According to the Bureau of Labor Statistics (BLS), the US has 156 million people 16 and over, who make up the civilian labor force – 8.7 million of these are out of work. If you add in those Americans who are working part time but want full time and those Americans who have given up hope of finding any job, there are closer to 35 million Americans either unemployed, work part time because they can’t find a full time job, or have given up hope of finding any job.
35,000,000 Americans! That’s a national disgrace!
So how do we create jobs for all these Americans? The time-honored Keynesian prescription for stimulating the Economy to reduce unemployment is tax cuts. I agree – in a way.
There is no such thing as a Tax Cut without a Spending Cut!
Every penny that the government spends must come out of the private, productive sector of the US Economy. In order to spend a Dollar, the government can get that Dollar in only three ways.
- The government can tax it away from somebody
- The government can borrow it
- The government can print the Dollar
Those are the only tools the government has at its disposal (invading another country and stealing their wealth is a tax on them).
A tax reduces the amount available to save – to use part of earnings to invest in job creating activity. Don’t believe it? What would a 100% tax on Americans’ earnings do? Or, a 100% tax only on the top 1%? Or, a 100% tax on all businesses? These extreme examples prove the point that taxes destroy jobs.
In the UK 2 or 3 generations ago, the wealthy were taxed at 98%, and in the US the rate was 90%. Since earnings on any savings virtually was confiscated, savings stopped. Instead, people consumed – in London there were more Rolls Royces that anywhere else in the world.
If a business had all of its income taxed, investors would close up shop, and all jobs would be lost. A much smaller number of companies would survive, making lower profits by paying the top brass huge wages. Likely, prices to consumers would be much higher as a result of reduced competition.
A business has three natural constituencies – Owners, Employees, and Customers. When the government inserts itself as a fourth constituent, then owners, employees, and customers will suffer. The more the tax bite, the more the suffering.
Regulation, which forces businesses to pay for the regulation, is another tax. Many accountants and lawyers are needed in the business realm only because of regulation. Their pay is a dead net loss to society, just as a straight-forward tax is.
It makes zero difference what form the tax takes, it still reduces employment. Some people want to spread the tax burden more fairly. While at least paying lip service to the fact that taxes ARE a burden on Americans, it ignores the fact – there is no such thing as a fair tax.
If the government borrows Dollars in order to spend, it uses up some of the savings which would have gone into the investments which would have created new jobs. There is only so much savings available, so possible private, productive uses get crowded out of the capital markets through higher interest rates.
Less available, more expensive capital means less profit potential, which means fewer jobs. This is not rocket science – this is Economics 101. The official National Debt already has surpassed $18 Billion and continues to grow like Topsy.
When the government – or its agent, the FED – prints new Dollars, those Dollars depreciate the value of all previously existing Dollars. This increasing of the money supply steals value from everyone who held those previous Dollars. The symptom is that prices rise. As savers look to invest their money, suddenly the profit potential is lowered since the equipment and all else needed costs more.
When existing businesses need to replace equipment which has worn out or become obsolete, a larger portion of profits must be used just to stay even. Printing new Dollars eats away at the capital that every business requires, and down the road, this costs jobs.
There is no such thing as a Tax Cut without a Spending Cut! If we want to let the private, productive sector of the American Economy create jobs for the 35 million Americans who want them, then we need to cut US government spending – with a large knife.
Action Item: Put the US Government on a Diet.