Historical Facts Debunk Myth that Tax Cuts for the Rich Create Jobs

If tax breaks for the rich create jobs, why isn't everyone working?Throughout history myths have played an important role in controlling the common folk by the elite and aristocracy, necessitated, of course, by their fewer numbers.  Mark Twain noted its use in his book, “Connecticut Yankee at King Arthur’s Court”, observing its effectiveness in controlling the ignorant and uncouth serfs by the Church, the well rewarded agent of the nobility.  That myth so widely in use then was, if you work like a feudal slave all day without virtually any pay, starving to death in the process, don’t worry, you will get your reward in heaven:  there you will occupy a palace and have everything you had desired (except sex, of course) but were denied on earth.  And the general population bought this garbage for nearly two thousand years, confirming the ignorance and gullibility of the general populace to swallow just about anything, including dogma, political propaganda, utter nonsense, or shit.

After Charles Dickens and other humanists let the cat out of the bag, exposing the ungodliness of the Malthus theory and the unchristian treatment of the poor, ironically condoned by the Church for centuries, the rich had to find other myths to keep the rabble slaving away for pennies on the hour.  My father believed in that Horatio Alger myth, that if you worked hard here in America, you, too, could become successful and rich.  My grandfather and he worked for 12.5 cents per hour.  If it were not for FDR and the growth of the unions during the 1930s, my father, like his father, would have died a pauper, too.

When Ronald Reagan—that B actor whom I recall as a child selling soap on TV and who has been canonized as a saint by the Republican Party—spewed that myth which we now term trickle-down economics (aka, tinkle-down, pissed on, economics), the middle class was once again hoodwinked into giving gifts of gold to the rich in hopes of being rewarded with manna from heaven.  Of course, that manna never came, since all of that dough resulted in the greatest transfer of wealth over the last 30 years to the upper 1%.

Now that the middle class has finally begun to wisen up to that tinkle-down nonsense, the Republicans and many conservative Democrats have been forced to repackage and disguise that Lauffer myth with a twist:  if we give tax cuts to the rich, their tax savings will miraculously create the jobs that we all crave here in America.  As the great seer, Yogi, once said, it’s deja vu all over again.

Average Annual Percent Growth in Total Payroll EmploymentFor those of you who actually believe that tax cuts for the rich stimulate the economy and create jobs, historical facts show just the contrary:  when the highest marginal tax rates were at their highest rates of 75% to 94% from 1945 through 1980, growth rates in employment were also at their highest rates.  And conversely, when the highest marginal tax rates on the rich were at their lowest rates, the rates of growth in employment  were also at their lowest rates:  over the last eleven years (from 2000 through 2011), the highest effective marginal tax rates have been at nearly historical lows of 35% (in comparison to the 75% to 94% rates in effect from 1945 through 1980), while the capital gains tax rate has been at a historical low of 15%,  but the rate of growth in employment has been negative:  that is, we have been losing jobs over the last eleven years!

Now, you might wonder, how can that be?  Raising taxes on the rich creates jobs in America?!  Sean Hannity and Rush Limbaugh say otherwise.  Well, folks, it’s quite understandable.  When taxes on the rich go down, Congress typically restrains or even cuts government spending, or at least the growth rate in government spending.  But you might argue, don’t the rich then invest in America and create jobs?!  No, they don’t.  The rich typically hoard their money—since they have more than what they could spend in an entire lifetime already—often in tax havens like Swiss bank accounts, the Cayman Islands, Bermuda, etc., or invest their moneys in the stock market, where multinational corporations invest those funds in manufacturing facilities overseas because labor there is as low as 22.5 cents per hour.  So jobs are not created here in the U.S. when the highest marginal tax rates on the rich go down.  Quite the contrary.

Conversely, when taxes on the rich have been higher, filling Washington’s coffers, government spending typically is increased:  for instance, the government funds infrastructure projects, education, the criminal justice system, the space program, the Great Society, endless wars overseas, etc.  Such government spending normally creates jobs here in the United States.  The fiscal policy of our government can result in job growth; however, a tax policy resulting in lower taxes on the rich does not create jobs in our country since those tax decreases on the rich often result in decreases in government spending, and, consequently, decreases in employment here in the US.

