Tax Cuts Create Jobs

[Toro]

Well, most do. And different tax cuts have different affects. Let's take a look.



Tax cuts on corporate income increase the corporate tax share as a percentage of GDP

http://www.cato.org/pubs/tbb/tbb_1107_49.pdf

Decreasing payroll taxes and instituting a flat corporate income tax would triple entrepreneurial activity.

Taxes and Entrepreneurial Activity

Taxes on wireless services destroys more economic value than the tax revenues it brings in.

Taxes on Wireless Services Burden the Economy

Higher tax rates on labor income and consumption expenditures lead to less work time in the legal market sector, more time working in the household sector, a larger underground economy, and smaller shares of national output and employment in industries that rely heavily on low-wage, low-skill labor inputs.

Effects of Taxes on Labor Income

High Income Taxes Inhibit the Growth of Small Firms

High Income Taxes Inhibit the Growth of Small Firms

Taxes Discourage Mutual Fund Investors

Taxes Discourage Mutual Fund Investors

Differences in taxes across countries are a very important piece of the explanation for the vastly different levels of hours of market work hours of work in the United States were roughly the same in 1956 and 2004, while hours of work in Germany decreased by about 40 percent over this same period.

http://www.nber.org/digest/may07/w12786.html

Internet sales are highly sensitive to local taxation. People who live in high sales tax locations are significantly more likely to make purchases over the Internet.

Consequences of Employment Protection

Estate taxes do have a negative impact on the accumulation of wealth. An estate tax rate of 50 percent (just below the current top rate) is associated with a reduction in the reported net worth of the richest half percent of the population of 10.5 percent.

http://www.nber.org/digest/mar01/w7960.html

U.S. equity Foreign Portfolio Investment in the average treaty country rose by over 90 percent relative to U.S. equity holdings in the average non-treaty country, in response to the large relative decrease in the dividend tax rate for corporations in treaty countries.

http://www.nber.org/digest/jul08/w13281.html

Tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent.

http://www.nber.org/digest/mar08/w13264.html

Europe's failure to develop the kind of thriving service sector that has transformed the U.S. economy, a deficiency for which high taxes are largely to blame, is the main culprit behind the fact that over the last fifty years, hours worked in Europe have declined by almost 45 percent compared to hours worked in the United States. That's the conclusion of NBER Research Associate Richard Rogerson in Structural Transformation and the Deterioration of European Labor Markets (NBER Working Paper No. 12889). He finds that over the last half a century, European economies have suffered from a form of arrested development.

Europe's Lagging Service Sector

Our data reveal a consistent and large adverse effect of corporate taxation on both investment and entrepreneurship. A 10 percentage point increase in the effective corporate tax rate reduces the investment to GDP ratio by about 2 percentage points, and the official entry rate by 1.3 percentage points ...

Recognizing that we have data on many developing countries, we also consider the effect of corporate taxes on the unofficial economy. We find that higher corporate taxes are associated with a larger unofficial economy, consistent with our findings on entry by official firms. This suggests that an important margin on which corporate taxation might influence macroeconomic outcomes is by keeping firms unofficial.

http://www.nber.org/confer/2007/pef07/shleifer.pdf

We examine the extent to which taxes on corporate income are shifted onto the workforce in the form of lower wages. We find that a significant part of the effective incidence of the tax falls on wages. Our central estimate is that 54% of any additional tax is passed on in lower wages, even in the short run; other estimates are larger than this. In the longer run, a $1 rise in the tax liability results in a fall in total employee compensation in excess of $1.

http://users.ox.ac.uk/~mast1732/RePEc/pdf/WP0707.pdf


And so on...

 

[uscitizen]

Tax cuts just enrich the corps now and they move jobs offshore anyway.

At one time your rationalle had quite a bit of truth in it, but things have changed.
We became a debtor/consumer spending dependent economy for one thing.
And then globalization put is in wage wars with the rest of the world.

 

[dblack]

I'll make the same argument here that I make against using the tax code for class warfare. The purpose of taxation isn't to manipulate the economy; it's to fund government. Using tax policy to 'create jobs' is as much of an abuse as using it to punish the rich (or mandate health insurance, for that matter).

 

[Wiseacre]

I think ordinarily that cutting taxes does help with job creation, but since there's already a lot of money sitting on the sidelines, it could be that a tax cut now wouldn't be very constructive. A tax hike on the other hand, might be seen as yet another negative for business investments in an economy that is already negative for several reasons. I know we need more revenue, but we need more jobs first. I can definitely see lowerng the tax rates and reducing or eliminating some tax beaks and loopholes to pay for them. But I really don't think taxes are the main issue right now. Uncertainty about regulations, energy, health care, and the ridiculously poor governance we've had lately must really be scaring the hellout of most employers. They've found ways to be profitable in this downturn, they ain't going to change (hire) without some indications that an upswing is coming.

 

[Supposn]

Well, most do. And different tax cuts have different affects. Let's take a look.............................

Toro, tax cuts do not particularly create or eliminate jobs.
An economy is similar to an environment that’s inhabited by many complex life forms that interrelate with each other.

We may improve our economy by restructuring our tax methods and regulations.

We may improve our economy by reducing or eliminating some government spending and/or increasing or enacting other expenditures. It is not particularly beneficial to reduce or detrimental to increase governments’ aggregate revenues.
Those revenues must be considered in relation to the services we choose to have the government provide.

Although a particular tax method or tax rate may itself be contra productive to our economy, generally tax reductions do not “pay for themselves” and reducing taxes while continuing to operate with budget deficits is generally uneconomical.

The elder Bush got it right, “supply side economics is Voodo economics”.

Tax methods, their regulations, their rates and any tax earmarked for specified purposes should each within themselves justified. Additionally there are interrelationships between some individual taxes or tax provisions to be considered.
For example:
I’m a proponent of replacing taxing of net incomes with consumption taxes to whatever extent it’s practical to do so. As long as any taxes of net incomes remain, the incomes of both individual and enterprise’s incomes should both be taxed at similar rates.

I am a proponent of reducing corporate taxable incomes by their distributed dividends. It should be treated similar to any other corporate expenditure. I’m opposed to differentiating between income sources; all classifications of incomes should be taxed in similar manners and at similar rates. To do otherwise is to encourage and induce evasion of income taxes and greater tax inequities.

Respectfully, Supposn

 

[rdean]

Building infrastructure creates jobs. Was that part left out on purpose? Will companies create jobs in a country with no infrastructure?