Tax cut and jobs

[Elizabeth King]

Does tax cut create jobs in this country or
in XXX country?

[Jason Menard]

There are probably more complex and correct ways to answer this question, but there are a couple simple ways to think about it...
On the corporate level, a corporation that receives a tax cut should have more money to spend on other things. Projects (including software development projects) that have been delayed for financial reasons could be given the greenlight to go ahead. In order to make these projects happen, people may need to be hired to work on the project, therefore creating jobs.
On a more personal level, consumers with more money in their pockets as the result of a tax cut are more likely to spend it. When spending goes up, jobs often have to go up. To see this on a more obvious scale, think about the Christmas shopping season. Businesses often must hire additional help in order to keep up with the increased consumer demand. It's the same principle.

[Natalie Kopple]

There are other concerns.
Consumers are unlikely to open their purses if tax cuts do not benefit consumers much.
There is no point for businesses to invest and expand their operations if consumers do not purchase. Businesses will be happy to keep the hefty tax cuts to themselves. Business owners will be richer and open their wallets to spend somewhat. The income disparity among people will accentuate.
Will jobs created by increased business and consumer spending be outsourced? If the answer is yes, then the employment in outsourcing destination countries will increase. The oursourcing originating countries will be in deeper budget deficit because of loss of income tax revenue.
Will businesses lay off more domestic workers and hire lower paid foreign workers to fill those newly created positions? If the answer is yes, then domestic workers will remain unemployed. The Government will be able to collect some taxes based on lower wages. The society is going to be unstable if the Government does not increase welfare expenditures to cusion the hardship of unemployed domestic workers.

[ May 07, 2003: Message edited by: Natalie Kopple ]
[ May 07, 2003: Message edited by: Natalie Kopple ]
[ May 08, 2003: Message edited by: Natalie Kopple ]

[Jason Menard]

Will jobs created by increased business and consumer spending be outsourced?
The government is looking at the economy as a whole. AFAIK, far more jobs are kept at home than are outsourced.
Will businesses lay off more domestic workers and hire lower paid foreign workers to fill those newly created positions?
This concern isn't impacted by tax cuts.
The society is going to be unstable if the Government does not increase welfare expenditures.
Unemployment tends to cause problems. To not have these problems it seems to me the thing to do would be to create jobs, not make more people dependant on the government.

[Mark Herschberg]

Jason gave the standard answer. This is known as "supply-side" economics, or "trickel down" theory, most famously promoted during the Reagan years (also known as Reaganomics).
The idea is that you increase the supply of money, it can create jobs. A tax cut will help the rich (including big corporations) more then the poor. But, the argument goes, the rich will create jobs and then hire the less rich, and the money will trickle down from the rich to the poor.
Does it work? Well, economics, despite being high quantitative, is very subjective. Some think Reagan was right and gave us a great economy during the 80s. Others disagree. Many who object claim the mistake Reagan made to provide tax cuts while at the same time increasing government spending. The result was huge budget deficits and an increase of the national debt (the presumption is that large national debt is bad, which not everyone presumes as true). Reagan increased spending on the military as we faught the Soviets during the cold war. Today we have increased spending based on military actions in Asia. It remains to be seen whether this will result in similar long term deficit spending.
--Mark

[Matt Cao]

Hi,
Tax cut doesn't do any good if your boss happens to be a tightwad and connivance individual. The organization has to go along with him because he has total control of corporation stocks.
Some organizations that have clear and effective policies, then I think tax cut probably have a valid point. While the organization that I deal with everyday is a waste of precious treasure that the majority of middle class American sweat and cursing for.
Regards,
MCao

[Mark Herschberg]

Originally posted by Jason Menard:
Will businesses lay off more domestic workers and hire lower paid foreign workers to fill those newly created positions?
This concern isn't impacted by tax cuts.

Well it sorta is. You are correct that the issues are somewhat orthogonal. However, the preusmption of supply-side economics is the creation of jobs. If those jobs are created overseas, I'm not usre if the numbers still work.

