect but as good as it gets.

Thanks for the compliment.

[Polybius]

See me Post #60. Do you agree?

The American economy has been moving from a manufacturing economy to a service economy. The unskilled factory laborer in the Third World will always out-compete the unskilled American factory laborer. Higher taxes and the reduced profit margin they bring compounds the problem for American businesses.

A reduction in income taxes will not, by itself, increase the spending power of the poor as the poor pay little or no taxes right now.

An income tax cut, however, do create incentive for American small business owners. If you have high labor costs and the Government takes away a hefty chunk of the profit margin, there is little incentive to invest in small business which is the backbone of the American economy.

Europe has a dilemma right now because the high tax rates are driving people, including those who could be creating jobs with their small businesses, into early retirement.

Speech by José Manuel González-Páramo, Member of the Executive Board of the European Central Bank:........"In several European countries retirement systems still provide an incentive to retire early by penalising longer working lives through high effective tax rates. In many cases this reflects the attempt to push older workers into early retirement with a view to raising the demand for younger workers. But such policies raise the burden on social security and thus on labour taxation, reducing overall employment and thereby potential growth."

[liberallarry]

I don't think the tax cuts were designed to aid small business - first because no tax cut could offset the differential in wages, second, because there's no evidence of an increase in private sector jobs (if the article is correct), third because the bulk of the tax cuts benefitted very high income individuals.

I think the cuts were designed to allow this last group to invest as wisely as they could which will allow America to obtain as large a sector of world production of goods and services as possible. It seems that this strategy worked because tax receipts are up even though domestic private sector employment isn't.

I don't think there was any other way to stimulate the economy.

The down side is that the pressure on compensation for American workers (wages plus benefits) increases.

[ChessExpert]

Good point fluffy!

Going back to their bar charts. Actual job growth 2 Million! The American Enterprise Magazine had an article that compared job growth in European socialist countries (France, Germany, Italy) to the US over the past four decades. The difference was something like +4OM for the US and under +1M for socialist Europe. Back to the bar chart ACTUALS, +2 Million is phenomenally good! And it didn't come from tax, spend, regulate socialism of the Democrats.

[ChessExpert]

Agreed; the Mitchell - Bush tax increase gave us a sluggish economy. Taxes went up under Hoover and FDR. Kennedy, Reagan and GW cut taxes to good effect. The post-war German economic miracle also included tax cuts. Mosses told the Pharaoh to take only one bushel in five, and the desert bloomed. There's just a lot of evidence out there that tax cuts are highly stimulative. According to Keynesian theory, it stimulates consumer demand. According to supply-side theory, it stimulates supply. Both arguments make a world of sense. Now if we could only get a grip on Government spending! Resources (material, equipment, labor, etc.) going to government are resources that are denied to the MORE PRODUCTIVE private sector. To put it another way, why invest with a -5% rate of return, when you could invest with +5% rate of return?

[Polybius]

I don't think the tax cuts were designed to aid small business -

Whether that is the case or not, as a small business owner, I'll take whatever I can get. :-)

first because no tax cut could offset the differential in wages,

However, the tax reduction increases the profit margin of doing business and that compensates, to some extent, for the higher labor costs in the U.S.

second, because there's no evidence of an increase in private sector jobs (if the article is correct),

The article said that there was a "sluggish growth".

In science, you cannot measure the effect of one variable unless you keep the other variables constant. For all we know, without the tax cuts, the number of private sector jobs could have taken a nose dive instead of having "grown sluggishly" as a result of the other variables such as rising oil prices and rising interest rates.

third because the bulk of the tax cuts benefited very high income individuals.

Define "very high income". Am I included in that category?

Are there not hundreds of thousands more small business owners than there are Donald Trumps or Bill Gates?

I think the cuts were designed to allow this last group to invest as wisely as they could which will allow America to obtain as large a sector of world production of goods and services as possible. It seems that this strategy worked because tax receipts are up even though domestic private sector employment isn't.

According to the article, there was growth in job creation.

Small businesses • Represent 99.7 percent of all employer firms. ..... • Employ half of all private sector employees. ..... • Pay 45 percent of total U.S. private payroll. ..... • Have generated 60 to 80 percent of net new jobs annually over the last decade. ..... • Create more than 50 percent of nonfarm private gross domestic product (GDP).