Tax cuts paid for? With job creation? Can’t get there from here.
by: Daniel Becker
This is a simple little exercise that frankly I wonder why no one with a pulpit (that would be you congress critters, executive office and MSM) has done it. It is for those who think simplistically. Thinking like: wealthy people create jobs with their extra money and not the non-wealthy people’s demand for stuff that makes them feel wealthy.
Let’s say that tax cuts create jobs. 770,000 jobs for what is it, $4 trillion over 10 years? The obvious question is: How many jobs do we really need for that money to break even? Come on conservatives, you’re suppose to be the “efficient minded” thinkers. How many jobs would it take to pay it back?
Median household income for 2009 is $49,777. 5% less than the peak of 1999 by the way. Full time working men it was $47,127, women $36,278. Per capita income was $26,530. These numbers are from here.
Using the household income number just because, in 10 years, you would need 80,358,389 jobs created to equal the tax cut.. Eighty plus million jobs. Of course, that we created these jobs does not mean all that money is paying for the $4trillion in lost tax collections. Only a percentage of the income is collected by We the People as income tax. Based on the Tax Foundations data that figures out to an average of 12.68% of taxable income paid as income taxes. Thus, $6,311.72 is paid for income tax for the median household income.
Stay with me here, this is simple. $4 trillion divided by $6311.72 is: 633,741,674 jobs in ten years. About double our total population in 10 years needs to be working.
Our policies have to start producing 63,374,674 jobs as soon as the tax cuts are passed, at the beginning of each year (’cause we need to collect the full $6311.72 at the end of each year) to pay for the tax cut. That is over the year, we need the equivalent of 63,374,674 jobs each having generated $49,777 of taxable income to make the mark for paying off the tax cut for that year. Not every job will pay that much for the year, so we actually need more than 63,374,674 jobs. That is, unless magically at one tick past midnight New Years Eve suddenly we have those jobs paying at that rate.
Sixty three million jobs per year. Really? Come on, you think this is possible? This nation is gonna need a lot more copulation and immigration happening over the next ten years for that to happen.
Let’s say it is possible, just not here. China?
Not even in China can do it, as they only managed 22 million jobs in 2 years . Though they did manage to provide 112 million more willing workers over the last 10 years. Problem is, even at 22 million jobs, those sure are not at a median income of $49,777/year.
So. Really… tax cuts? LOL. Pay for them with job creation? Oh please, you’re kill me!
DoLB, can you give us a link where your/Becker’s claim is made? I don’t remember ever seeing it. It appears he may be creating a strawman argument to argue.
Looks like a positive bargain compared with alternative measures of job creation:
http://www.ibtimes.com/articles/63228/20100917/american-recovery-and-reinvestment-act-arra-los-angeles-stimulus-wendy-greuel.htm
“
“I’m disappointed that we’ve only created or retained 55 jobs after receiving $111 million,” says Wendy Greuel, the city’s controller, while releasing an audit report.
“With our local unemployment rate over 12% we need to do a better job cutting red tape and putting Angelenos back to work,” she added.
According to the report, the Los Angeles Department of Public Works generated only 45.46 jobs (the fraction of a job created or retained correlates to the number of actual hours of work) after receiving $70.65 million, while the target was 238 jobs.
Similarly, the city’s department of transportation, armed with a $40.8 million fund, created only 9 jobs in place of an expected 26 jobs.”
BTW, just watching the Head of CBO state unequivocably that lower tax rates boost jobs.
So much for all the nay saying here in the past weeks.
