Can someone explain to me how tax cuts "create jobs"?

Or buy more computers or equipment or any other asset that will put more money in their pockets.

1. A lot of small business owners have S Corp's. They pass through all their earnings to their personal accounts at the end of the year. In effect there is little difference between their personal and their business fortunes. A cut in the capital gains tax leads to more money in the pockets of small business owners and in some cases under some conditions will lead to an expansion of business due to increased profits; the profits of the individual being little different than the profits of the business.

2. A capital gains cut leads to increased investing which bolsters the stock market. An increasing stock market leads to more IPOs and more investment in general - which of course can lead to hiring. IPOs = more business activity = hiring.

3. Increased savings in one period lead to increased spending in the next. You can see this in nearly any recession where savings increase during the recession and then decrease during the recovery. So in effect the reduction of capital gains can also lead to increased savings and help the eventual recovery. This is so because of the economics identity: Investment = Savings - government deficit - current account deficit which can be derived from the more obvious Investment = Private Savings + Government Savings + Foreign Savings

There is a lot of discussion right now even between professional economists as to what the spending multipliers are for various actions such as tax cuts, rebates, infrastructure spending and so on. The truth is there is no general agreement as where one gets the best multiplier and under what conditions. It would seem wise to adapt a variety of stimulus actions.

A few of my bookmarks. Here is a great article by Hussman on the accounting identity above: http://www.hussmanfunds.com/wmc/wmc041206.htm
Also his weekly commentaries are a good read.

Here's one of many blogs covering spending multipliers this week;
http://gregmankiw.blogspot.com/2008/...ltipliers.html

Here's a paper on the effectiveness of capital gains tax cuts
http://dreier.house.gov/pdf/IPI%20-%20CapGainsKey.pdf

Maybe someone could find a competing paper with the opposite conclusion so everyone can compare.

My personal opinion is that any tax cut or additional government spending of sufficient size will increase jobs but that the efficiency is unknown beforehand . Different fiscal and monetary stimuli under different conditions will have different economic results.

Thsi thread is full of opinions that aren't based in fact....

Study says most corporations pay no U.S. income taxes
Do the rich contribute the most to tax revenue? No.
http://www.ntu.org/main/page.php?PageID=6

LOL

do you people even realize california is broke.

i'm sure cnn or fox hasn't said anything.

For those who are unable to understand that chart... 66.79% of tax revenue in 2005 (which reflects the current tax rate) was paid by people earning between $28,654 and $126,525.

Not always the case. Walmart let the line get longer and buy more cheap crap from China is closer.

Both have reported on it... I just saw a report on CNN yesterday where they said that California was so broke it couldn't pay tax refunds and were $15B in debt.

This was close to what I was going to say.

For 20 years I have watched countless Governments tell the voters they will cut taxes, deliver the same or more services and all this would be paid for by extra money coming into the system. Now we know how well it worked and they were either clueless or lying.

Because the growth in the economy that was going to pay for everything was an inflated growth on over valued commodities. Plus loans and debt. California in debt shows you how well these guys can manage an economy. But look at these people, which one of them is losing their homes? The bosses of the companies that got us into this shit have had their wages capped at $500,000. Tough life for them!!!!!

Even today they are all screaming no to protectionism. Too fucking scared China might ask for their money back. The only think that will get this mess cleared up is if we sell as much as we buy.

Creating jobs is good if those jobs lead to more jobs in the Country. Creating jobs that move the money out of the Country is exporting wealth. The guys who tell you it's the way forward are not the ones losing their jobs.

well of those three examples putting it an piggy bank/matress is not something someone who knows the value of investing is going to do.

paying of credit cards puts the money into the banking system to be lent out again (posititive)

and buying from another country when you have trade with and are therefore selling stuff to has a proportionately neutral effect (in the case of the US which has an over all trade surplus a positive effect).


And that makes sense when the public infrastructure investment happens as a PLANNED growth event. However when it is pushed out as a stimulus package that is not what happens. Projects that were planned to happen 3 years from now are pushed forward today. Which means 3 years of life expectancy is wasted to create short term jobs for your supporters.


no it is not i was responding to your sell stuff to pay off debt point. I know people will sell off stuff to move it into a higher yeilding investment (which translates into capital funding most profit maximizing companies = more jobs long term). I was trying to show you the beneficial effect of something you were discounting as not being of value.