Originally posted by Jason Menard:
Unemployment tends to cause problems. To not have these problems it seems to me the thing to do would be to create jobs, not make more people dependant on the government.

Just to clarify (I think Jason already knows this, but for other people reading this), high unemployment causes problems. Certain levels are not only good, they are necessary. If unemployment is too low, then companies can't expand because they can't reasonably hire more good workers (we saw this during the tech boom); of course the US was able to import workers from overseas. For the record, we're still at fairly low unemployment levels, by historical standards.

--Mark

[Natalie Kopple]

I am concerned with unemployment statistics.
I think that we should look at how many have dropped out of labor force since the end of 1999 and beginning of 2000. Of course, those who no longer look for jobs are not considered as unemployed.
[ May 07, 2003: Message edited by: Natalie Kopple ]

[Tim Holloway]

A lot depends on what taxes were before they were cut, and which types of taxes were cut.
I was (after deductions) about in the 28% tax bracket in they year 2000. I didn't consider this onerous (except, that of course, all taxes are onerous). It didn't keep me from spending about as freely as I ever have in my life. I bought appliances, home repairs, clothes, food, auto services, etc.
The last 2 years, my income has been 0. 28% of 0 is 0, as is 16% of 0 as is 75% of 0. The Federal government raked in probably $40-50,000 less in income taxes from me thanks to extended unemployemnt. The state and local govt. suffered as well, as purchases have been reduced to necessities. We have no state income tax, BTW.
So any cut in federal income taxes isn't going to make me pump any more money into the economy (which, at the moment is driven much more by consumer spending than by corporate spending). The reason that I'm personally cynical about a tax cut will do much is because I was doing well enough when taxes were "high" and because even back in those prosperious days, the difference that this tax cut will make to my former income bracket isn't enough to incite a change in my spending habits.
One little irony is that one of the biggest proponents of the "trickle-down" economic theory - Jack Kemp - managed to lose a fair chunk of investment change during the Clinton era when almost any investment you could make was bringing in money (on paper, at least). Not a real good showing for an economic advistor.

[Natalie Kopple]

Tim, good post. The strong purchasing power of consumers in major industrialized nations; especially the US, has more than once pulled the whole world from recession.
Taking away the jobs and consequently
1. the income and purchasing power of the US consumers

2. the tax revenues of the Government at all levels

is detrimental to the US economy as well as the world economy.

[Mark Herschberg]

Originally posted by Natalie Kopple:
I think that we should look at how many have dropped out of labor force since the end of 1999 and beginning of 2000.

Why those dates? Why not 1997? 1996? Why not the start of the economic boom cycle at 1992? Why not since 1945?
Yes, in March 2000 the economy changed directions. If you look at number since then unemployment has gone up. So what? Its too narrow a focus.
Consider, IT for example. We've lost tens of thousands of jobs in the last few years. Yet when compared to 10 years ago, we've created tens of thousands of jobs. Doesn't sound too bad to me.
--Mark

[Axel Janssen]

Paul Krugman links some Monty Python piece under the same debate:
http://www.wws.princeton.edu/~pkrugman/armless.html
Don't know why, and right now no time to understand why he does that.
Lots of countries in europe double your unemployment rate. O.k. on the other hand here's more social security and "free lunch" (university,etc), less private debt.
I believe that economic policy (of state or my personal) will never work the short run. State does that, and its good for the employment. NO.
no easy way out
[ May 08, 2003: Message edited by: Axel Janssen ]

[Bill Lyons]

Just my two cents:
The tax cut as presently structured helps the rich more than the poor. (How many people do you really know who recieve large portions of their income through stock options or capital gains?) With the increasing amount of offshoring going on it seems to make sense that the wealthy take their newly minted capital and spend it where the bang for the buck is the greatest (certainly not in the US).
The worst part about the tax cut is not the redistribution of wealth, it's the evil way that it is being presented as a great opportunity for *all* Americans. Hogwash.

[John Lee]

Originally posted by Mary King:
Does tax cut create jobs in this country or
in XXX country?

