Wednesday, April 11, 2012

Lower taxes will create jobs. Baloney!

"Lower taxes for the job creators". Really? The idea that business owners, especially small business owners, will create jobs if their taxes are lowered is a fantasy.

I might be considered a "small business" owner, (I had my own dental practice for forty years). In the beginning I had one employee, me. When I retired we were 12 including my partner, four hygienists and six auxiliary personnel. Taxes had nothing whatever to do with my so called "job creation". As we got busier we needed more people. That's not hard to understand, is it? If I had hired people because I got a tax break I'd have been a fool.

A small business doesn't actually "create jobs" - it responds to needs. If the need for its services increases it hires more people. If it has new products that the public wants it hires more people. A business owner who hires more people simply because its taxes are lowered won't be in business for long.

Lower taxes might increase profits, might make it easier to buy needed equipment, but create jobs? Nonsense.

Maybe it's just me.


Anonymous said...

Yes, really. Like most other things labor is subject to the laws of pricing on demand. So, even if I don’t make a particular decision based on a tax cut, the tendency, for me, and more importantly the aggregate, is to hire more when labor is cheap.

As an extreme example, say labor cost me $1 per day. I would find so many ways to use labor at that cost that I would employ the entire free world. And, at $1,000,000 per day, I would hire no one, and find a way to do everything myself. Although these cases are unrealistic (here, anyway), it shows that there is some relationship between my desire for help and the price I have to pay for it.

As the price of labor goes up, my tendency to want more workers goes down, and vice versa.

Your point about hiring to accomplish a job is correct, but pricing is a factor in those decisions as well. The real question is whether the overall effect will increase or decrease the tax base.

At a time when American companies struggle to keeps jobs at home against lower labor costs abroad, an effort to reduce the cost to employers might be worth a try.


Harvey said...

Of course, you're correct; good decisions must consider many factors. My point, made perhaps inarticulately, was that tax cuts themselves won't create jobs as the "Grover Norquists" imply.

Those companies that can export jobs will always look for the cheapest labor. Most small business owners don't fall into that category.

Anonymous said...

You are also correct. This is only one arrow in the quiver, and we don't even know how sharp the tip is.

Rich B said...

Hi Harvey.
Hope you and your family are well.
I wonder if Joe Electrician has more disposal income at the end of the week (because of lower income tax) will he get the kids braces, more cleanings for the family, whiten the old teeth, go out to dinner, a movie, or buy a new car? Does this create the demand for more dental staff, autoworkers and sales people, waiters, cooks and on and on. It’s the messy free market where money sloshing around in the economy creates wealth (and jobs).
Lowering some taxes, like capital gains and corporate taxes, actually increase tax revenue.

Harvey said...
This comment has been removed by the author.
Harvey said...

Hi Rich,
Glad to hear from you. As my original post indicated I was referring to lowering corporate taxes not income taxes. Those lower business taxes will surely help the bottom line of the business owners and perhaps even give the owners more disposable income, but they would do little to create jobs, which was the title of the post.

Rich said...

You said "especially small business" and they are mostly Chapter S Corps. or other types of orgs. and don't pay Chapter C Corp. taxes. That said, U.S corp. taxes are the highest in the industrialized world and they would employ more people in the U.S. if taxes were lower. Apple keeps 2/3 of it's massive cash reserves overseas because of our tax rates.

Harvey said...

Apple, like any large corporation, has one ultimate goal - maximization of its profits, not creation of jobs.

A business hires (creates a job) when it needs more people because of greater demand for its products or services. Lower taxes produce greater profits, not more jobs.

BTW, I agree that taxes are too high but it's due to certain government officials, the "in" crowd, who demonstrate ineptness, inefficiency, incompetence, inadequacy.

Rich said...

You need to help me understand your reasoning. Are you saying a company needs only to break even to be successful? Are some profits OK but past a specified amount, more profits are bad? Can a company use profits for R&D (automatic parking device for cars-I Pad) to create new products or services, hire advertising to create demand, hire people to make and service the new stuff? Without profits we can all grow vegetables in the yard and keep a cow and chickens in the garage and trade with the blacksmith for nails but that is getting back on the road to a free market (ug).

Harvey said...

What I'm saying is that the people who innovate and create the products and services that are the most successful will do so because that's who they are and what succeeds and creates jobs. Lowering their taxes (giving them more money) and expecting them to create more jobs as a direct result is somewhat like dropping more money into public education and expecting to thereby improve it.

Again, lowering taxes to create more jobs is a simplistic dream.

But you still have good qualities.

Rich said...

I am kind to small animals. So using that logic, raising taxes won’t cause a loss of jobs. Again, a company can be successful without profits?

Harvey said...

"raising taxes won’t cause a loss of jobs"

Not necessarily. And companies can be and are successful without obscene profits.

Rich said...

Oh wonderful, who will head the new Department of Obscene Profits? What are obscene profits? We are on the road to serfdom.