Not sure what claim and “he” you are referring to?
interesting mathematical exercise, but I do not think it adequately takes account of the increased revenue that the Government would reap and the reduced expenditure for things like food stamps, extended unemployment, etc that a signficant–less than 60 million–jobs would provide. Indeed if the labor market tightened we might even see an increase in real wages something which has not happened since the 90’s either. The real flaw is the argument that tax cuts produce jobs. They don’t. My source? The last 10 years of my life. Also see Mike Kimmel’s research for a more academic approach. If the tax cuts did not spur the economy when the economic circumstances were more benign, I respectfully submit that only a fool would expect that extending them will spur the economy under current circumstances. Now may letting the tax cuts expire hurt the economy? That is at least debateable. My view is no, or at least not much, particularly with the relatively low increase in marginal rates. Indeed, I am in favor of letting all of Dumya’s tax cuts expire if it means we can spend some money to keep trying to spur the economy. According to the newspaper today it will mean that over the course of the year I and my wife will pay an extra $3500 in taxes over the course of the year. That means we will each take home about $150 less a month. Both of us save at least that much each month in after tax income. The likely result is that while it might have some slight effect on our retirement, it will have very little if any effect on our consumption. Now I realize that my wife and I may a good buck, but those who make less will pay less in additional taxes if all of Dumbya’s tax cuts expire and most of the unemployed and underemployed will suffer no impact if all of Dumbya’s tax cuts expire. The only folks who will feel an impact are the top couple of per cent and as noted they do not create jobs–they just accrete wealth.
The problem here is that neither tax cuts nor stimulus is going to be efficient, because the problem far outweighs the treatment.
Look at the fact that municipal debt has doubled since 2000, and spending has grown way faster than revenues.
So you cut taxes at the federal level, while the states raise taxes. A wash. You spend on stimulus, which offsets state cuts. Another wash. Both actions increase indebtedness, while unemployment stays high. We are looking at a much stagnated economy for at least 5 years.
Dolb, let’s try this “
Tax cuts paid for? With job creation?“
The math seems wrong. Assume that each job created pays $50,000/year. Assume a 13% tax rate, or $6,500 in Treasury receipts per job per year. The 400 $B/year cost of the tax cut would require about 60 million jobs to be created once, not per year. It wouldn’t happen all at once, and so something above 12 million per year, over 10 years (with the 10 year average of increased employment equalling about 60 million) would be required.
The calculation in the post seems to assume that jobs created in prior years stop paying taxes after the year they were created.
The math looks wrong to me, but I think that even with the more modest estimate, it seems impossible that enough median-wage jobs would be created to, by themselves, offset the reduction in Treasury receipts.
This analysis seems plausible to me. Supply-side tax cut advocates assert that their policies promote economic growth. Given that median earnings have stagnated in recent decades, much of this growth has to occur through increased employment rather than wage growth (some of the growth does occur in form of higher earnings at the already high-income end of the earnings distribution). In that scenario, calculations like the one in this post would appear to be relevant.
One problem in our view of tax cuts is the unnoticed fact that we pass all our productivity through currency, moving it from one pocket to another. And as in energy in the realm of physics, eery time energy moves from one domain or form to another, there are losses.
But people don’t need money (unless you really like the fine artwork.) They need food, clothing, shelter, transport, etc.
So, the “income” of the bottom 60 to 80% of Americans doesn’t need to be boosted by getting them jobs, as such. It can be effectively and efficiently boosted by supporting useable public transport, insulating homes, shifting meal patterns from fast food and processed foods to equally yummy far cheaper “foreign” meals like Chinese and Thai and Middle Eastern style meals, and shifting the system to universal health care.
THERE’S where the fat needs to be trimmed — the extra money, time, effort and trouble every single American pays because they do things individually that could be handled better and far more cheaply as public services — or dispensed with altogether. Capitalism is all very well for things people can choose to do without. The other stuff shouldn’t be routed through a profit-based system. After all, “profit” is just another word for “what I pay beyond the actual cost of what I buy.” High profits for basics and essentials is simply ransom on the installment plan.
Yes, I kept it simple in that we would need the equavalent of 633 million jobs in 10 years. Just wanted to give a simple exercise that the average T partier could do to see if they really want to vote for such. But, one job lasting 10 years would be 10 jobs.
