09.23.2010 0

Do Tax Cuts Really Create Jobs?

By David Bozeman –

Do tax cuts really create jobs? According to columnist Froma Harrop, not necessarily.

Democrats, of course, find themselves in a tight spot — by not extending the Bush tax cuts, they are effectively raising taxes. But most would rather chew on broken glass than extend any tax relief that might benefit the “rich,” so the spin starts here. Harrop cites Bill Clinton, whose 1993 budget raised taxes and who, despite warnings from Republicans, saw roughly 20 million jobs (according to Harrop) created in his two terms.

She is right, up to a point. Tax cuts alone do not create jobs. Investors and employers will sit on millions of dollars if they are unsure of the looming effects of, say, a massive health care takeover or cap-and-trade legislation or burdensome regulations and paperwork or just a generally unfavorable opinion held by their government toward profit and wealth creation.

Still, one could argue that the economic boom that rang out the 20th Century began in the early 1980’s under Reagan, was interrupted by a mild, brief recession in 1990-91 and continued until the economic calamities of the 2000s (nonetheless, most of George W. Bush’s two terms saw steady economic growth and job creation).

By the time of Clinton’s ’93 budget, Reagan had managed to lower top marginal tax rates from around 70% down to the 20s, so not even the increases of Bush 41 and Clinton could significantly slow America’s roaring economic engine. Bill Clinton took a giant step to the center after his party was wiped out in the ’94 midterms, so business was far more comfortable under his leadership than today under the more ideologically rigid Obama’s.

Harrop accuses Republicans of instilling fear in American workers by making them believe they are wards of the rich. No, they’re not wards of the rich, but maybe some on the right understand the dynamics of a (relatively) free market — stick it to the man all you want, but the poor will ultimately pay in higher prices, fewer opportunities or both. Wealth is not a finite commodity in a fixed game. The potential for wealth is practically unlimited to the extent that government stands back and keeps its own financial house in order.

Few on the left call for any restraint in Washington, but the rich (generally defined as those earning $250,000 or more) must always be ready to pony up their share, lest they be called “greedy.” The prevailing belief is that money, once transferred to the IRS, is disinfected of the stench of the private sector and is at once sanctified by the noble aims of government bureaucrats.

But, yes, extend the benefits of the Bush tax cuts for all income groups. And Harrop is right — tax cuts alone do not create jobs. An administration that respects the rewards of individual initiative and risk-taking could well see an economic renewal like none before. Is it not plausible to ponder if more people would be working now if Barack Obama had studied Adam Smith, Friederich Hayek and Milton Friedman as intensely as he did Saul Alinsky and Reverend Wright?

David Bozeman, former Libertarian Party Chairman, is a Liberty Features Syndicated writer.

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