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Tax breaks meant to make jobs? New report finds that they're destroyed

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Enkufka Wandering Student ಠ_ಠ from Bay of White fish Since: Dec, 2009
Wandering Student ಠ_ಠ
#1: Oct 11th 2011 at 12:03:45 AM

The Institute for Policy Studies has found that the 2004 tax holiday caused firsm to drop 67,000 jobs while bringing in a combined total of $100 billion.

A review of U.S. employment data filed with the Securities and Exchange Committee found that 13 firms profiled in this report cut their U.S. workforces by 60,701 jobs in the two years following the 2004 tax holiday (2004-2006). The 13 companies are YUM Brands, General Electric, International Paper, Eastman Kodak, Kraft, Honeywell, Intel, Eli Lilly, Starwood Hotels, Praxair, Lexmark International, Hasbro and Boston Scientific.

But this wave of job destruction soon after the 2004 tax holiday went into effect, reported fairly widely at the time, does not tell the entire story. Dozens of major U.S. corporations that benefited lavishly from the 2004 tax holiday, not just the early job destroyers, have downsized significantly in the years since. Their story deserves telling — but certainly not repeating with the passage of still another "one-time" corporate tax holiday.

The full report is at the bottom.

NOTE: I do not endorse the false dichotomy of "Tax breaks don't make jobs that leaves us with only tax hikes." Fact is that tax cuts are not the best solution to everything, and it would be better to fund or not fund things based on their effectiveness at making jobs.

edited 11th Oct '11 12:05:53 AM by Enkufka

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry
SavageHeathen Pro-Freedom Fanatic from Somewhere Since: Feb, 2011
Pro-Freedom Fanatic
#2: Oct 11th 2011 at 1:46:43 AM

I'm all for tax cuts... For people making less than a hundred grand.

Tax cuts to the rich are an abomination.

edited 11th Oct '11 1:47:08 AM by SavageHeathen

You exist because we allow it and you will end because we demand it.
Medinoc Chaotic Greedy from France Since: Jan, 2001 Relationship Status: [TOP SECRET]
Chaotic Greedy
#3: Oct 11th 2011 at 2:18:07 AM

In France, one of our dear president's selling points was the "travailler plus pour gagner plus" ("work more to earn more") law that induced tax cuts on overtime pay. And an awful lot of people blindly voted him in for this without realizing what an unemployment factory it was.

"And as long as a sack of shit is not a good thing to be, chivalry will never die."
Enkufka Wandering Student ಠ_ಠ from Bay of White fish Since: Dec, 2009
Wandering Student ಠ_ಠ
#5: Oct 11th 2011 at 10:07:03 AM

Furthermore, the CEO of GE admits as much: http://thkpr.gs/r3Pk18

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry
secretist Maria Holic from Ame no Kisaki Since: Feb, 2010
#6: Oct 11th 2011 at 11:37:21 AM

How do you know they caused that to happen rather than this happened then that happened in a non-causal way?

TU NE CEDE MALIS CLASS OF 1971
Enkufka Wandering Student ಠ_ಠ from Bay of White fish Since: Dec, 2009
Wandering Student ಠ_ಠ
#7: Oct 11th 2011 at 11:45:18 AM

I don't. But the tax breaks have not resulted in an increase in jobs. That's the point. Their goal with the tax cuts was to make jobs, and it failed on that mark.

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry
secretist Maria Holic from Ame no Kisaki Since: Feb, 2010
#8: Oct 11th 2011 at 11:53:52 AM

Technically, it's to have more jobs than in an alternative universe that's identical, but didn't have the tax cuts. Universe A has tax cuts, but loses jobs. Universe B, without same tax cuts, loses even more jobs.

TU NE CEDE MALIS CLASS OF 1971
Enkufka Wandering Student ಠ_ಠ from Bay of White fish Since: Dec, 2009
Wandering Student ಠ_ಠ
#9: Oct 11th 2011 at 12:11:28 PM

That's not what was claimed. The claim was that Tax Cuts make jobs, and they lost them, not that tax cuts will make fewer jobs be lost.

Think of it this way, if you were sold a diet pill that said that you would lose weight, that's completely false to claim that its the same thing as gaining not as much weight as without the pill.

edited 11th Oct '11 12:19:45 PM by Enkufka

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry
Karmakin Moar and Moar and Moar Since: Aug, 2009
Moar and Moar and Moar
#10: Oct 11th 2011 at 12:49:09 PM

Here's the structural theory behind this: (Now personally, I don't think this is quite right, it's simplified of course, I'll explain where I think it's wrong at the end)

First of all is that it assumes a lack of capital. So if you cut taxes on businesses, they have more money to "expand". Lets say this mid-sized company makes chairs at a modest profit. So when they get said tax cut, they get an infusion of capital. This allows them to replace the workers who make the legs with a leg making machine. So instead of five people, they only need one person who is trained to maintain/repair the machine. (Let's assume they send the one remaining worker to a course run by the machine maker). That one person is paid handsomely for their knowledge, and other 4 people quickly find jobs doing other things, I.E. selling the now cheaper chairs.

First of all, by and large there's no lack of capital. Now, there might be distributional issues, but there's tons of capital out there to be had. The one worker remaining, there's actually no reason why you should pay that person more, in fact, you probably could get away with paying that person less (as the other 4 people probably were unable to find jobs quickly, and are pretty much forced to take a wage reduction to find work). In any case, they're not really buying a new machine, and instead they're using that capital to move the works overseas anyway where wages are much lower.

