Friday, 16 November 2012

Taxing the wealthy may create jobs, not destroy them

Mark Summer, in Conservative Exceptionalism, looks at some of the faulty economics of some conservatives, especially around the arguments against increasing taxes on the wealth.
But the biggest problem with O'Reilly's threat–and the threat of every conservative who ever longed to go Galt–is that they forgot one thing. A kind of surprising thing. They forgot how capitalism works. 

Markets are moved by a little thing called supply and demand. If the market supports yet another talk show, then someone will probably air the show. And that show will hire construction workers and cameramen, caterers and chauffeurs. If the demand isn't there, the show won't be there. Neither will the jobs.
The same market rules apply whenever someone hints that, because of increasing personal taxes, he might not choose to create a new job. That's fine. He doesn't have to. Because if the demand is there, someone will. A company that refuses to expand in the face of rising demand will be supplanted by one that will. In the real world, jobs are not created or destroyed out of spite. They are created because they fill a need to create something, whether it's objects or information, that the market demands.
He concludes with:
Instead of reducing jobs, higher taxes can actually stimulate the creation of jobs. They don't prevent the accumulation of great wealth, they just expand the base that's needed to support the narrow top of the pyramid. Without any direct "redistribution" in the form of the government taking dollars from one person and giving them to another, higher taxes still act to reduce the gap between rich and poor by providing incentive for real growth rather than simple concentration of wealth.

So as the clouds of Taxmageddon gather on the horizon, don't worry. Increasing taxes are sure to reduce the deficit and slow the widening gap in incomes. They won't reduce jobs. If they do end up cutting into Bill O's salary, or even convincing him to put down his microphone, just take that as a bonus.
There's one aspect that the author has missed I believe. One of the problems in the USA is that Governments have not been spending enough money maintaining critical infrastructure (think roads, bridges, etc.). This is largely because they have not had the revenue. That is the price paid for decades worth of tax cuts. If taxes were higher, especially on the wealthy, Governments would have the funds to spend on infrastructure. Of course it takes people to maintain that infrastructure, which means more jobs (note this does not necessarily mean "Big Government" as the work can be contracted out).

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