Bloomberg Businessweek: "'Job-Killing' Tax Hikes May Not Be So Deadly"

Back in its September 26-October 2, 2011 weekly issue (I'm running a bit behind with this post), the Bloomberg Businessweek's "Politics & Policy" section addressed a common conservative myth that increasing taxes for upper income brackets kills jobs, a crucial question in our still flailing U.S. economy. The article (1) was responding specifically to Republican House Speaker John Boehner's cry that Obama's recently-announced deficit-reduction plan, which proposed a tax increase on the wealthy (the article does not specific how wealthy), would hurt the very people that create jobs for our economy in great need of them.

The article cites the conclusion of one of former President Reagan's senior tax economists -- even he asserts that increasing personal income taxes on the reach is unlikely to reduce hiring, and conversely, that cutting taxes for the rich is unlikely to increase hiring in the short-term. Therefore, it seems that increasing income taxes for the rich would not, in fact, be a suicidal move as some claim as a method to close massive budget deficits, regardless of the delicate state of our economy (to put it modestly).

An Occupy Wall Street message 

Source: Yahoo.com, possibly from AP, uncredited

The article goes on to explain the common principle that with tax cuts for lower- and middle-income brackets, we actually get more economic bang for our buck - in terms of immediate economic stimulus - because those are the very constituencies that are most likely to spend the additional income right back out; the wealthy, on the other hand, are more likely to save or invest the additional funds from tax cuts, because the extra amount coming in is already above and beyond this group's living, and even leisure, expenses. These types of upper-income savings and investments, the article explains, may support the economy in the long-run, but in the short-term, stimuli to the lower and middle classes do more to boost growth and jobs. The Congressional Budget Office found in its own study using economic multipliers that the tax cuts for low- and middle-income families stimulate an economic demand over twice as strong as that drawn from tax cuts for upper income families. (1) Quite simply, the author states, "The No. 1 reason small business owners say they're not hiring is poor sales." In short, if more people are buying, business owners have a reason to employ workers to manage those sales.

Ultimately, the article concludes with the point that, regardless of the evidence that tax cuts for the poor and middle classes are more effective than for the rich when attempting to stimulate immediate recovery, a budget that funds any tax cuts with debt is not doing the economy any favors.

An interesting case to analyze in order to address this question might be the Bush Jr. 2008 stimulus bill, which, while it increased spending in the immediate term, many argue led to inflation and higher oil prices in the long-term. Why? As a Huffington Post article from late April, 2008 explains, when Bush financed those $168 billion worth of tax rebates and stimulus checks through debt, he decreased the purchasing power of the dollars that those tax payers were receiving -- in effect raising the cost of goods and services in the economy without increasing wages or interest rates on savings.(2)

The Bloomberg article cites a former U.S. Treasury tax economist, "Despite all the rhetoric that tax cuts promote economic growth," (which the C.B.O. report seems to prove that they do, at the very least in the short term), "that is not the case when the tax cuts are not paid for."(1)

So, in short, there's nothing wrong with increasing income taxes on the rich in a time when we're trying to both balance our budget and recover our economy -- evidence demonstrates that it's highly unlikely to hurt job creation (also consider that in the booming 1950's the top marginal tax rate was up to 91%) (1). When it comes to using tax cuts for lower income brackets to effect recovery, however, we should be careful not to embed ourselves in further problems of increasing the deficit and triggering inflation by financing the cuts with public debt.


(1) Dorning, Mike, "'Job-Killing' Tax Hikes May Not Be So Deadly," Bloomberg Businessweek, September 26 - October 2, 2011, p. 40.

(2) Keiser, Max, "Why You Shouldn't Spend Your Stimulus Check," The Huffington Post, Sunday, April 27, 2008, http://www.huffingtonpost.com/max-keiser/why-you-shouldnt-spend-yo_b_98812.html.