I’ve heard this bon mot a few times in the last week or so and I wanted to address it briefly. It is usually a reply to why we shouldn’t raise taxes on “the rich” and the point seems to be that if their taxes go up, “the rich” will cause even greater unemployment, apparently mostly out of vindictiveness or something. Take that, middle class and below!
I think this theory has some sort of basis in the Trickle Down theory, which I think has been somewhat disproved over the last 20 years or so. The amount of wealth “the rich” have has grown constantly over that period, while the amount of wealth “the rest of us” have has consistently shrunken. Shrank? Shrunk? Well, it’s certainly gone down. That’s a simplistic way to look at it, but this is a simplistic entry.
I think another part of it is what’s left of the American Dream living within us, mixed with a dash of superstition. We all harbor the hope that someday we’ll transfer from “the rest of us” to “the rich” and we don’t want to endorse something that will mess with the karma that will get us there. We also see our future rich selves getting outraged at this, so we’re just taking the proactive steps now to appease Later Rich Us. We need to look out for our future selves, after all.
To address what seems like the central thrust of this argument: rich people create jobs, and if we increase taxes on them it will drive up unemployment.
Let me tackle the first part of the statement: only one thing creates jobs, and that is DEMAND. Period. A company will hire more workers if they have more work than workers, or if hiring more workers will increase efficiency and thereby increase profits. Think about a middle class example: if a guy who lays carpet for a living suddenly gets 20% more money, he won’t hire more workers. However, if he gets a 20% increase in business he probably will HAVE to hire.
As for the second part of the statement: I just don’t see the correlation. If we do increase taxes on the rich, it won’t have much of an effect on demand. They’ll save less money, but that will be most of the extent of the impact. Tax rates on the rich have been steadily decreasing for a few decades now, and look what has happened to unemployment. Yes, that’s an absurd connection there, but it shows how absurd the opposite connection is.
I’d like to add that I’m not knee-jerk liberaling in favor of increasing taxes on the rich, without thinking about the consequences. I’d like to see a slight increase in their taxes, as well as spending cuts. I think that instead of targeting certain areas/programs for scrapping, we should just institute 15% budget cuts across the board; that makes the burden equally shared. I think there are sensible, fair solutions beyond the rhetoric.