The Question Every Liberal Should Ask a Republican About the Myth that Tax Cuts Create Jobs

A great question to ask one of these “tax cuts create jobs” people is this — “If tax cuts are the main way you plan to create jobs, what do you do once they’re reduced to zero?”

Most of the people you ask this question to won’t understand what you just asked them, but it’s a question I propose to my “tax cuts create jobs” friends pretty often.

See, say you cut taxes where someone like Mitt Romney wanted to, down to a rate around 25%.  This may boost profits for a short period of time, and some businesses might even create a few jobs, but eventually you max out the growth in revenue at this tax rate and the only option we would have (using the conservative belief of tax cuts for job creation) is to cut taxes again.

Say we knock them down to 20%, then 15%, then 10%, then 5%, then 2.5% — you get the picture — what do we do once we’re at a point where you can no longer “cut taxes to create jobs?”

And this doesn’t even address the massive problem of tax revenue being at such low levels a country can not sustain itself.  But that’s a whole other article for another day.

It’s similar to a question I posed to a manager when I worked at Sam’s Club.  Like with most large companies, they “cut wages” to help lower expenses.  I’d often say that’s all well and good, but what do you do once you’ve squeezed all the juice from that lemon?  There’s a specific amount of people that must be present at a business in order for it to run.  You simply can’t cut everyone.  While you might work the ones you don’t cut more, there’s still a certain amount of people that must be kept on the clock to run a business.  So once these businesses cut to a point where they can no longer make those “expense saving cuts”—then what?

I feel the same way with taxes.  If your main plan to create jobs is by cutting taxes, what do you do once you can no longer cut taxes?

The truth is, tax cuts have little to do with job creation.  A simple and indisputable rule of economics is the rule of demand.  If there’s demand for a product or service, a business will be created to meet that demand.  It will grow and expand in accordance with what demand dictates, not what their tax rates are.

For example, if I could wave my magic wand and offer a 0% across the board tax rate for a business to manufacture VHS tapes, would this business be highly profitable because of its low taxes or would it be a massive failure because there’s no demand for VHS tapes in 2013?

Even if I poured millions into advertising and infrastructure, without demand, it doesn’t matter if the business was handed a tax rate of 50% or of 0%—it’s not going to grow.  It’s not going to hire new employees.  It’s not going to be in business for very long without losing a massive amount of money.

On the flip side, if I had a business that had a 40% tax rate, but massive demand for a product, I promise you a potential business owner isn’t going to decide, “Well, I‘ll only make $200 million with higher taxes, not $350 million, so I’m not going to start this business.”  Nor will a business choose not to expand, losing revenue, because its taxes are higher.

It might complain and lobby for lower taxes, but when demand for a product is there, very few businesses are going to lose out on meeting that demand (and risk losing their share of the market to competition) just because taxes are higher.

If demand dictates a business must grow—it will.

Trust me, companies don’t create jobs based on their tax rates.  I’ve never seen a single company expand just because they got a tax break.  You won’t see a CEO say, “Even though there’s no need to expand, we got a tax cut so let’s hire new employees even though we don’t need them.”

Big corporations and the rich can whine all they want about tax breaks being necessary for job creation, but they know it’s a lie.

It’s just basic economics.  Jobs are created by demand, not tax breaks.

Allen Clifton

Allen Clifton is a native Texan who now lives in the Austin area. He has a degree in Political Science from Sam Houston State University. Allen is a co-founder of Forward Progressives and creator of the popular Right Off A Cliff column and Facebook page. Be sure to follow Allen on Twitter and Facebook, and subscribe to his channel on YouTube as well.

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  • Mr. Smith

    I have been saying this since they started “trickle down economics” I have always thought it to be an absurd notion. You have to put money in the pockets of the masses and keep tax rates up on the rich to inspire them to make more in revenue to make up the wealth they desire. Then everyone wins. But that’s the issue isn’t it, they don’t want us to have what they have attained. They don’t want competition for power and say in Washington, local and state government. They don’t like to share and don’t play well with others.

    • Sick and tired

      Every sane person has been saying this since they came up with their trickle down BS. You have to be completely stupid or brainwashed to believe otherwise. Even Bush Sr. called it “voodoo economics” and didn’t buy into it…. it’s madness that anyone still thinks supply side economics has merit.

  • and demand is created with more jobs, tax cuts makes more unemployed hence less work, hence less demand

  • rogertracy

    Oh my. Are you that stupid? You talk about republicans not getting it. You Allen Clifton, can’t even ask the right question. Perhaps you would be better served by talking to children. Your main question seems to be, “what next”? Let me see now. You should lower taxes down to the point where you can sustain the government. ((The government still has to be paid for)) And any business man, would be wise, to lower there workforce, to levels that will maintain it self and promote growth. (( business must flourish for the benefit of all )) To even suggest anything less, simply points to you intelligence level. And yes, trickle down economics does indeed work. Look around you. everything you see, wear, eat, read, even down to the point of drinking a glass of water, is a direct result of trickle down economics.

    • What?

      Roger Tracy, calm down. First of all, you’re immediately resorting to insults which show that you are incapable of having a rational discussion. Secondly, trickle down economics did NOT create everything around us. I don’t know where you got this idea but it’s completely wrong. Trickle down wasn’t even popularized until long after America had become a powerful and prosperous nation. Are you also unaware of the massive spending done by the Bush and Reagan gov’ts during times of tax cuts for the wealthy? Trickle down makes no sense. You create demand by having more disposable income for the majority of people. Shifting the tax burden onto them means less disposable income and that means less jobs.

    • Debra Ebright

      Suggest you visit Dr. to adjust your meds!

  • Stanley Fritz From LYVBH

    This is a great post, I hate to admit it, but when I first read the question I was a bit confused as well. But after reading the entire piece not only do I understand but I absolutely agree!

  • Jesse Doyle

    May 29th, 2013 Article –
    Bad News for Republicans: “Obamacare” to Cost Americans Much LESS Than Expected.
    I disagree and saw only fluff for readers to wake up to today. Telling that there are bad news for Republicans is a very bad idea when the news doesn’t hold its own weight in the argument.

  • JohnAbramson

    That reminds me of what has happened to Americas retailers. Big box shareholders have just begun to rebound since going south after 9/11. But, Big Box Stores have cut their staffs up to 75% in some cases. Customer service is at an all time low. They traded, or forced out most of their older more experienced associates, and replaced them with kids who in many cases have never held a job. Theft is up because, literally, “No ones watching the Store”.

  • Matthew Kennedy

    I think there are a lot of problems with this column. Let me address the main question of what next. I would say that there may not need to be a what next. Lets just say we knock down taxes to 20% and we see an increase in job growth (i’m not saying this will happen I am using it to illustrate a point), it is quite possible that the job growth we see is enough. Job growth is not a one time thing. Its an ongoing thing. No one is saying that a tax break will make 1000 new jobs and thats it. They are saying that the tax break will increase the growth of new jobs (this is an empirical question). So if lowering the taxes gives us job growth at 5% and population growing by 4% then were making enough jobs for the population and there is not need to lower the tax rate anymore to make jobs. So because this is my understanding of tax cuts when you ask what I would do next, I would say, “Nothing next, we got the job growth we needed, we don’t need to lower taxes anymore.”