Problem is getting the equavalent of 63 million jobs paying $6500 in taxes at the end of the year initially and then having all those jobs last 10 years. Not going to happen. Not with our trade policy.
So, thank you for noting that.
Of course, this is just to keep from loosing what we have and assumes no additional expenditures like fall out from further climate change for one. Maybe well decide we can’t afford wars anymore and that will finally be the thing Mr. Nobel and others were looking for. Big savings there.
Now that the uneasiness of being hunted down by survellance teams created by Cheney during the Bush years has lessened, bloggers are reverting to real names in the Obama age. Hence DolB is Becker. As Bruce Webb mentioned to me in an e-mail, how can a Biden face produce fear like the Cheney face?
I agree with you. You can not fix a lack of income in the hands of the 99% with tax cuts. Stimulus has a better chance, but only if we change our trade policy and no one (well Senator Sanders is) is suggesting that.
Mass is voting to cut their sales tax from 6.25 down to 3%. I guess they have not been watching Calif. In RI ours is at 7%. A cut in Mass will put pressure on RI to do similar do to lack of sales.
It’s the race to the bottom, just like with union regions vs nonunion. People really have a disconnect with what it takes in the background of their lives to the live the life they see from within their own property.
LOL…needs a link, and can’t find the context of unequivocably. Lots was said you probably didn’t like as well corev.
A bargain if not for implimentation problems:
The audit says the numbers were disappointing due to bureaucratic red tape, absence of competitive bidding for projects in private sectors, inappropriate tracking of stimulus money and a laxity in bringing out timely job reports.
“While it doesn’t appear that any of the ARRA funds were misspent, the City needs to do a better job expediting the process and creating jobs,” she said.
DoLB, where do you come up with stuff like this? “You can not fix a lack of income in the hands of the 99% with tax cuts. Stimulus has a better chance, …”
99% of what universe? Stimulus included tax cuts, so why would it have a better chance?
I grew up in Providence. Went to Classical. RI has some serious pension issues. How is Buddy doing?
For stimulus to work it needs to bypass the states, and bypass any useless red tape to get going. IMO we should take the most populus city in each state and fund rehab and public transit projects. It needs to be overseen by a federal comittee that is charged with getting things moving fast. Each city’s project has a CEO/general, and a deadline to get teh projects moving.
Dan, just can’t keep all the names/pseudonyms stratight. :))
To answer your question: “…how can a Biden face produce fear like the Cheney face?” Put him in the Prez’s chair. Terrifies many! 🙂
Dan, didn’t pay attention to the remainder, so not altogether sure re: not liking lots.
mcwop said: “… spending has grown way faster than revenues.” In your city and state, that is probably true, but then there may be a common link there. Think it through. 🙂
“Owe my soul to the company store”.
In FY 2010 the US G will pay 56.7% of outlays for SS, Welfare, UEI, Medicare, CHIP and Medicaid.
US outlays for DoD are 18.7%, other discretionary (my term) 20% and interest 4.6% (largely due to near ZERO rates and potential quantitative easing (QE), the SSTF being long suffering QE).
It is 56.7% of outlays for people and 43.3% for corporations and interest.
As MG has suggested interest as a part of cash outlays (including raising cash to pay interest to SSTF for pay outs) may rise significantly so that the amount of outlays paying rich people will increase substantailly.
What happens when interest exceeds the cash demandsed by other corporate welfare?
Where do jobs come from when US G is paying off the top quintile of the economic demographics?
Maybe off topic.
True across many states, including California.
http://mercatus.org/publication/state-spending-restraint
That’s opening a Pandora’s box we don’t want to open. If we don’t pay interest on borrowed money, we won’t have an economy, period. The world doesn’t have any other way of doing it. And they are already pulling every dirty trick in the book to minimize interest rates as it is. The problem comes in when no one wants to put up with the dirty tricks anymore.
