The myth of the job creators


This is my second time in the US. I’m currently in a house in Michigan, reading a leaflet posted through the door from the Romney campaign. The right winged rhetoric is as poignant on every line of text as it has ever been. I’m not sure why we call it right winged. Prior to the Thatcherite revolution, the right were markedly more Keynesian than anything else. One nation conservatism was far closer to what Barack Obama is today, than the conservatism of Mitt Romney. Most one nation conservatives believed the rich had a moral duty to protect the poor. Disraeli passed a plethora of social reform; the Employers and Workmen Act made it possible for employees to sue their employers if the employer broke a contract. The Factory Act expanded regulation beyond anything seen before; it prevented children under 10 being employed, it set maximum working hours for women, and it set compulsory education for children up to 10 years old. The Public Health Act set minimum requirements for house building including running water and internal drainage. Disraeli was a Conservative Prime Minister. Can you imagine Mitt Romney proposing any sort of tough regulation on the extremities of Capitalism? In the eyes of the 21st century right wing; Disraeli was a terrible socialist. In the eyes of the 21st century right wing; every President pre-Reagan, was a terrible socialist.
The point being, Conservative governments have not always been addicted to horrendous free market anti-government dogma.

The leaflet posted through the door makes clear several times that Romney is committed to free market fundamentalism. His is simply an extension of new right thinking. He isn’t new, he isn’t presenting a credible plan for growth. He is rehashing the same tired old Friedman-ite economic philosophy that has dominated Western thought for the past thirty years, and has failed miserably every time. It fails, because it is ideology set apart from, and applied to a nation regardless of the contemporary economic or social context. We see the failure again in the UK. Since coming to power the epitome of new right economic thinking have forced through economic austerity leading necessarily to high unemployment, stagnating wages, rising poverty rates, increased gap between rich and poor, and most tellingly of all; the biggest double dip recession since the 1950s. That is the legacy of the myth of the job creators.

We have called it supply-side, we have called it trickle-down, now the rhetoric has moved on to labeling anyone with money as a ‘job creator’. This is a fallacious argument for several reasons…

I recently started up my own small business. As you’d expect, business isn’t exactly booming in the current climate. The reason for this lack of business isn’t the fact that I need a tax break. I really don’t. The reason for that is the fact that by cutting social programmes that helped those on low and middle incomes, the people and families affected no longer have enough, if any disposable income to spend on little luxuries. Instead, they work to survive and nothing else. Three years ago, a family with a teenager who went to college, could rely on the Educational Maintenance Allowance given to students who stay on into higher education for their food, and their travel. I know this, because I received EMA. It paid my petrol to and from college every day, as well as my food. I also worked part time in the evenings and at weekends, for extra money to spend on luxuries…. like the kind offered by my Photography business. Luxuries keep a consumer economy running. By taking away EMA, that little bit extra is lost from the pockets of the young. Which means they spend less. Which has a knock on effect in which businesses take less money, because there is less money. And so they lay off employees. Who are now on unemployment benefits. But unemployment benefits that have been cut. So they have less money again. And so the cycle continues.The point being, my business, whilst it is staying afloat, is struggling not because I need a tax cut, but because demand has been completely wiped out.

By giving me a tax cut, the new right is expecting me to help fill the employment gap created when it cuts ‘government’. The problem with this idea is again, related to demand. Why on earth would I employ somebody new? There is not enough demand currently for me to fill. The extra money i’d save in tax reductions would simply soon be lost, plus a little more, to the cost of employing someone, to help cope with demand that isn’t there. I am not going to ‘create jobs’ with saved tax money. Nor am I going to expand. It may give an advantage to large business, who by their very nature, don’t need a dose of corporate socialism. Employing new people, especially for small businesses, is a measure of last resort. A tax break for the lower and middle classes – the masses – will help to stimulate demand, as do effective governmental programmes aimed at elevating the burden of necessities – soaring gas and electric costs; education costs, petrol, healthcare costs (of which a universal system, is by far the most advantageous for a growing, civilised society). Taxing the wealthy, to pay for programmes that benefit the middle and lower classes, benefits everyone economically whilst building a compassionate society. It is the only possible way forward. We must not fall for the rhetoric of “all the best people will leave”. No they wont. It takes a lot to up and move country. Uprooting your children from schools, leaving your family and friends. It is a big life changing decision.

The myth of the job creators is as evident in the US as it is in the UK. Romney’s running mate, Paul Ryan once stated:

The other thing, in the tax side is permanent tax increases on job creators doesn’t work to grow the economy. It’s actually fueling the uncertainty that is hurting job growth right now. And don’t forget the fact that most small businesses file taxes as individuals. So, when you are raising these top tax rates, you’re raising taxes on these job creators where more than half of Americans get their jobs from in this country.

- The key to this quote is “when you’re raising these top tax rates”….. Top tax rates.
Similarly, over at Romney/Ryan headquarters, Fox News said of the proposed Obama top rate of tax hike to 39.6%:

….a clear majority of all small business profits face taxation at this top marginal income tax rate.

