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Tax Cuts for the Wealthy and Job Creation?

Unity

Living in Ikoria
Staff member
I know that this has come up amidst the discussions that take place in other threads, but I don't think that it has had its own.

I'm just interested in reading everyone's thoughts on the following:

Many advocates of George W. Bush's Tax Cuts (passed in 2001 and 2003, I think?), when asked about those that were enacted for the wealthiest individuals in the U.S., have stated in the last 10 years that they will lead to increases in small businesses, job creation, etc.

Simply put: Why haven't the tax cuts created more jobs during the economic downturn, as predicted?

I know that the conversation will lean towards a lot of opinions on President G.W. Bush, and President Obama, and Democrats and Republicans...I just ask that everyone keeps it civil, and tries to stay on target in discussing the philosophy of tax cuts for the wealthy and their desired/real effects.
 

Merc

Problematic Shitlord
V.I.P.
I know that the conversation will lean towards a lot of opinions on President G.W. Bush, and President Obama, and Democrats and Republicans...I just ask that everyone keeps it civil, and tries to stay on target in discussing the philosophy of tax cuts for the wealthy and their desired/real effects.
Would be a nice change of pace, right?

People tend to see two groups of people: those with a lot of money and those with . . not a lot of money. They think that if they fire the tax rate up on the rich, the wealth will even out. There are a few flaws with this. First of all, the wealthy control the workforce. The more taxes get laid on, the more people they will fire or 'minimize'. The problem is that they seem to do this not as a way of making sure their company stays afloat, but to ensure they can still hand out bonuses. Not all, but most seem to do this (the AIG bailout is a good example since after all that aid they received, they still felt the need to pay themselves extra rather than fixing their crippled company).

The other problem is on the other side of the coin. The wealthy gain so many tax breaks and have the power to avoid so many of their dues and to get a lot back, that they end up contributing barely a thing to the whole process. Basically, the flow of wealth is just fine in this country, but the ability to stay wealthy is far too easy once you're there. You would think the same amount of work should be required to stay a top business but it doesn't seem to be.

Even myself, I know I don't understand all of it but I think there's a lot of things that common people see and realize just isn't right.
 

CaptainObvious

Embrace the Suck
V.I.P.
The main reason we didn't have the desired effect is because of the housing market collapsing, and the losses tied to mortgage backed securities, not because of the tax cuts.
 

Ilus_Unistus

Registered Member
I think to be more specific, we must first define "wealthy" in the US.

To have a fair discussion I think this is an important step that must be determined. Second, I think political left, middle and right should be a non-issue as well. I wish to do more reading on the matters before I post my thoughts, but I thought defining wealthy was an important part of this thread.
 

japedol

Registered Member
I would say that the purpose of the Bush tax cuts weren't predicted to or supposed to lower unemployment during the financial crisis, which no one saw coming when the cuts were enacted.

Tax cuts for the wealthy are supply side in nature. Raising employment during a recession usually requires demand-side policy - like building infrastructure, which creates immediate demand for more goods. Tax cuts for the wealthy don't translate in to much more consumption, since the rich have higher savings rates then the poor, and will just put their extra after-tax income under the mattress.

The purpose of cutting high marginal income taxes is to expand the pool of savings, so that more funds are available for lending, and at lower interest rates. That's looking in to the long term. In the short term, tax cuts on the wealthy wouldn't do much to create demand in the here and now. And weren't supposed to.

That said, I don't think there's evidence that tax cuts for the wealthy haven't effected at least a small increase in demand, which would help the employment rate. They probably have. At the very least, tax cuts put money in the economy, and in 2009 through 2010, the economy needed as much of that as possible.
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They think that if they fire the tax rate up on the rich, the wealth will even out. There are a few flaws with this. First of all, the wealthy control the workforce. The more taxes get laid on, the more people they will fire or 'minimize'. .
I don't think they'd do that. Management would only hire people if those people were expected to turn a profit. If managers were firing people who were profitable as expected, that would hurt their incomes as well.
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(the AIG bailout is a good example since after all that aid they received, they still felt the need to pay themselves extra rather than fixing their crippled company).
The company used quite a bit less then one percent of their bailout funds for bonus's.
 
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MenInTights

not a plastic bag
I know that this has come up amidst the discussions that take place in other threads, but I don't think that it has had its own.

I'm just interested in reading everyone's thoughts on the following:

Many advocates of George W. Bush's Tax Cuts (passed in 2001 and 2003, I think?), when asked about those that were enacted for the wealthiest individuals in the U.S., have stated in the last 10 years that they will lead to increases in small businesses, job creation, etc.