The other thing to keep in mind is one of the favorite places for high tax rate people to invest savings is tax free municipal bonds. This could be called a tax loophole, but the purpose of it is to channel investment to state and municipal infrastructure projects. The fact that they are tax free pushes interest rates below market, so that’s as good a deal as borrows can get in this space-time continuum. Plus they are insured so they get a AAA rating, but that’s another sorry story in the Great Unraveling.
But if marginal tax rates are increased, that would not reduce the desire for tax free income, and may even increase it.
People need jobs, not governmnet mandated diets. Public transit would be great, but many states only knwo how to build roads, they have a tough time with public transit, and tax policy encourages sprawl. You are aware of the home insulation debacle in Detroit? Governmnet regs have blocked their own stimlus from even happening.
U missed the clue. O’Malley!?!
“How many jobs would it take to pay it back?”
Pay what back? Who’s money was it to begin with?….Here is a hint….it wasn’t the government’s money.
The $4 Trillion is a bogus claim. It assumes that the economy would have recovered the same as without the tax cut and all based on pre-recession yr. 2000 levels of income. It also assumes 9-11 and the action supported by most Americans and most politicians had no effect on revenue, and it also assumes that all losses due to the housing bubble beginning in 2007 are tied to the lowered revenue produced by the tax cuts.
It’s a weak arguement, and if you guys what to attempt to feed the general public this crap, go ahead……if I was in your position I would lie too!
It pre-dates O’Malley, but he has not helped much.
The $4T number is the cost over 10 years. To oversimplify the math, that means that you only need ~$400B / year in additional revenue (at year 10) to “offset the tax cuts” going forward. (And I’d heard $2.7T for the tax cuts that are expiring..)
The second issue is that (A) the median income is much below the mean income and (B) the tax rate on higher incomes is higher than 12%. If you create 1M new jobs with similar distribution to the US economy, presumably that will include 10,000 people with incomes in excess of $250,000, who will be paying $50,000+ each.
(And this doesn’t get into Social Security/FICA taxes, or Excise taxes, etc.)
The Bush tax cuts generally reduced rates by about 10%. i.e. 39.6% -> 35%. So increasing jobs by about 10% is probably the necessary number to “pay” for the increases. Nothing like “doubling the population.”
Of course, very few jobs were created during the Bush administration, so..
Saying we need 633 million jobs in 10 years makes sense only if you state that we’ve had 1.46 billion jobs in the United States in the past 10 years. That’s about 28% larger than India’s population…..
Also, a new job contributes to the federal government’s revenue in more ways than one. On top of income tax, there are payroll taxes, and if the new worker buys something (SHOCK!), it’ll lead to more revenue for the federal government in excise taxes, corporate taxes, and if we’re lucky/unlucky, gift and estate taxes.
There are lots of areas where the complaints about “government regulation” are very valid. Government at all levels need to undo the bad ones and redo the good ones. Not holding my breath for that tho.
Just imagine what will happen when cap and trade meets bad regulation? That will give Adam Smith a heart attack if he doesn’t have one already.
Sure there is more, but this is a simple exercise deal with the simplistic meme of income tax cuts create jobs. The math is as it is. $4 trillion divided by the avg income tax paid on the median home income as noted in the post.
28% larger than India. Well, then you have just added another image of understanding just how large $4 trillion is and how many jobs it takes to pay it back.
Yes, I used the median specifically because that is where the jobs are going to be created and most say are needed.
SS, FICA, ets are not the issue. We’re talking only income tax cuts. To include SS, FICA is to continue the robbery that is sounded with “We need to cut SS”.
CoRev, you have been around long enough to have read my postings. My main theme has always been income inequality. I have posted the data, links and charts using Saez’s data. I have shown that the 99% are short $1.4 trillion dollars per year as of 2005. I have shown that the top 1% income has doubled faster than the GDP since the 80 where as the 99% had not doubled in about 2 decades.