Hi:
tax cut does not affect the overall spending, the end result is more individual spending and less government spending. does this have anything to do with job creation in certain country? please also note: tax cut won't be a big amount for individual. so the effect is limited.
perhaps only one thing is for sure, tax cut means government spending cut. so some government employee may lose their job.
just my 2 cents.

[Gary McGath]

One item which hasn't been mentioned:
Increasing purchasing power doesn't boost the economy. Only increasing productive power can do that. If people drain their resources faster, they have less to invest in the future. This can create a temporary boom, but inevitably results in a later bust. This is a large part of why we're in the present situation. Investors poured huge amounts of money into anything which ended in ".com", creating lots of high-paying jobs for a little while. Then the inevitable consequences of foolish spending hit.
A tax cut can help the economy, but not primarily by boosting consumer spending. My spending will stay low for some time in any case, while I try to catch up on my savings. A tax cut will help to the extent that it makes productive efforts profitable which wouldn't have been profitable before. Before complaining about this benefiting "the rich," ask how many jobs "the poor" are going to hire you for. If an employer expects a net gain in hiring you, you may get hired. If it looks to the employer like a net loss, because of taxes or any other reason, you won't.
There are other factors keeping the economy down, with fear of terrorism having been a big one in the past couple of years. A rise in dishonest acts by businesses has been a large factor; distrust puts a heavy brake on economic growth. Widespread dishonesty is a serious problem for which there's no easy fix. So a tax cut won't be a magic cure, but it will help.

[Tim Holloway]

Some thoughts on 2 arguments that are fairly common:
1. There are more jobs now (numerically) than there were before the boom/bust.
Valid, but only to the extent that the total job-seeking population hasn't likewise exapnded. Until about 2050, the U.S. will continue to have a growing population, barring any surprises.
2. "The Rich" hire people. Not really. Most people are hired by companies. Direct hires by "The Rich" are even sometimes illegal immigrants at sub-minimum wages. There was a fair amount of scandal about that some years back.
The tax breaks being proposed are personal tax breaks, not business ones, unless someone forgot to scream the usual song about Corporate America's Fat Cats getting all the gravy.
It's true that giving wealthy people more money can result in some of that being used to supply venture capital and other business-building tools, just as it's true that they'll spend the money on luxury appliances that will eventually become part of the general consumer market. It's not, however a relationship that has been demonstrated to follow rigid mathematical rules.
Under the right circumstances, pouring money in at the top can certainly help. However, I've not heard that there's a serious lack of money "up there". As long as the economy is being primarily driven by consumer spending, however, the less "leaky" approach is to benefit those doing the driving - i.e. consumers.

[Derek Grey]

A rise in dishonest acts by businesses has been a large factor
From an invester's perspective I think this is the number one reason not to spend any amount earned due to tax cuts. Other reasons also affect the decision but not as much as this one.

[Natalie Kopple]

Increasing purchasing power doesn't boost the economy. Only increasing productive power can do that. If people drain their resources faster, they have less to invest in the future. This can create a temporary boom, but inevitably results in a later bust.

You are arguing that we should try to increase productivity rather than spending money (consume) right away. It is a valid argument.
However, it is just a matter of when the purchasing power will be realized -- sooner or later.
Nonetheless, what is increased productivity for if production will eventually be moved offshore no matter how competent and educated the labor force we have? I am a highly skilled labor but corporations are exploiting similare set of skills overseas because I am too expensive for them. I am considering to swith to another field but I do not know which skills to acquire. My investment today may turn out to be wasteful only a couple years later.

[Axel Janssen]

that's the dark site of free market economies.
Don't think I am not having problems.
B.U.T.: We, the west, can't tell 40 years to asian nations and eastern europe that they should open their markets and then when they are getting competitive close our market to save jobs.
and... we can not outsource anything.