- It simply isn’t true.
According to the non-partisan ‘Center on Budget and Policy Priorities’ and backed up by ‘Urban-Brookings Tax Policy Center’, only 1.9% of small businesses make enough profit to fall into either of the top two income tax brackets. Visually, it looks like this:

So, let’s move my small business to the US. If suddenly, I am making $300,000 a year, by raising my rate by 4%, I will be paying about $6000 a year more. I’m not sure that would prevent me from hiring someone new, given that demand is high enough for me to be earning so much in the first place. Raising the top rate of tax, does not affect job creation. If it were the case that lower taxes on the wealthy lead necessarily to job creation, and higher taxes killed jobs, as suggested by Ryan and Fox, then we would today be absolutely fine for jobs. The opposite is true. Here is the evidence:

- Note how low the top rate of tax will STILL be, after the President’s proposed tax rise in 2013. Note also, that between 1993, and 2000, the top rate of tax was …. 39.6%… exactly as the President has proposed for 2013. The period between 1993 and 2000 was the largest period of US growth in history. Note also just how high the top rate was under Reagan. Prior to Reagan, in order to be eligible for a tax cut, a company would be required to use a portion of its profits to reinvest. Reagan put a stop to that, and gave a tax break up front. The companies thus invested elsewhere (offshore) and got the tax cut in the US. Isn’t ‘freedom’ wonderful?

The irrational phobia of ‘big government’ is a jobs killer. The Romney leaflet makes clear that government does not create wealth. This is disingenuous at best, and horribly dismissive of the millions of Americans that help drive the economy forward from the public sector. Schools create inquisitive minds and help to create an equipped workforce that both intellectually and materially drives the economy. Road building, property protection (being a policeman, is a job), fire protection and so on, all help to create an environment for which capitalism can flourish. It is true that the Government should not be the main force for economic growth. But they help, they protect, and they foster private growth. Without the government, we would belong to a Hobbesian hell hole. Libertarianism is as dangerous as Communism.

Evidence suggests that when the top rate of tax is higher, so is growth. When it is lower, economic inequality grows, not the economy.

Romney has pledged to reduce tax rates by 20%. It is no surprised that whilst market fundamentalists hail this as the beginning of an economic miracle, those who rely on evidence and analysis paint a different picture. According to a report by The Brookings Institution, the Romney tax plan would see taxpayers who earn over $1,000,000 given an extra 8.3% after tax; an average tax cut of $175,000, whilst taxpayers earning less than $30,000 would see a tax rise of about 0.9%; an average rise of $130. They go further:

“Offsetting the $360 billion in revenue losses necessitates a reduction of roughly 65 percent of available tax expenditures. Such a reduction by itself would be unprecedented, and would require deep reductions in many popular tax benefits ranging from the mortgage interest deduction, the exclusion for employer-provided health insurance, the deduction for charitable contributions, and benefits for low- and middle-income families and children like the EITC
and child tax credit.”

- The Romney/Ryan tax plan, is based on fundamentalist dogma devoid of all context, and based on an even more extreme form of failed economics. We see market fundamentalism, and austerity programmes failing all across Europe. Romney seems to be ignorant to the plight of those living under deep austerity, choosing instead to emulate it in America. It doesn’t work.

It is more evident to me being here, that the Right-leaning US electorate ignore evidence of what actually works, and instead choose to cling to outdated dogma – government bad/private business great – borne out of the fear of the big bad tyrannical government. Government is portrayed as the enemy, out to destroy your freedom, maliciously rubbing their hands whilst the country burns. It is the reason the US has resisted universal healthcare, despite the FACT that nations with universal healthcare continuously – as I noted here – out-perform the US in all healthcare league tables. To the US, Disraeli inspired conservatism is apparently Marxism. Any form of government help, is Marxism. They have chosen to ignore what actually works, in order to fight a misplaced war on what they perceive as Marxism. It is terrifyingly inaccurate and ignorant, as well as fundamentalist.

It is simply not true that those who enjoy profits that place them in the top rate of tax bracket, are job creators. They ride the tide of demand. The term ‘job creator’ is a deliberate attempt to create an almost moral argument for extending and perpetuating economic privileges for the very wealthy, without providing any evidence that it is beneficial for the rest of us. Manipulative language apparently negates the necessity for a reasoned argument. For free market fundamentalists; manipulative language is all they have ever had.

Demand creates jobs. Not tax cuts for the wealthy.

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6 Responses to The myth of the job creators

  1. mompos says:

    Are you back yet? I want to kick your arse.

  2. K says:

    I got here by reading that vapid facebook post on a certain someone’s wall, I’m now glad I did. Thanks for a great article

  3. [...] laid out in a previous article Why the Romney economic plan based on ‘job creators’ is a manipulation of fact and [...]

  4. [...] inconsistencies in the Romney campaign rhetoric; which as pointed out in a previous article on here, is full of horrid little manipulations…… to which I was given the incredible [...]

  5. [...] of tax on the wealthiest few, insisting as they do, that those. I have written previously on the Myth of the Wealth Creators. Jefferson however, most certainly takes a bit of a different view to modern Republicans. Writing [...]

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