Taxes

by Tor Dahl

Economists have shown that cutting taxes from high income people does not create jobs in the United States. Most high income people are savers, not spenders, and since 70% of our GDP is driven by spending most job creation is driven by consumption rather than investment. Raising taxes may create jobs, depending on how the money is spent.

I published these economic observations on October 27, 2011.

We have shown that increasing productivity creates jobs, and is likely the most effective, cheapest and quickest way to do so.

If we study economic growth over the period 1929 to 2010, for the 12 years that we had a totally Democratic administration (President, House, Senate) growth averaged 7.29% per year. For the 9 years we had a totally Republican Administration economic growth averaged 1.07% per year. The higher the growth rate, the more jobs are created.

The worst growth rate ever occurred during the 8 years we had a Republican President, with a Democratic House and a Republican Senate: It was a negative 1.1%. The current situation with Obama has never occurred before, but we note that it is the exact inverse of the worst configuration of governance for growth.

So, politics and productivity improvement affect growth and job creation, but tax cuts for high income earners do not. Good economics does not teach what we like to have happen. Good economics teaches what we know is likely to happen.