Tax Cuts Do Not Create Jobs

Last night, Mitt Romney made a rapid-fire “winning” case that tax cuts for businesses will magically create jobs. He’s horribly wrong.

Fact: tax rates are the lowest they’ve ever been in history, and yet businesses are sitting on record high cash assets. This highest since 1959 according to the Wall Street Journal.

How big are these piles of cash?

The Fed’s latest Flow of Funds report showed that U.S. nonfinancial companies held $1.7 trillion in liquid assets at the end of March. But newly released IRS figures show that in 2009 these companies held $4.8 trillion in liquid assets, which equals $5.1 trillion in today’s dollars, triple the Fed figure.

And…

…real pretax corporate profits have soared, from less than $1.5 trillion in 2009 to $1.9 trillion in 2010 and almost $2 trillion in 2011, data from the federal Bureau of Economic Analysis shows.

That is nearly $1 trillion of increased profits over two years, while actual taxes paid rose less than a tenth as much, BEA reports show. Dividends, wages and capital expenditures all grew less than profits, while undistributed profits rose. The result: more cash.

If businesses aren’t hiring with these kinds of numbers, what the hell will they do when taxes are even lower and the deficit skyrockets higher than now? I know, I know — the Confidence Fairy will come along and POOF! Jobs! Sorry, but that’s simply not going to happen, and it’s certainly not a solid economic plan.

UPDATE: Forgot the link for the blockquotes. It’s a post by David Cay Johnston.

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  • bphoon

    I kind of get tired of saying this, but here goes again: This is a demand driven economy, not a supply driven one. That’s the reason why 70% of our economic activity is driven by consumption. People buy shit>retailers order more shit to sell>manufacturers make more shit for the retailers to sell>manufacturers have to hire more people to make shit for retailers to sell (and retailers hire more people to sell the shit)>these newly hired people go out with their new-found wealth and buy more shit. It’s a circular continuum. When people don’t have enough money to buy the shit they want, retailers can’t sell any of it regardless of how much they stock their shelves. You can’t sell what people ain’t buying, simple as that.

    I have an idea: if conservatives are bound and determined that tax cuts are the only way jobs are created, at least make job creation a condition of getting the cuts. In fact, instead of simply cutting marginal rates again (which the wealthy don’t pay anyway and has the effect of simply throwing more money at them) make it a tax credit or deduction. If you want to lower your taxes, show us how much money you invested in increased production and hiring and we’ll let you deduct a percentage of that investment from your taxes. That won’t work, either, though, until consumers have adequate disposable income with which to buy the shit being invested in.

    Question: If job creation hinges on tax cuts predominantly for the wealthy and the wealthy have benefited for eleven years now from the lowest tax rates in a couple of generations, where for fuck’s sake are all the fucking jobs?

    I’m getting tired, too, of asking that and hearing in response…crickets…

    • BuffaloBuckeye

      Exactly. In my life, I’ve had a couple intervals where I’ve been “between jobs”. If you don’t have a paycheck, consumption is pretty damn low, regardless of the tax rate. A couple points here & there are meaningless if you don’t have the job to begin with.

      I asked a conservative friend of mine, COO at a local company, “If, at current level of business activity, your company paid lower taxes, would you hire additional workers?”. His answer, “Of course not”.

      bphoon rests his case.

      • bphoon

        I asked a conservative friend of mine, COO at a local company, “If, at current level of business activity, your company paid lower taxes, would you hire additional workers?”. His answer, “Of course not”.

        I fuckin love it. Reminds me of a quote I read sometime ago by the CEO of a nationwide retailer (can’t, unfortunately, remember who): (paraphrasing) “Give me a tax cut and maybe I take the wife to the Bahamas. Give me increased demand and I’ll hire people.”