Sunday, October 10, 2010

Taxes and Jobs

Some Republicans are perpetrating another slogan of weird logic. They argue we must continue the tax breaks for the rich because they are the answer to unemployment. Can you believe that the state of Colorado will vote in November to eliminate all taxes on business. First, the rich argument--the rich will just stick any extra profits in their pockets. Tax policy is working on the wrong end of the income distribution. The problem is the decline in consumer spending. The lower income people would buy things and give investors the necessary incentive to invest to meet consumer demand.
Then the matter of business taxes. Business uses public services such as roads, an educated and healthy workforce. These are inputs into production just as are labor and materials. Why pick on taxes that support necessary inputs? Soon we will hear petitions to restore slavery as that would decrease costs of production, create investment and jobs for the slaves!
We need to remind ourselves that the cost of business credit is at a low point as it was for the Japanese for a decade. Just reducing one cost does not automatically increase investment when entrepreneurs are pessimistic about consumer demand. This is just opportunistic money grabbing that was rampant in the Bush administration when the tax cuts were first implemented.


Tracy said...

I think that there is another explanation for Colorado's action. Texas historically has an unemployment rate half the national average, and keeps "business-friendly" policies. It regularly attracts companies, and their revenues and talent that move out of blue states with high taxes. I think that Colorado is taking the same strategy.

Allan Schmid said...

Maybe the strong demand for oil is a greater factor in Texas employment than taxes. And it doesn't hurt that Texas, for all its politicians' tirades against government spending, is a major beneficiary of government investments in aerospace and the military.

Tracy said...

Actually, I think that the demand for oil is an argument for increased revenue to the mostly retired or corporate holders of oil leases. Many fewer people are actually employed by oil companies than in the 20th century. I think that the 20th century oil revenues have been re-invested in the next wave of technologies, and so oil maybe has had a knock-on effect on current employment.

Your point about aerospace companies actually serves both arguments. Many companies that win aerospace and military bids are located in Texas, both to be near military and NASA for testing and delivery, and because labor costs are low and the local culture does not rail against them, their activities, or their workers.