Krugman: Spend Now, Save Later

If you write salary off your taxes, then the tax rate is irrelevant to hiring workers. Actually, let me give you a case of where raising taxes would cause more employment.

If you were to raise taxes on businesses that don't hire more workers, and leave it as it if they do, then raising taxes would motivate the business to hire workers. Of course, it could motivate itself to leave a country completely.

The government has tried that before. It was called Smoot-Hawley. Read up on it. It didn’t work. Instead of bringing jobs back to America, it destroyed massive amounts of wealth and led us into the Great Depression.

The problem now is that wages Americans need to be able to live is far higher than what people in China, India or other third-world nations are paid. Because of this, businesses go offshore. They do so, because labor costs are so high. No amount of tax cutting or anything else will go around this.

But why did the jobs go there in the first place? The jobs weren’t naturally there. We shipped them there, along with Mexico, and many other nations. The fact is, we reached a tipping point in the cost-benefit analysis of having factories in these developing nations.

We could bring back the jobs through more competitive tax structure, better regulations, and simply a more business-friendly environment. A great example is my state of Ohio versus more business-friendly Ohio. In the past 15 years, Ohio has lost a net 200,000 jobs, while Texas has gained a net 600,000 jobs. Texas ranks #13 for business climate (a combination of work laws, taxes, and regulations) whereas Ohio is #48. Many other states are like that.

In regards to creating jobs, there has to be developments in the economy that would be sustainable work, and drive people to go into new fields to get the needed training. People won't go unless there is promise of work. If an industry happens to treat workers as disposable, then they won't get people going into it. And if new industries don't open up, and there isn't new technology that calls for new workers, then you don't get employment. Slashing tax rates alone won't cause this to happen. Research can, but research is a crapshoot, that has no guarantee of paying off.

You argue that certain conditions must be met to create jobs, yet offer no real path to achieve them. I’ve stated that many of these goals (which I agree with) can be met with allowing businesses to have more investment capital via lower/better tax laws, more efficient regulations, and easier business creation laws.

Also, here is a case for raising taxes, and it creating jobs, and improving economic activity more permanently. If the tax dollars is channeled into research or building infrastructure, or improving law enforcement and regulation of bad business practices, this can create a climate that is more favorable for economic growth, and thus create jobs and increase economic activity.

You assume our government has the potential to do that. Given how they’ve spent taxpayer money for the past 2 decades, I really question if they have the capacity to do such things any more. For example, my county was the recipient of a multi-million dollar stimulus funded project…It is fixing a road that was already there and in good working order. All it has done is create traffic congestion, and mowed the grass for 6 months prior to any work.

Flat out here, the rule isn't as simple as just cut tax rates. Things do need to get paid for, and cutting revenues from taxes below what is needed to sustain a certain standard of living and quality of life, brought about by government services (like court systems to resolve contract disputes and protect property rights), you are going to cause problems later.

You assume that 100% of tax monies goes towards noble, workable uses. I disagree. I believe the government is like a kid with a credit card – much of the revenues goes towards useless projects and endeavors that do not help everyday Americans out. I would rather the money not be spent (reducing the size & scope of government) and in some cases, given back to taxpayers in the form of reduced taxes.

Here are some examples that would reduce government without drastic changes in our way of life, or how our government works:

· End the wars in Iraq & Afghanistan – Saves $150 billion/yr

· Withdraw US military bases from Europe entirely (who are we protecting? The Europeans from the reds?) and reduce Asiatic bases in Japan and Korea (as they are spending far less to protect themselves due to our bases) – Save $100 billion/yr

· Reduce welfare payments & projects by 25% - Save $100 billion

· Promote school vouchers for all US students to make schooling better/cheaper – Save $100 billion

That saves $500 billion USD from federal and state expenditures without massive changes to our way of life.

By the way, there was a study a few years ago, that showed that over 25% of large corporations paid NO taxes:

http://www.reuters.com/article/idUSN1249465620080812

The study showed about 28 percent of large foreign corporations, those with more than $250 million in assets, doing business in the United States paid no federal income taxes in 2005 despite $372 billion in gross receipts, the senators said. About 25 percent of the largest U.S. companies paid no federal income taxes in 2005 despite $1.1 trillion in gross sales that year, they said.

How much of the article did you read? It stated that many of the companies lost money during the year (2008) and didn’t have to pay. Over 40% of all Americans didn’t pay income tax this year, either. I digress, though, some of these businesses got off because of tax credits, which I am not a fan of. We should end government subsidies in businesses, as it can favor certain lobby groups and business entities.

How does cutting taxes for a business that pays no taxes work? The case you can argue is that you end up cutting tax rates, but also eliminate loopholes, and have businesses shift spending to where it will maximize profits for businesses, rather than try to play a tax avoidance game.

The US government published a study that showed a correlation between the Reagan-era tax cuts, and a reduction of tax evasion. So I think that it does indeed work to help reduce tax evasions (of course, with corporations, as stated, many didn’t pay due to losses, or the usage of tax credits). I do agree we need to cut loopholes and ensure that businesses do not avoid taxes through illegal, or at least shady means.

This will cause a business to be driven to optimize better, than this can increase revenues. It, of course centers on the belief that somehow markets alone are magical things that happen to fully know where they need to go, and wouldn't mess up and harm large numbers of people. Well, markets are prone to bubbles, and people should know by now the harm bubbles cause.

You assume that people, and businesses are stupid. I believe that businesses, moreso than government entities, have the structure in place to ensure that bad business models change. The company I worked for was going in the wrong direction, and was hemorrhaging money. They fired the CEO and hired someone smarter to change the business model. We’ve changed staff a lot in the name of getting the right people to fix what doesn’t work.

The truth is, business cycles are a good thing, despite some harm being involved. If a business employs a bad model, slothful workers, or simply treats customers/employees bad, it will end up causing losses for that business. The company must either fix its ways, or go under. Is that a bad thing? I don’t believe so. I worked for an atrocious company that treated its workers like slaves. Its lost about 70% of its business since I left...Yet to some, that would seem ‘bad’ because they lost money, and have nearly went under. The same could be said for Citigroup and the other cronies that involved themselves in giving out bad mortgages to questionable people, and employed credit default swaps to cover their tracks. I don’t think those companies should of got away with what they did, and were propped up with government money, because it didn’t fix the problem – merely prevented the actual fix.

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