We have an income problem in the hands of the 99%. Stimulus is only a stop gap measure, but it is better than tax cuts as data has shown. And I know you have seen that data here at AB too. Granted stimulus has to be to the greatest population and not via trickle down.
DoLB, I think it was the use of “lack of income” that confused me. For me, difference in income or slower growth may make more sense as a better term, but not lack.
Lack, to me means none. So, I interpreted you to be saying only the 1% had any increased income.
DoLB, what is your message in this article? You start off by saying the tax cuts aren’t repaid by creating new jobs, and now you say: “…this is a simple exercise deal with the simplistic meme of income tax cuts create jobs.” You certainly have not made the latter case, and several have commented on the math you used.
Dunno, I’m certainly not convinced.
Obama’s plan is to maintain tax rates for singles earning less than $200,000 and couples earning less than $250,000. Various press reports have the difference between his plan and full extension of Bush tax rates at between $700 and $900 bn.
On a related note, press reports have Wall Street prospectivley shedding 10% of its workforce or 80,000 people. There are likely positive externailities from this, but I’m guessing these aren’t $50,000/yr compensated jobs on average.
If you really want to make the argument that the number of jobs in the United States, from 2000-2010, is 28% larger than the population of India, go right ahead. I don’t know how it helps with your central argument though.
DoLB, let’s get the terminology straightened out. You said this: “We’re talking only income tax cuts. ” Whose taxes are being cut?
I see a small sector where their taxes are being raised. I also see the remainder having some of their taxes probably raised.
There were a whole range of taxes in the Bush bills, and unless the new bills (which we still do not have written) are structured to continue the entirety of these taxes, then they too will see raised taxes. Maybe not just income taxes but overall still a tax increase.
DOLB.
$4 trillion divided by the avg income tax paid on the median home income as noted in the post.
Do the same math on the $1T Stimulus, and you have to get a similarly unrealistic 150M new jobs, yet you are for the stimulus and against tax cuts. Makes no sense.
I’m not saying income tax cuts create jobs.
I did not make that argument. Not at all.
For starters, let me just say that I don’t think that the tax cuts will get anywhere close to paying for themselves.. But.. your math is still wrong.
First, the jobs created only need to pay taxes equal to ~$400b / year to offset the costs. (Give or take.)
To look at it a different way, income taxes generate about $1.4T this year, and will be rising to $2.4T according to the CBO. Just back of the envelope, we’re talking about ~$20T in income taxes collected over the next 10 years. So tax cuts are equal to about 20% of the amount. (I’m not sure if the forecasts include extending the tax cuts or not.)
Employment is around 138M jobs right now, so we’re talking about 20-25% increase in employment to offset the taxes. That’s 26M-30M jobs created over the next 10 years.
And for everry “median” income job created, there’s presumably a manager, a CEO, and a shareholder who will get jobs, or have their salaries increase. Those pay taxes at higher rates (and pay the majority of income taxes in the country.)
But the number isn’t 633M jobs.
What we really need is cut spending! cut spending.cut spending!!!
The math is a little “fuzzy” in this article. I’ve taken it upon myself to clean it up a little. Of course it is still approximate and the basic assumptions are still the same. I have assume the following for a ten year period:
The same number of jobs are created each year at the beginning. For example, 1 million jobs each year for 10 years.
Annual salary of each job = $49,777
Tax rate = 12.68%
Total accumulative taxes paid after 10 years = $4,000,000,000,000
Results:
Total jobs needed to be created each year =11,522,569 for a total of 115,225,690 over ten years.
Still a whole hell of a lot of jobs to pay for the tax cut.
The reason my number is lower is because I take into account the following:
The jobs created in year 1 pay taxes for all ten years.
Jobs created in year 2 pay taxes for nine years.
Jobs created in year 3 pay taxes for eight years.
Etc.
Actually what you calculated are the total number of equal annual payments of taxes to add up to 4 trillion dollars rather than the total number of jobs because all new jobs pay mulitple years except the jobs created in year 10.