Only significant decreases in taxes on the middle class would result in job creation here at home since the resulting increase in disposable income for a middle class already at its borrowing limit would lead to increased consumption by it, stimulating the economy, and consequently, creating jobs.  But the tax decreases proposed by the Republicans and conservative Democrats target the rich, not the middle class.  And the rich, unlike the middle class, do not have to spend their additional tax savings.  That’s the key point deliberately omitted in the presentation by the messengers of the rich for additional tax breaks for the rich.

Is it any coincidence then that those who give the biggest campaign contributions inevitably get the biggest tax breaks?  The United States does indeed have the best tax code that money can buy!  Our governmental system is virtually broken beyond repair:  campaign contributions are in essence legalized bribery.

Of course, political propaganda always speaks louder than facts to the NASCAR, masochistic mentality of the serfs, who crave simple minded solutions to any problem confronting them.  Rest assured, they will eagerly, out of desperation, swallow this myth about how jobs can only be created by lowering taxes on the rich.  Such myths have always worked in the past and they are guaranteed to work in the future, especially since the major media, the purveyors of our national myths, are controlled by the very rich themselves.

The Barefoot Accountant

About William Brighenti

William Brighenti is a Certified Public Accountant, Certified QuickBooks ProAdvisor, and Certified Business Valuation Analyst. Bill began his career in public accounting in 1979. Since then he has worked at various public accounting firms throughout Connecticut. Bill received a Master of Science in Professional Accounting degree from the University of Hartford, after attending the University of Connecticut and Central Connecticut State University for his Bachelor of Arts and Master of Arts degrees. He subsequently attended Purdue University for doctoral studies in Accounting and Quantitative Methods in Business. Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals throughout the country as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission. In addition to the blog, Accounting and Taxes Simplified, Bill writes a blog, "The Barefoot Accountant", for the Accounting Web, a Sift Media publication.
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5 Responses to Historical Facts Debunk Myth that Tax Cuts for the Rich Create Jobs

  1. JoeG says:

    You place all the blame for the woes on a President who is dead and left office in 1989.
    Also when taxes were cut, government spending never went down, as you will not with the tremendous budget deficits during the Reagan and Bush administrations. In fact Bush expanded the size of government more than any President since your hero FDR.

    I would argue that the tax policies are very similar over the last 30 years and that the real transfer of wealth happened as a result of actions taken by the Nixon administration on August 15, 1971 taking us out of the Breton Woods agreement. Since that point in time CEO’s salaries have escalated and the federal government has run massive budget deficits to benefit these companies.

    The biggest reason why wealth has been stolen from the middle class is these budget deficits, which benefit the elite and the rich, not the middle class, which is what the Democrats would make you believe. The middle class is actually being taxed more now than they were in the 1980’s and earlier because their savings are being eroded by devaluation of their dollars. The The Democrats are fine with this. That is why the overwhelmedly support the privatization of the country’s monetary policy with almost no oversight whatsoever. They love the idea of taxing people through monetization of currency, so people are not realizing they are being taxed. And so do the Republicans as they must support their MIC.

    And FDR was one of the most overrated presidents of all time. Besides being arguably the worst civil rights presidents of all time, although Bush and Obama competed heavily with him on this, he outlawed ownership of gold, he mistreated Japanese Americans, and he had complete disdain for the bill of rights and the US Constitution and had the same respect for it as he had for toilet paper.

    • President Reagan cut taxes on the rich and was responsible for tripling the national debt in merely eight years: he failed to present even once a balanced budget. Have you forgotten the rift between his budget director, David Stockton, and Reagan? A deficit is a hidden tax, and it was passed onto the middle class. Yet you Republicans idolized this guy?! Shame on you, and shame on him for pushing this trickle-down nonsense.

      If it were not for FDR, there would never have been a middle class: there would only have been Potterville, which is where we are headed now with Presidents and Congress bought and paid for by the behemoth multinational corporations.

      Both the Republicans and Democrats, including President Obama, are in the employment of these Multinational Corporations with all of the campaign moneys and lobbyists contributions paying them off: it’s legalized bribery. That’s why we have all of this corporate welfare and the erosion of the middle class.

      And, yes, there is too much spending: 20% of our national budget goes to military spending. What a waste!

      And what about all of those needless, never ending wars, resulting in nation rebuilding of foreign lands, costing us trillions of dollars and benefitting Haliburton and other defense industry contractors, who have contributed to the campaigns of our elected officials. What a joke.

