Friday, August 1, 2008

The Logic of Tax Cuts

When Bush made his tax cuts for the wealthy, his logic was that with more money available, companies will hire more employees.

But there are so many steps missing in this logic that it is, as expected, not working:

“It’s not that unemployment is rising because a lot of people are coming into the labor force,” Mark Zandi, the chief economist at Moody’s, said. “It’s rising because employment is falling.”

Employment is falling? But how can that be?

Wealthy people get wealthy because they know how to make and keep money. This means two things:

1) When they have money, they save it.
2) When they can pay one person 40,000 to do X amount of work, they have no reason to hire another person to do X/2 amount of work. There is not always more work to do, or - at the very least - there is not necessarily a high profit that is going to come from hiring another individual.

These are simple logic steps. When I was overworked as a cashier at a busy grocery store during college, that store made millions and yet still had only a few cashiers working. Why? Because they could afford to get away with it. Yes, they could have hired another employee to take the load off of us, but why would they, when we were doing the job?

The jobless rate can't be saved by tax cutting, and until the government understands that, no changes are going to take place.

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