September 23, 2011


'Job-Killing' Tax Hikes May Not Be So Lethal: Low rates on the rich can help the economy--but it takes a long time (Mike Dorning, 9/22/11, Forbes)

"There's very limited evidence to support the claim that increased personal income tax rates on higher-income people would reduce hiring," says Joel Slemrod, who served as senior tax economist for President Ronald Reagan's Council of Economic Advisers. Cutting taxes on upper incomes may have economic benefits, but it's not an especially powerful way to create a lot of jobs quickly.

The big difference between the rich and everyone else is that they are more likely to save money from a tax cut since they already have enough to live on, says Alan Viard, an economist at the conservative American Enterprise Institute. They may buy a yacht, but plenty is left over for their portfolio. In the long run, all the money the rich save as a result of lower tax rates means there is more available to be invested in business through banks or the stock market. That should eventually lead to higher standards of living--and, yes, more jobs. But it takes time for that to be felt.

If politicians are looking to create jobs right away, they'd be better off concentrating their efforts lower down on the income ladder. The poor and middle class are more apt to spend extra money, maybe on groceries or a new refrigerator, helping to spur the economy immediately. The No. 1 reason small business owners say they're not hiring is poor sales. A Congressional Budget Office report looking at economic multipliers found tax cuts for low- and middle-income families are more than twice as powerful in stimulating immediate demand as tax cuts for the wealthy. "The short-run/long-run is the critical thing," Viard says. "If the goal is to have more jobs 6 months, 12 months from now, you want to increase aggregate demand. If the goal is to have a high standard of living 10, 20 years from now, you want to increase national savings." just give us all debit cards with expiration dates, if they were looking to stimulate the economy.

Posted by at September 23, 2011 7:00 AM

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