Playing Politics Won’t Create Jobs

It is a fact that Americans do not like to pay taxes, never have and never will, which makes it easy for a politician to say that they are going to or actually did lower taxes in an election year. You speak to to the poor, middle, and rich in the country and no one thinks twice about it because it is what everyone wants to hear. I have argued in the past about why rich people should pay more taxes, but with President Obama and Mitt Romney (who I believe will be the GOP’s nominee for President) coming out with job plans, it is worth taking a look to see if further reductions in taxes would actually help create jobs.

The theory (put simply) is that by reducing taxes more people will spend money, which will grow the economy and thus create more jobs. At times it makes sense. Most American’s did not save a lot of money and tended to spend more than they earned. When spending is high businesses do well, owners are confident, and are willing to take more people on. But this scenario is not what we are currently dealing with.

According to data from the Bureau of Labor Statistics, the average Household Income has decreased to under 50 thousand dollars, which is very hard for a family of three or four to live on.

Household Income

When you have to pay for gas, food, and health insurance, it all adds up which takes up a big part of a families salary making it hard for them to spend money on items they don’t necessarily need. Of course the prices of the items they do need have risen in the past decade as well. Keep in mind that because these people are earning money the tax breaks are targeted toward them so they would spend more money. But history shows when taxes were lowered have not resulted in increased spending.

The Consumer Price Index looks at how much prices have risen or fallen on a quarterly basis. The chart below shows the percent change in the past decade, and you can see they have fallen sharply. A large part of this is because American’s stopped spending as much money, especially when there was a disaster such as in 2001 and the financial crisis of 2008. But levels still have not returned to where they were before the crisis and there is no reason to believe they will any time soon.

Percent in CPI Change

 

President Bush reduced taxes in 2003 and Obama extended those cuts in 2009 when they were set to expire. Any economist would be hard pressed to argue that those cuts had a great stimulative effect on the economy. While I’m probably beating a dead horse saying this, President Ronald Reagan did raise taxes as a compromise with Democrats when they reformed the system. For the reasons stated earlier it would not be a good idea to raise taxes on everyone right now, but it would be a good idea to raise taxes on those who have earned millions. The money could be used to either reduce the deficit or create jobs for infrastructure projects that need to be completed.

But instead of advocating for policies that would have a strong impact on the economy Obama and Romney are taking the easy route. Both are in favor of passing the trade agreements Obama recently signed into law with South Korea, Colombia, and Panama; Obama looks to be in favor of creating a oil pipeline with Canada while Romney’s job plan proposes more domestic drilling; and both jobs plans seeks to reduce taxes on small businesses and corporations.

While thousands of teachers are being let go around the country, and with states running out of unemployment benefits, it is not hard to see why American’s are doubtful of the country’s future. Obama has called for a millionaire’s tax before and Congressional Democrats have tried to push it through the Senate even though it has no chance of passing the House. But it was left out of Obama’s job plan and Romney has said he will not raise taxes on the wealthy. Both of them are putting out popular ideas that are not controversial in a time when the country needs bold action. The stimulus was bold, health care reform was bold, but neither went far enough to help the millions of Americans that need it.

The lack of action by political leaders has cumulated in the protests that started in New York and are starting to spread around the country. In 2008 people voted for change but have not felt or seen the effects of the programs Obama has put in place, mainly because there is still so much more to do. But playing it safe during an election year while the economy is still tittering will not create jobs or help the economy, which both candidates say they want to do.

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Filed under Economics, Jobs

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