Simply put: Why haven't the tax cuts created more jobs during the economic downturn, as predicted?
It did. Unemployment rate by year:
2001 4.7
2002 5.8
2003 6.0 <--Jobs and Growth Tax Relief Reconciliation Act of 2003 aka Bush Tax Cuts
2004 5.5
2005 5.1
2006 4.6
2007 4.6
2008 5.8



I know that the conversation will lean towards a lot of opinions on President G.W. Bush, and President Obama, and Democrats and Republicans...I just ask that everyone keeps it civil, and tries to stay on target in discussing the philosophy of tax cuts for the wealthy and their desired/real effects.
Its necessary to. According to Obama, he Stimulus Act would keep unemployment below 8% instead it hit 10%. We are faced with two overlapping economic theories to control unemployment. One was an abject failure while the other produced some of the desired effects. You can't make the conclusion that we are at 10% stated unemployment and that is the fault of the 2003 tax cuts when there is a whole 'nuther elephant sitting in the room beside it.

 

japedol

Registered Member
It's not at all impressive that employment rose after 2003. Almost all unemployment that year was residual from the Nasdaq bubble, which was still readjusting downwards in '03. Unemployment would have certainly fell back, nearer to its peak from the last cycle, with or without tax cuts. Actually, US employment rates never did fully recover to their 01' highs.
 

Unity

Living in Ikoria
Staff member
It did. Unemployment rate by year:
2001 4.7
2002 5.8
2003 6.0 <--Jobs and Growth Tax Relief Reconciliation Act of 2003 aka Bush Tax Cuts
2004 5.5
2005 5.1
2006 4.6
2007 4.6
2008 5.8





Its necessary to. According to Obama, he Stimulus Act would keep unemployment below 8% instead it hit 10%. We are faced with two overlapping economic theories to control unemployment. One was an abject failure while the other produced some of the desired effects. You can't make the conclusion that we are at 10% stated unemployment and that is the fault of the 2003 tax cuts when there is a whole 'nuther elephant sitting in the room beside it.

It's not at all impressive that employment rose after 2003. Almost all unemployment that year was residual from the Nasdaq bubble, which was still readjusting downwards in '03. Unemployment would have certainly fell back, nearer to its peak from the last cycle, with or without tax cuts. Actually, US employment rates never did fully recover to their 01' highs.
Also, if employment rose in one year that they were enacted, shouldn't the widespread consequences have been causing a continued rise or at least stability in the sub-sequential years of his time in office?

Does anyone know offhand what month in 2003 the cuts actually went into effect?
 

MenInTights

not a plastic bag
Now I get it. When Bush passes a bill to reduce unemployment and it works, its because of the economic cycle and when Obama passes a bill to reduce unemployment and it fails its Bush's fault. :nod:

Since many people are unwilling to accept that Bush did some things right, the only way to settle it is to look at the modern tax cuts of Kennedy, Reagan, Clinton and Bush tax cuts and observe the effect each cut had on unemployment. I did a quick search but couldn't find the data yet.
------
Year - Unemployment

1960 5.5
1961 6.7
1962 5.5
1963 5.7
1964 5.2 <--Revenue Act of 1964 aka Kennedy Tax Cuts
1965 4.5
1966 3.8
1967 3.8
1968 3.6
1969 3.5
1970 4.9
1971 5.9
1972 5.6
1973 4.9
1974 5.6
1975 8.5
1976 7.7
1977 7.1
1978 6.1
1979 5.8
1980 7.1
1981 7.6 <--Economic Recovery Tax Act of 1981 (note the 3 year phase-in)
1982 9.7 <--Phase 1
1983 9.6 <--Phase 2
1984 7.5 <--Phase 3
1985 7.2
1986 7.0
1987 6.2
1988 5.5
1989 5.3
1990 5.6
1991 6.8
1992 7.5
1993 6.9
1994 6.1
1995 5.6
1996 5.4
1997 4.9 <--Clinton tax cuts
1998 4.5
1999 4.2
2000 4.0
2001 4.7 <--First Bush cuts
2002 5.8
2003 6.0 <--Jobs and Growth Tax Relief Reconciliation Act of 2003 aka Bush Tax Cuts
2004 5.5
2005 5.1
2006 4.6
2007 4.6
2008 5.8
2009 9.3
2010 9.6
 
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CaptainObvious

Embrace the Suck
V.I.P.
It should be pointed out, there were no tax cuts for the wealthy, they were across the board cuts. Secondly, its far too simplistic to think cutting taxes is akin to some magic wand and ta da jobs are created.
 
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