[Natalie Kopple]

Open the economy for commodity trading is one thing. Turn labor into commodity is something else. What does the term "labor trading" remind us? Slavery? Prostitution?
I ran across another person's story (see below). I believe this is a real person because he provides an e-mail address for people to contact him.
========================================
By Donald Finley
APRIL 28, 2003
When I changed my college major from mechanical engineering to computer science in 1998, I had few reservations about making the
switch. After all, the salaries of the two professions were comparable, and IT seemed to be thriving.
Unfortunately, my graduation in December 2000 roughly coincided with the crash of the dot-coms and a dip in the economy, which made job searching much more difficult.
No fear, I thought, I have an academic record that will impress employers and help me stand out among job candidates. I had graduated magna cum laude, made the dean's list multiple times, won awards for academic excellence -- and no one seemed to care. The liability of my
inexperience seemed to outweigh any advantage that a solid academic background provided.
The slowing of the economy has left many experienced IT professionals looking for jobs, and companies have their choice of workers with
proven track records. This means decreased opportunities for entry-level programmers with resumes heavy on skills and education and
light on job history.
Illustrating this fact are the employers and headhunters who call to express interest in the skills I have listed on my resume online. One
of their first questions is, "How much experience do you have?" Answering this potentially damning question with honesty usually ensures no future correspondence.
The lack of opportunities made me increasingly worried, and in September 2001, I committed an act of desperation. I had been job searching by myself and through employment agencies for almost eight months when I accepted a knowledge management position at a government agency in Washington, where living expenses are high and the pay is low. The job was part intern/part employee and kept me on the periphery of working with IT (checking e-mail was my sole interaction with computers). After six months in the program, I decided to return home and earnestly look for opportunities in software development, the area
of most interest to me.
Searching online job sites yielded few possibilities for someone with my level of experience; I fared better by contacting hiring managers directly. After three months of research and many phone calls to managers, I landed a job as a Web developer at a struggling e-learning
company. But after being told almost every week for six months that the office might not be open the following week, I was searching for another job by December 2002.
During this time, I had also enrolled in a graduate program, thinking that another degree might help me find a job. However, since starting
the program, I have considered the possibility that even this move may not help, because there are factors affecting the job market that are
beyond my control. ...................
Donald Finley is a computer science graduate student and a graduate
assistant in Tennessee.
Contact him at [e-mail].
==================================

[Natalie Kopple]

House OKs 550 Billion Tax Cut Bill.
http://story.news.yahoo.com/news?tmpl=story&cid=514&e=2&u=/ap/20030509/ap_on_go_co/congress_taxes

[Natalie Kopple]

Be vigilant on the possible liquidity trap
see http://money.cnn.com/2003/05/09/commentary/bidask/bidask/index.htm

[Paul Stevens]

It isn't the governments money to dispense. It is the taxpayers money. The top earners pay the lions share. Why shouldn't they get to keep more of THEIR money.
This whole idea that the government is taking money from the poor to give to the rich is flat out wrong. The bottom 50% of wage earners only pay 4% of income taxes.
Now let's talk about the idea of taxing business more. Who pays the increase? Certainly not the business. They just pass the cost on to other business and ultimately the consumer.

[Mark Herschberg]

Originally posted by Don Liu:
tax cut does not affect the overall spending, the end result is more individual spending and less government spending. does this have anything to do with job creation in certain country? please also note: tax cut won't be a big amount for individual. so the effect is limited.

The effect is huge, regardless of the amount per individual (except in extreme cases). Consider the recent federal rebate which was about $300 per person. People can do one of two things with that money. They can spend it, giving money to corporations, or they can invest it (putting it in the bank is indirectly investing it). In either case, the money goes to expand businesses.

Originally posted by Natalie Kopple:
Open the economy for commodity trading is one thing. Turn labor into commodity is something else. What does the term "labor trading" remind us? Slavery? Prostitution?

I've got news for you, manual labor has been a commodity for years. Construction, automanufacturing, electronic parts assembly, toys, stock brokers, etc have all been commoditized. There is a world of difference between slavery and prostitution. No one forced you into software, you're free to leave at any time.
Software will become a commodity market so long as employers can't distinguish between programmers. This is true either because we are indistinguishable (studies suggest we only partially are), or because they can't see the differences.
--Mark

[Natalie Kopple]

No one forced you into software, you're free to leave at any time.