Lower capital gains reduced the punishement from moving your money from one investment to another which causes money to flow from bad investments to good investments more quickly. That has a net positive effect to the economy which creates jobs.

The toxic assets is based on a lower than necessary asset reserves, which the infusion of capital was designed to resolve. The problem is when people pay off their credit card debts that is a LOST revenue stream from the banks. If they choose to recover it by investing that helps the economy. IF the best RIO comes from lending out that money that also helps the economy. WIN WIN either way.

which means it only has a cost allocation if it successfully stimulates the economy (back loaded cost) vs infrastructure investement which has to be spent first.

IF the physicological effect of reducing the punishement for moving your money from a bad investment to a good investment is eliminated. and it causes people to not just sit on their current stocks in the hopes it will go back up. The business that are first to turn around will get more capital. That will speed up recovery. And only when that happens does the cost of the tax cut actually kick in.

You just gave another reason why tax cuts are better than public works.


at least quote him properly
he said $1 will generate $1.50 in DIRECT stimulus.
There is a difference, because their is a massive multiplier effect from indirect (out of system stimulus).

Take the example of canadian auto industry, putting the stimlus into US auto industry caused the canadian government to do the same thing. The difference is the canadian plants BUY their parts for the car from the American Parts plants. The end result in the US gets a portion of our stimulus package (the value of the parts). Since the profits from the sale of the cars go back to the head office in the states you get a second part of our stimulus package.

When those net transfers the total value of a $1 going to business, is WAY more $1.5.

The U.S. has a trade surplus? So when we buy goods made in other countries it's proportionately neutral? (because they buy as much or more of our stuff as we buy of theirs?)

What the fuck are you smoking? Our trade deficit for Nov 2008 (the most recent month for which data is available) was over $40 billion.
http://www.census.gov/indicator/www/ustrade.html
40 billion deficit, for one month, and that's a typical month, and you think the U.S. has a trade surplus?

I didn't even bother reading the rest of what you wrote because this is so factually inaccurate and flat out stupid that if you believe it's true then nothing else you wrote is worth reading.

BTW, lower capital gains taxes don't encourage people to sell bad investments and move the money to good investments.
A bad investment would be one that lost money (or made very little), a good investment is one that makes alot of money...since the tax is only paid on the profit, selling a bad investment is not a taxable event, or in the case of a barely profitable investment, the tax is miniscule in relation to the amount of capital that will be freed by selling.

If anything, the low tax rate would encourage me to sell an asset (say a good stock) and then immediately reinvest all of the after tax proceeds into the same asset, thereby raising my cost basis for future taxes. (i.e. paying tax now at the lower rate on profits I've made so that if taxes go up later and I sell, the tax bill will be lower)
All this really does in the long run is cost the treasury money that it will have to make up for in another part of the economy.

GG has a habit of posting what he thinks will fit his version of the truth and building a case on that.

If the "West" had a neutral balance of payment with the "East" and some developing countries we would not have this crisis. We might even of ridden out the financial crisis created by financiers bankers.We would all be earning more and yes goods would be more expensive in the shops.

We have had over 20 years of importing cheap goods from countries that pay workers a fraction of what we earn, replaced the jobs with service, technology and financial industries. The result is clear to see.

A lot of the service, technology and financial industries are now based in the countries we had hoped would just be selling us cheap coffee percolators and shirts. And the system collapsed.

Under Chairman Mao Chine was a poor third world country where millions starved to death. With the new leadership and our leaders making them "favored trading partners" which in truth means they can sell us billions and buy little, look at the changes. If you want to know where your money went, you don't have to look very far.

The problem is those at the top profited from it, few of them lost their jobs, few of them took a pay cut and they still tell us protectionism is wrong. It is for them, not so good when your job and wages go East.

Nothing like a kick ass economic crisis to break the American DOllar down only to be replaced by the "Amero Dollar".

Trade between Canada, USA, Mexico and some Central American countires band together to all use the same currency system and the economies merged.

Sounds like we are definatly all in a state of Change.

It works with the completion of the transcontinental highway.
Its all part of the plan.