Should We Lower Taxes on The Job Creators?

What’s
Wrong Today:

We are in the final hours of a
presidential campaign in which tax policy has been a central focus. Mr. Romney maintains that any
increase in the top tax rates on income and capital gains would slow economic
growth and crush the job market’s recovery.

President
Obama has promised to raise the top two income tax rates, lifting those rates
from 33% and 35%, their level during most of George W. Bush’s presidency, to 36%
and 39.6%, where they were during most of the Clinton administration.

Mr. Obama maintains the increases would
not hurt the economy
and are the fairest way to reduce the deficit. Mr. Romney says that will kill
jobs.

Should we lower taxes on the so-called “job
creators”?

On June 7, 2001, HR
1836 the Economic Growth and Tax Relief Reconciliation Act was signed into law.
This was the first and largest of
several tax cuts passed during the Bush Administration. It was
estimated that this tax cut cost $1.35 trillion.

So this must be the
text book case for new job creation.

So,
What’s Wrong?

Trickle Down works, doesn’t it? Lower the taxes of the “job creators” and they
will create jobs. Wait, no? The graph below is from the BLS’ Establishment
survey and covers the Bush and Obama years. It shows in fact, what happened.


The blue line represents all nonfarm public and
private jobs. That equals 133.76 million in October, 2012. The red line, shows all jobs in the private sector. That was
111.74 million in 2012.

The difference between the two lines is
public jobs (22.02 million in October 2012).

The public sector job numbers have remained fairly stable, growing by 1.1
million, from 20.9 million to 22 million during the period. Changes in private sector jobs drove
most of the overall change (both up and down) in jobs numbers during the 11 years.

The Bush tax cuts seemed to have had little effect on the 2001 recession job losses. The effects of the housing bubble (beginning in mid-2003) and
its subsequent collapse (December 2007), causing the recession and subsequent meltdown
(September 2008) are clearly evident, with jobs falling below their 2003 lows.

    It would be possible
to argue that the tax cuts created jobs, but
most of these were financial bubble jobs. Clearly, they were not stable or permanent. They were created at great cost in income inequality to the middle
and lower classes. 

    There is a recovery
in the number of private jobs starting in 2010. Were they created by tax cuts to the
job creators? Maybe. Let’s keep two points in mind:

  • The quality of these post-bubble jobs
    is generally poor    .
    One sign of this comes from the Household survey where the growth in involuntary part time employment
    has increased by 5 million jobs; from 3.332 million in January 2001 to 8.344 million in October
    2012.
  • After
    10 years of turning our economy over to the “job creators”, we have just GOTTEN BACK to the level of
    private jobs we had in January 2001    .

    In other words, the
job creators, in exchange for their trillion dollar tax cut, gave us a lost decade of employment growth:

  • On January 1, 2001, total private
    employment was 111.63 million. On October 1, 2012, it was 111.74 million    .
  • The high point was 115.64 million on
    January 1, 2008, just before the financial bubble burst    .

Based
on the facts, Mr. Obama is correct. We shouldn’t look to the
job creators to create more jobs by getting another (and bigger) tax
break.

So,
by ending the Bush tax cuts, not only will we pick up some marginal tax
revenue, we will not lose any more jobs.

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