- Image by Getty Images via @daylife
We are, of course, living under a massive deficit. While I am no economist, the only way to reduce a deficit is to increase income or decrease spending (or both). One obvious way to increase revenue is to allow the Bush era tax cuts to expire. However, the Republicans are generally opposed to this option. The Democrats are also opposed to it-at least for 98% of Americans.
The main argument for keeping all the cuts in place is best put by John Boehner: “I think that extending all of the current tax rates, and making them permanent, will reduce the uncertainty in America, and help small businesses to create jobs again …”
Boehner wisely focuses on the uncertainty factor. To argue that the tax cuts alone will create new jobs would be problematic. After all, the tax cuts are already in place and they are, obviously enough, not creating new jobs. As such, the argument is not that the extending the tax cuts will create jobs. Rather it is that making them permanent will create jobs because small businesses will stop worrying about future taxes and start spending to create jobs now.
This assumes that it is not just taxes that impede job creation but also the fear that taxes might increase at some point.
While it is not uncommon to assume that low tax rates cause an increase in hiring, wealthy business owners seem to be less concerned about taxes than consumer demand and jobs. If this is correct, then making the tax cuts permanent would not create new jobs. Rather, if new jobs start being created and the economy revives, then the wealthy will start spending.
There is also the obvious matter that the tax cuts have been in place for quite some time and they did not seem to have helped with the economy. If they were effective in creating new jobs, then those new jobs should have been appearing steadily. However, as noted above, maybe businesses have been reluctant to hire because they have been afraid for the past two years that the tax cuts might expire.
Given that business do face various risks, it seems odd that they would be willing to gamble on various factors that can shift rapidly and unexpectedly (such as market demand, availability of raw materials, the cost of energy), but that they would be paralyzed in the face of the possibility that the tax cuts might be removed. But, I will admit that this is not impossible-just unlikely.
It can, of course, be argued that the tax cuts do have some benefits. 37% of consumer spending is done by the wealthiest 5% of Americans and, as such, they keep a big chunk of the economy going. If they had less money to spend, they would probably spend less money. However, it seems unlikely that continuing the tax cuts will spur them to create new jobs. Rather, to honestly sell extending the tax cuts, the argument should be this: “if we keep the cuts in place, the wealthy will probably keep spending about the same amount of money and thus help shore up the economy until someone actually starts creating jobs.” However, that does not sound as good as the claiming that jobs will be created.
Of course, the fact that 5% of Americans do 37% of the consumer spending seems to indicate a rather serious economic disparity. Perhaps this disparity is justified-all that high income is earned and everyone has a just and fair opportunity to become exceptionally wealthy. It is just that most 95% of people simply fail to do so and 5% succeed. However, it might be argued that the economy would be better off if the 95% of people had more to spend and that this might create more jobs than having the extremely wealthy driving the economy.
As a final point, since Boehner focuses on small businesses, it might be wondered how many small businesses fall into the 2% of wealthiest Americans (the Democrats want to keep the cuts for 98% of Americans, the Republicans for 100%) and it might also be wondered how effective small businesses actually are at creating jobs.
As I have said before, I am not thrilled to pay taxes. Selfishly, I am looking forward to having more money because of the tax breaks. However, I am concerned about the ultimate price of these cuts for the country and for future generations. While I do have selfish tendencies, I do care about others and those to come. As such, I am willing to sacrifice some of my good for the good of others.
