Deconstructing The Big Lie That Tax Cuts Create Jobs

Oct 22 2011 Published by under Uncategorized

The American economy, in a nutshell, is the exchange of goods and services between consumers, businesses and the government. In layman terms, everyone wants something, someone has to make it and someone makes sure that the exchange is done in a fair and reasonable manner. There are those that argue the exchange should be left to just those that want something and those that make it, but that is a different discussion all together.

The consumer, that’s us, goes out and exchanges time for money. Then we turn around and spend that money on the things we need and want, buying from businesses and paying our taxes to the government. Seems pretty straight forward, right?

Companies hire consumers to work in their business. They spend money to make the goods or provide services and then make money, known as revenue, when consumers or the government purchase those goods or services. The revenue goes towards operating expenses such as paying wages and taxes.

The government was originally set up to ensure that businesses did not take unfair advantage of the consumers. That is where the whole “of the people, for the people and by the people” came from. That is how the government earns its “wage” by providing a service to the people. It was set up to do a host of other things as well, but again that is a different article entirely. However, the government has the added advantage of being able to operate as not only a protective agency but also a consumer and a business.

In one role the government regulates and taxes businesses, or gives them tax incentives to host their businesses in certain areas in an effort to stimulate job growth in those areas. It also serves to oversee the interaction between consumers and businesses. As a consumer, the government can purchase goods and services from other businesses and organizations.

Plus the government can offer contracts to businesses to accomplish work such as road repair, construction, utilities and things like that. In addition to contracts, the government provides jobs to the multitude of elected officials, teachers, military personnel, city officials, police officers, judicial officers, investigators, auditors, and the list goes on and on and on.

As you can see the transfer of goods, services and money is a cooperative relationship between the three groups. If something happens so that one piece of the Economy doesn’t have the ability to fulfill its role, the entire system breaks down.

For instance when the price of gasoline goes up by $1.00 per gallon, consumers have to adjust what other goods and services they can afford. Perhaps instead of going to the movies and eating at restaurants, consumers will eat at home and watch free broadcast TV just so that they can afford the increase in transportation costs.

Here comes the part where the economy is getting a lot of attention in the news: The GOP would have you believe that if the Government cuts the taxes on the business, the business owners will respond by hiring more consumers to create more goods and offer more services.

This might seem like a great idea initially but let us consider the following scenario: Company A is making widgets. It has been paying $4.00 in taxes for every widget it makes. On average Company A sells 1000 widgets a month. Suddenly gas prices increase and the sale of widgets drops to 400 widgets a month because consumers not longer have as much disposable income. Suddenly the GOP decides that Company A should only pay $2.00 in taxes for every widget it makes. That’s a 50% reduction in taxes, but does Company A run out and hire more people and increase the number of widgets it is making each month? No! As it is, Company A already has had to reduce their production by 600 widgets a month to keep up with the decreased sales. If anything they will likely reduce the number of employees because of the decrease in production. A reduction in taxes won’t have any influence on the production levels if the widgets aren’t being bought.

Unfortunately there are many politicians working frantically to convince the general American public that this is the best thing to do. They report over and over that making the burden lighter for businesses will solve the problems for America. They don’t seem to be aware that the American people won’t benefit from this action, it is only the American businesses (and even some foreign own businesses located in America) that will benefit from this measure.

Consider again the cooperative dependency between the consumers, businesses and government. If the taxes are reduced for businesses, the “income” for the government will also be reduced. This could potentially cause the Government to cut funding to education programs, nutrition programs, police forces, postal services, unemployment office workers, child protective services and various other funded programs.

This starts the ball rolling for additional job reduction, which accomplishes the exact opposite of what the GOP members claim. Not to mention that it has become more difficult and complicated to obtain services such as Medicaid and Unemployment benefits that are surrounded by thick layers of automation in an attempt to alleviate the pressure of lower staffing levels.

Suddenly, cutting the taxes to businesses doesn’t seem like such a reasonable or acceptable option, but the GOP is hoping that no one really thinks this through that far. I mean, it might become obvious that the GOP isn’t interested in the welfare of the people who aren’t wealthy enough to be big contributors to their campaign… And we wouldn’t want that now, would we!

Image: MoveOn

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