Unfortunately, you still do not get it. Under global corporatism, everybody (except a few) will eventually become a commodity for trading. It is just a matter of time. There is no where to escape.
Should the diginity of labor be deprived? What will this trend lead mankind on the earth to?

[Mark Herschberg]

Originally posted by Natalie Kopple:
Under global corporatism, everybody (except a few) will eventually become a commodity for trading. It is just a matter of time. There is no where to escape.
Should the diginity of labor be deprived? What will this trend lead mankind on the earth to?

This is no different then many other types of labor. This is why many childrens toys in the US are made in China. So what? You act as though you have some God-given right to have your particular job protected. This simply isn't true in free markets. Comapnies provide what customers want, and if they don't, they die. That's capitalism. You are your own company. Provide what your customers (employers) want, or find yourself out of business.
30 years ago unskilled labor left the US. Today, software is departing. Tomorrow other industries, for instance consulting, might also move offshore. You can't stop it. Adapt or go the way of the dinosaurs.
Of course, this is really nothing more then an arbitrage opporunity. Eventually (although not in our lifetime) the cost of living outside the US will increase wrt the cost of living within the US and this will all be moot.
--Mark

[John Lee]

Originally posted by Mark Herschberg:

This is no different then many other types of labor. This is why many childrens toys in the US are made in China.
--Mark

china not only makes toys, but also manufactures many other product. the overall level of china's industry is still behind usa, japan, west europe, by years. the most dangerous part is china has so many labors, relatively well trained, with good quality. even 10 years later, when china catch up with east asia dragons, china still has the labor force to make all toys in the world. india also has a lot of population, but the consecus seems that india labor force is below that of china. that is why china has the most foreign investment, even surpass usa last year, far more than india, at least 10 times over india.

[Glen Cai]

I heard that Congress is very likely to
bring H1 visa quota back to the previous level -- 65,000/year. If it is true there will be more
jobs offshored.

[John Lee]

Originally posted by Glen Cai:
I heard that Congress is very likely to
bring H1 visa quota back to the previous level -- 65,000/year. If it is true there will be more
jobs offshored.

you did? did it pass senate and president yet?

[Glen Cai]

There is no action needed. The quota will automatically go back to the 65,000 annually
if Congress does nothing.

[John Lee]

but i think 65,000 should be enough in this economy. is this year's quote filled up?

[Mark Herschberg]

Originally posted by Don Liu:
but i think 65,000 should be enough in this economy. is this year's quote filled up?

So you're saying that, "65k [workers] should be enough." :-p Well, maybe you'll go on to start the next MS. :-)
--Mark

[John Lee]

well, i think the quote was 65,000 before 1999. the reason it was increased is that people feel that is not enough because of the hot economy, now i feel the economy is back to 1998's level. so i think it may not get extended. but just like what glen said, more h-1b quote will make sure the jobs stay, so it may turns out to be a good thing. we will see.

[Rajaram Sharma]

If outsourcing continues ... US will dissolve from land of opportunies to
land of unemployment for domestic workers.
I think H-1 B should be reduced to 0 level until the economy comes up. and Jobs data improves.
I am sure there are more than 3 times more than 65000 skilled unemployed people right now in the country.

[John Lee]

Originally posted by Rajaram Sharma:
I am sure there are more than 3 times more than 65000 skilled unemployed people right now in the country.

i think it depends on major and field.

