Do Tax Cuts For The Wealthy Create Jobs?
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Democrats and Republicans have two very different ideologies about how to create jobs.
The Democratic theory goes like this: We need to invest in our country in order to create jobs. This includes rebuilding our infrastructure, giving assistance to people who have been laid off during tough economic times, targeted tax cuts to stimulate small businesses and helping companies develop new technology. It also includes spending money on education, training, and projects that put people to work.
The Republican theory goes like this: The government should not be responsible for creating new jobs and should not spend money on job creation. The wealthiest Americans are job creators and if we cut taxes for corporations and the wealthy, they will use that money to invest in their businesses and that will create jobs.
To see how well these two approaches work, let’s compare the record of the most recent two-term Democratic president to the most recent two-term Republican president.
Bill Clinton's Approach
Bill Clinton raised taxes on the wealthiest Americans and invested in our economy. Republicans said this tax increase would cripple our economy and they predicted economic ruin would result.
However, that tax increase was followed by seven years of the best economic growth in our country’s history, where everyone prospered, including the poor, the middle class, and the wealthy. The stock market tripled in value. There were 22 million new jobs added to the economy, the federal budget was not only balanced but we had a surplus and, according to the Census Bureau, the percentage of Americans living in poverty fell every year during the Clinton years – from 13.6% to 9.6%.
In fact, the growing budget surplus that remained when Clinton left office was projected to pay off our national debt within 20 years and there was talk of using the surplus to shore up Social Security and Medicare for the next century.
George W. Bush's Approach
George W. Bush took a different approach. He stimulated the economy by cutting taxes - mostly for the wealthy. Bush wiped out the budget surplus and instantly created a record high budget deficit which eventually doubled our national debt to $10 trillion. During his eight years as president we had two recessions and a net gain of about 5 million new jobs. According to the Census Bureau, the percentage of people living below the poverty level increased for five of Bush’s 8 years in office. By the time Bush left office, our shattered economy was losing 750,000 jobs per month.
Bush’s final year in office left us with a budget deficit of over one trillion dollars.
What about Reagan?
So maybe that was just Bush. Let’s look at the Reagan tax cuts. In 1981, when Reagan was sworn in as president, the unemployment rate was 7.5%. That summer Reagan signed a 25% tax cut. By the end of Reagan’s first year as president, unemployment was up to 8.5%. By the end of Reagan’s 2nd year, unemployment was up to 10.8%. It wasn’t until March, 1983, over 2 years into his presidency, that unemployment started going down. Two years after the Reagan tax cuts were signed, unemployment was still higher than when he took office.
So why is the Bush record on the economy so pitiful compared to Clinton? Where were all the economic benefits from the Reagan and Bush tax cuts? Where were all the jobs?
Right now, the Bush tax cuts are still in effect. Taxes for the wealthiest Americans are lower than any time in over 60 years. If the Republican theory is true, then we should be creating more jobs now than ever.
All of this begs the question, why do Republicans still cling to the thoroughly disproven claim that tax cuts for the wealthy are the best way to create jobs?
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I love the boiled-down and taciturn style of this post- the contrasts are stark and make for a great read!
I was a Liberal before, but now I'm a Democrat as well.
Obama 2012!
I loved your hub. I loved Clinton as President, but I believe that Reagan was the best President we had in the last century. As for Bush, well God bless him. Here is an up for you!
In reality, its simple. Tax breaks have been deficit financed for 30 years. The fact is, our economy is consumer driven.
When people spend money, companies make more. These companies hire more people, which in turn creates more jobs. Until we get people back to work, even if we could wave a debt wand and make the debt disappear, we would still have a sluggish economy because the consumer has largely been left out of the recovery.
Here's my opinion on the matter (everyone has one). When you are looking for some kind of correlation you need to look at what is happening at that time. I can tell you one thing for sure during the Clinton years. Regardless of what he did, the economy would have grown due to the sudden surge in Internet entrepreneurship. Remember the ".com" boom? Everyone was going crazy with start ups. It didn't matter that those companies weren't making any profit, they were spending like crazy. All these start ups threw away the book on business management and came up with their new approach. Unfortunately, that bubble soon burst as soon as their capital ran out. What were left were those companies that had a solid business plan, like eBay and Amazon.com. These didn't happen because of Clinton; they happened by themselves because of some new disruptive technology called the Internet.
Now let's look at the real estate boom. The government encouraged home buying to the point that banks and mortgage companies were giving out loans to high risk borrowers. For a few years there, things were looking up. This also spurred an economic growth like no other. Any related products or service that had some dependency on the housing market grew. But then, it was just a matter of time until those interest only loans started to catch with all those high risks borrowers. That's when the bubble burst on that, and I don't think it would have mattered one way or the other who was president or what policies they were employing; they were going to to get some blame on the economic downturn caused by this real estate collapse. Based on what I've seen, presidents just ride the wave of success or failure resulting from things that is out of their control (at least at the point in time it is happening).
You definitely have to look beyond their policies and what the resulting economic conditions. You have to look at the surroundings and see what's happening there.
In my opinion, there is no correlation. If you want to create some correlation to your hypothesis, I suggest you take more samples and take into account the pervasive condition of the times those presidents presided over.
Again, this is just my opinion, and everyone has one.
Good approach to trying to make sense of it all though. It would seem logical, but it is an incomplete analysis in my opinion.
Forlanda - I agree this is not a complete analysis. This article is not intended to prove a point beyond any doubt. It just states some easily verifiable facts that, to any reasonable person, should cast serious doubt on the often repeated Republican claim that tax cuts are the best way to create jobs.
Taxes have been dropping precipitously for the wealthy over the past 30 years and are currently at the lowest point they’ve been in six decades, so we should have jobs galore right now. Cutting taxes on the wealthy might have helped stimulate the economy back when Kennedy was president when they cut the top tax rate from about 90% to 75%, but according to a 2009 article in Forbes magazine, the wealthiest 400 Americans, who collectively made over $105 Billion in 2008, paid only 17% in income taxes.
Republicans propose eliminating the Capital Gains tax which would mean many of those billionaires would pay zero income taxes. Does anyone really think that will create very many jobs?
Short answer to your last question: No. Only for accountants...and maybe lobbyists.
And the tax cuts of the last 30 years have all been deficit financed.
Great hub. A complex topic, one with many factors that makes it hard to assess. But, one thing is for sure, I've seen absolutely no evidence historically to support the idea that tax breaks for the wealthy or for large corporations creates jobs. I suppose if we could get signed committments related to how many new jobs they would create, what they would pay, and so forth, then I could say, FINE, keep your tax cuts but if you don't produce those results, you'll owe taxes and back interest....that of course will never happen. Somehow advantageous tax treatment needs to be tied to certain actions that produce positive, demonstrable, results for our society as a whole. They've had these tax cuts for many years as unemployment continued to climb.
This was a very good hub. i to enjoy a Hub that presents a factual comparison. Keep up the good work.
silver lining 5 Level 1 Commenter 9 months ago
Good post-there is a plan and a compromise that has been forged between much of the GOP and the wealthiest Americans, that includes corporations like big oil, pharma, multi-national defense systems etc. Please read my article at http://silverlining5.hubpages.com.
click on "Corporate Government."