J-O-B-S or T-A-X-E-S: We Can’t Have Both
By Brian Sullivan
Higher taxes and job creation are the oil and water of economics. They simply don’t go together.
It’s a basic concept. The more a business gives to the government, the less free cash it has to use on new salaries. It’s why John McCain wants to cut the corporate tax rate to 25% from 35%. That extra 10% can go toward hiring a lot of workers and keeping jobs in the U.S. Remember America has the 4th highest corporate tax rate in the world. It’s no wonder jobs continue to move overseas.
This is not a partisan argument. Many Democratic leaders feel the same way and understand the damage higher taxes will mean for job creation. Consider this excerpt from today’s Wall Street Journal:
The Obama plan is an incentive to hire fewer workers. Barack Obama declared last week that his economic plan begins with “one word that’s on everyone’s mind and it’s spelled J-O-B-S.”. This raises the stubborn question that Senator Obama has never satisfactorily answered: How do you create more jobs when you want to levy higher tax rates on the small business owners who are the nation’s primary employers? Loyal Democrats have howled over the claim that small businesses will get soaked by the Obama tax plan, so we thought we would seek an authority they might trust on the issue: Democratic Senate Finance Chairman Max Baucus of Montana.
Here is what Mr. Baucus wrote in a joint press release with Iowa Republican Charles Grassley on August 20, 2001, when they supported the income tax rate cuts that Mr. Obama wants to repeal: “. . . when the new tax relief law is fully phased in, entrepreneurs and small businesses — owners of sole proprietorships, partnerships, S corporations, and farms — will receive 80 percent of the tax relief associated with reducing the top income tax rates of 36 percent to 33 percent and 39.6 percent to 35 percent.”. Then they continued with a useful economics tutorial: “Experts agree that lower taxes increase a business’ cash flow, which helps with liquidity constraints during an economic slowdown and could increase the demand for investment and labor.”. Twelve Senate Democrats voted for those same tax cuts. And just to be clear on one point: An increase in “the demand for investment and labor” translates into an increase in J-O-B-S.
So if lowering these tax rates creates jobs, then it stands to reason that raising these taxes will mean fewer jobs. From 2003 to 2007 with the lower tax rates in place, the U.S. economy added eight million jobs, or about 125,000 per month. The Small Business Administration says small business wrote the paychecks for up to 80% of new jobs in 2005, for example. Mr. Obama’s tax increase would hit the bottom line of small businesses in three direct ways.
Since Senator Baucus is on the record agreeing lower taxes are good for jobs, why has he and the other Democratic leaders who voted for this suddenly clammed up? They have either done the world’s greatest flip-flop on the impact of tax hikes on jobs, or have spoken up privately and been ignored by the Obama camp.
So that’s small business. But what about the big boys? If you believe the hype that big business doesn’t pay taxes, consider this: last year ExxonMobil paid more in taxes than the bottom 50% of the entire population of American taxpayers. So if you are one that has come to believe you should hate “big oil,” consider what your tax burden would be if that $30+ billion (which is on its way to $40 billion for 2008) in tax revenue paid by Exxon suddenly dried up.
So since the Congressional record proves that many Democrats understand the relationship between jobs and taxes as well as any supply-side Republican, their silence surrounding the proposed tax increases speaks volumes about where their true interests lie.