Mitch McConnell said it again Sunday, this time on Fox News Sunday. "I'm for the biggest deal possible too, but we're not going to raise taxes... We think it's a terrible idea. It's a job killer." Well, you can go around saying the sky is lime green too, but it doesn't make that so either.
What is so frustrating is that the most powerful Republican in the nation has to know why his talking point is simply not true. He has too. It just is not that difficult to understand!
There are two rationales for the argument that taxes slow the economy down and kill jobs. Neither of them makes sense in our current economic climate.
Taxes choke off the supply of money that businesses can invest in operations that create jobs.
The first rationale is the famous supply-side economics of the Reagan administration. When Ronald Reagan came into office there was high inflation and high unemployment. Supply-siders made the case that inflation indicated strong demand for goods and services and weak supply. Since the availability of labor obviously wasn't constraining supply, they assumed that it had to be the availability of capital investment money. Reducing taxes, especially corporate and capital gains taxes, would free up money for capital investment. That capital investment would create jobs and increase the supply of goods and services, thus lowering both inflation and unemployment. This theory relies on the capital increasing supply more than the lower unemployment increases demand... but apparently they thought it would.
Today we have high unemployment, but practically no inflation. Further, there is absolutely no case that can be made that there is not enough money available for companies to invest in productive enterprises. US corporations alone are sitting on nearly $2 trillion in cash. Banks are holding trillions more in cash that isn't being lent out. Interest rates have been near zero since 2008 because investors have stacks of money lying around that companies don't need and can't use.
Companies don't need much investment capital right now because supply is not what is constrained; demand is. Companies need more customers, not more capital. Since 2008, 8 million jobs have been cut. Since 2010 only 2 million jobs have been created. The workforce didn't shrink because companies didn't want to employ people -- it shrunk because there are no buyers who will buy the goods and services those millions of people were making.
There may be a time and a place for supply-side economics. And obviously Reagan is someone Republicans like to emulate. But if, and it is a big if, supply-side economics even made sense 30 years ago, it certainly does not make sense now. Freeing up more investment capital, when there is already way too much, will make our economic problems worse.
Taxes take money out of consumers' pockets, leaving them less money to spend on things that create jobs.
This is absolutely true... which is why anybody who talks seriously about raising taxes in a weak economy limits the discussion of increases to "wealthy people". Here's why.
When people spend money, they stimulate demand. When people save money, they stimulate supply. When people have very little money, they spend 100% of it. 100% of their money becomes economic demand. As you go up the income ladder, people start having the luxury of saving some of their money. As you continue higher and higher up the income ladder, a higher and higher percentage of money is saved and a lower percentage is spent.
At very high levels, certainly by the time you are looking at people making $250,000 or more annually, the percentage of income that is spent vs. saved becomes relatively low. If taxes are increased on people who spend most of their money, demand will be reduced a lot. If taxes are raised on people who save most of their money, demand is only reduced a little, while supply is reduced a lot.
Our economy has a serious imbalance with much more supply than demand. Increasing taxes on very wealthy people is exactly the right thing to do because it will not reduce demand very much. Which means it will not "kill jobs" very much. Instead, it will reduce supply and start to bring the economy back into balance.
The fact that Mitch McConnell and so many of his Republican colleagues can't see this reflects very poorly on their intelligence refuse to acknowledge this speaks volumes about their depravity. It truly is little different from getting up every day and proclaiming the sky to be lime green despite knowing for a fact that it is blue.