[Rufus BugleWeed]

Job creation and tax cuts are going to depend a lot on what tax gets cut. IMO the GOP's dividend tax cut should help the world economy, if it were passed for tax year 2003, I don't think it will make many jobs until beyond 2004.
Corporations will have to change their business rules. Investors will have to learn the new rules of the game.
Bush's dividend tax cut has been a GOP agenda item for a long time. IMO people have rallied behind George Bush's tough talk on terrorism. Why he can translate his increased popularity into more pork barrel for the well healed is because Johnny can't think.
BTW, claiming unemployment rates are at historically low rates fails to acknowledge that US unemployment statistics fail to measure US unemployment.
To say that high unemployment levels are a good thing fails to consider opportunity cost of having people watching Jerry Springer. :roll:

[frank davis]

Originally posted by Bill Lyons:
Just my two cents:
The tax cut as presently structured helps the rich more than the poor. (How many people do you really know who recieve large portions of their income through stock options or capital gains?) With the increasing amount of offshoring going on it seems to make sense that the wealthy take their newly minted capital and spend it where the bang for the buck is the greatest (certainly not in the US).
The worst part about the tax cut is not the redistribution of wealth, it's the evil way that it is being presented as a great opportunity for *all* Americans. Hogwash.

I'm getting over $2,000 back this tax year. $1,000 is the direct result of changes Bush passed for education credits, the rest is because I was unemployed for a period of time and had paid in more payroll taxes in the first 5 months of the year than I needed to. Maybe some of it was a result of Bush tax redeductions; I don't remember. The point is I consider myself an average American salary wise (although I make about $10,000 less than the average programmer) and I appreciate Bush's tax cuts. I also have accumulated some savings over the years I have invested in stocks and mutual funds. I will be grateful if the capital gains tax is reduced regardless of whether the "rich' benefit more than I do. Envy is not a part of my character; strange I know...

[frank davis]

Originally posted by Bill Lyons:
Just my two cents:
...
The worst part about the tax cut is not the redistribution of wealth, it's the evil way that it is being presented as a great opportunity for *all* Americans. Hogwash.

I heard yesterday that a family making $40,000 or less could receive an extra $2,000 a year with the Bush cuts. $2,000 is a lot for a family making less than $40,000.

[Tim Holloway]

Originally posted by herb slocomb:

I heard yesterday that a family making $40,000 or less could receive an extra $2,000 a year with the Bush cuts. $2,000 is a lot for a family making less than $40,000.

I believe that's if you breed enough kids to take full advantage of the dependent-child deductions.
Of course the kids will cost more than $2000/year each, to say nothing of the aggravation involved.
Dubya really acts as his own worst enemy when he keeps harping on how the tax cut is going to "encourage entrepreneurs". Entrepeneur is a mindset and a talent more than it is the fatness of one's bank account. And just as few people have it in them to be Java geniuses, few people have it in them to be successful business owners. No matter how much money they have in their sweaty little hands. Simply handing money to people - be it in welfare or in tax cuts - isn't in and of itself going to do a whole lot of anything.
I mean, yes, I'm not fool enough not to grab the cash and run, though I doubt at current investment rates much of it will be going into savings. Most likely it will go towards Japanese-made electronics and Chinese-made household goods. Since almost possible to buy anything actually manufactured in the U.S. anymore.
My initial calculations look to be that I'd get about an extra $15/month back myself. Less whatever the state & local governments decide to grab to make up for lost federal funding, and not counting the expiration of the extra penny gas tax that our outgoing (Republican!) mayor talked us into (at least just about everyone agrees the money was well-spent).
It think that if I was going to start my own business, I'd need a little more than an extra $15/month to do it on.

[frank davis]

Originally posted by Tim Holloway:

I believe that's if you breed enough kids to take full advantage of the dependent-child deductions.
[/QB]
I haven't examined the tax code, but got my figure from Sean Hannity's talk show who said it would be $2,000 for a family of 4. So, maybe that's just 2-3 kids. I know there are now several education type credits in effect already that were passed/increased by Bush, and are scheduled to incraese again, and maybe Hannity is including them in his calculation. I myself, with no dependents, am getting back an extra $1,000 due to the Bush education credits alone.
[QB]
Dubya really acts as his own worst enemy when he keeps harping on how the tax cut is going to "encourage entrepreneurs".

He's mentioned before that he's giving the money back to the people who earned it. To me, that's sufficient justification. Maybe his other selling points are not as effective. Never the less, the primary reason most new businesses fail and/or don't get started is because of insufficient working capital. I agree that sufficient capital alone will not cause business success, but insufficient captial has been a well documented source of failure.