      So it’s not any particular party at fault because, in my opinion, with all of the legalized bribery in government, they are all a bunch of crooks.

      Are you disputing this?! If so, then perhaps you have been overdosing on FOX.

  2. JoeG says:

    My general point is you are making Reagan out to be much worse than he really was. His biggest fault was large budget deficits, but last time I checked congress has a lot to do with that too, in fact they hold more power in that regard for controlling the purse strings. He also, unlike Bush raised taxes and did at least try to employ some fiscal discipline. Reagan’s fiscal record was inarguably horrible, but it pales in comparison with Barack Obama and George W. Bush. When Reagan took over the deficit was 907 billion. When he left it was about 2.8 trillion. A cumulative 1.9 trillion dollar deficit over 8 years. Inarguably horrible. Than compare with Obama and Bush? You are being very misleading in my opinion by talking about tripling the debt. Yes that is true, but I would ask you what is worse. Having your credit card debt going from $1,000 to $3,000 over the course of 8 years, or having your credit card debt go from $10,000 to $17,000 in a matter of 4 years. Not happy with either, but the first is not nearly as bad. Not a fan of using percentages when comparing deficits, since it has become so big that one could argue a 500 billion dollar budget deficit is fiscally responsible, which I don’t think is the case.

    And believe me Fox News is not going to talk about the Breton Woods agreement or be critical of the federal reserve. And most of them are crooks I agree. They also would not acknowledge that Reagan was very anti-war and put a lot more value on the lives of troops than either Bush or Obama. He got into Lebanon, and very quickly realized it was a mistake and got out. Can’t say the same thing about Tweedle Dee (Obama) and Tweedle Dum (W).

    But again the problem relates not to Reagan’s tax policy but monetary policy. Reagan to his credit did things like advocate for a return to some monetary policy linked to gold or something at least. That is the reason for the large budget deficits.

    Attached is a historical chart detailing the budget deficits and debt over the last 100 years since the Fed was created. Under their watch we have gone from a deficit of just under 3 million dollars to a deficit of about 17 trillion. Gotta love those stable prices Fed. Great job managing the economy.

    Despite their corruption, things actually were managed fairly well during the period from 1944-1971 because the monetary policy was actually somewhat sane and was actually backed by something and made it so congress had to be somewhat disciplined as far as when to cut spending and when taxes had to be raised. The deficit was very stead over 15 to 20 years and prosperity was never better, because of the fiscal discipline. Look at what has happened to the deficit since 1971, when Nixon decided he did not want to deal with fiscal responsibility and argued that under Keynesian economics, that deficits did not matter. Heck under Keynesian economics you did not have to be responsible. Or you could call it Chenyeconomics. Deficits don’t matter. Really you can blame the Vietnam War a lot more than you could blame Reagan for this deficit. It was already escalating during the 1970’s after the complete revamping of the monetary policy.

    Now they can print their way out of trouble, which is a great way to steal from the middle class, without them realizing it. The rich love it. And the bankers are in paradise. The fed can secretly print money, bail out whoever they want, have no accountability, hit a tab for creating 1.5 trillion dollars. Loan the 1.5 trillion just created by the computer stroke and than charge the US government 3% on the country’s own currency. Gotta love it.

    And the beauty of the monetary policy is you don’t need to raise taxes to go to war. Either print the money or give China some more treasury bills. Run the deficits and pay for the war by devaluation of the dollar, so suckers don’t realize they are actually getting taxed and paying for the war. If more people realized how much money this was costing them in regards to purchasing power, there would be a lot more anti-war advocates.

    link for federal deficits which shows the damage of the 1971 shift in response to money issues because of Vietnam War.


  3. JoeG says:

    And you give FDR way too much credit. This idea that there would be no middle class without him is fiction. Teddy Roosevelt would be a better argument than FDR.

    And again FDR’s civil rights record is atrocious. And he is given way too much credit, when his policies in reality prolonged the depression and WWII and not him got us out of the depression.

  4. Steve C. says:

    The bigger problem is that lowering tax rates on the rich increases speculation, rather than demand or investment. Trickle-down economics is a recipe for a return to the boom-and-bust (bubble-and-panic) economy of the 1890’s – oh yeah, we’re already there.

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