And in ANY case, all of that is silly because if it were profitable, and because there's plenty of capital around, if it was profitable to move/streamline the operation it already would have done so, more than likely. In short, tax breaks for the rich theoretically could destroy jobs, however odds are that they're basically just giving the rich more money for no real effect one way or the other.

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USAF713 I changed accounts. from the United States Since: Sep, 2010
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johnnyfog Actual Wrestling Legend from the Zocalo Since: Apr, 2010 Relationship Status: They can't hide forever. We've got satellites.
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#12: Oct 11th 2011 at 1:40:22 PM

Of course the tax cuts prevented more job losses. That's the definition of a protection racket, which is what this is.

I'm a skeptical squirrel
Ratix from Someplace, Maryland Since: Sep, 2010
#13: Oct 11th 2011 at 1:56:13 PM

Careful now, the argument that Secretist is putting forth is pretty much the same as supporters of ARRA; it prevented a greater crash, and thus should have been bigger.

Not saying they were justified (I think the Bush Tax Cuts should be repealed). I'm saying if you support them, the logic is perfectly sound.

Fighteer Lost in Space from The Time Vortex (Time Abyss) Relationship Status: TV Tropes ruined my love life
Lost in Space
#14: Oct 11th 2011 at 2:00:01 PM

And ARRA consisted substantially of tax cuts. There's no hypocrisy here. That said, dollar for dollar, tax cuts return less in job creation than direct stimulus. So it's neither hypocritical nor inconsistent to push for stimulus over tax cuts despite net job gains not having occurred with either one. ARRA didn't fix the economy because it was too small.

I do find it somewhat hard to believe that the tax cuts caused direct job loss, any more than any other form of capital infusion would have done. Tax cuts for businesses are inherently supply-side in nature and cannot directly stimulate demand.

edited 11th Oct '11 2:18:38 PM by Fighteer

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SavageHeathen Pro-Freedom Fanatic from Somewhere Since: Feb, 2011
Pro-Freedom Fanatic
#15: Oct 11th 2011 at 4:34:15 PM

But it fails even at that. Companies don't make more money because the rich get tax cuts: If there exists a liquidity crisis, like back in 2009 (now we've got the opposite problem, fat cats sitting on their cash), you give a tax credit to companies that actually hire people from a certain wage up, instead of a blanket gift to all rich fucks in the country.

You exist because we allow it and you will end because we demand it.
DarkConfidant Since: Aug, 2011
#16: Oct 11th 2011 at 4:43:27 PM

No, what you do is promise no new taxes, and threaten to raise taxes and limit deductions in the future. Instead of incentivizing holding on to your money and not investing it, you let the corporations know that there will be absolutely no new tax cuts, that there will be tax increases in the future, and, most importantly, you raise taxes immediately by a small percentage to impose a credible threat.

Game theory, hard at work for you.

MajorTom Eye'm the cutest! Since: Dec, 2009 Relationship Status: Barbecuing
Eye'm the cutest!
#17: Oct 11th 2011 at 4:46:00 PM

^ And then the corporations call your bluff and lay off thousands upon thousands of workers making you politically insolvent.

"Allah may guide their bullets, but Jesus helps those who aim down the sights."
Midgetsnowman Since: Jan, 2010
#18: Oct 11th 2011 at 4:47:59 PM

[up]

so basiclaly, shut up and listen to the corporations because they own us and we cant do anything about it.

Sorry, but if they lay off thousands upon thousands of workers, they risk blowing their own profit margins and creating a recession out of spite. They arent that stupid.

edited 11th Oct '11 4:48:52 PM by Midgetsnowman

SavageHeathen Pro-Freedom Fanatic from Somewhere Since: Feb, 2011
Pro-Freedom Fanatic
#19: Oct 11th 2011 at 4:48:24 PM

[up][up] Then you raise corporate taxes to such a ridiculously high degree that an outright nationalization of the economy must follow. Instant socialism, just add water. ANY sort of attempt at class war by the burgeoisie must be crushed by any and all means available.

edited 11th Oct '11 4:49:10 PM by SavageHeathen

You exist because we allow it and you will end because we demand it.
DarkConfidant Since: Aug, 2011
#20: Oct 11th 2011 at 4:49:31 PM

Tie corporate tax rates to unemployment. Higher unemployment = higher tax rates.

You have to play a war of attrition with them if you want to win, and you have to be prepared to be the most politically hated person in the country to break the backs of the corporations. They are powerful and greedy, and you have to be prepared for a long battle.

johnnyfog Actual Wrestling Legend from the Zocalo Since: Apr, 2010 Relationship Status: They can't hide forever. We've got satellites.
Actual Wrestling Legend
#21: Oct 11th 2011 at 4:59:27 PM

Yeah, ultimately you're going to be unpopular either way. Either sit with your thumb up your ass, or anger the Wall Street gods so they shovel shit our way.

I'm a skeptical squirrel
DarkConfidant Since: Aug, 2011
#22: Oct 11th 2011 at 5:01:16 PM

[up] Ultimately, I'd rather stand with the 99% than the 1% though.

And there's a chance that the game-theoretic approach just might work. After all, tax breaks for business sure as heck haven't so far, and there's no reason to believe that they will soon.

breadloaf Since: Oct, 2010
#23: Oct 11th 2011 at 5:31:03 PM

I just wanted to nitpick on one thing about corporate tax breaks.

You don't have more capital with a tax break. You merely create an environment that is more attractive for new investment money (who hope to gain some sort of profit based on their investment).

This is because corporate taxes are levied on profit not total revenue.

If you decide to invest your money, as a corporation, you have less taxable corporate income. So in fact, mathematically, if you were to lower/do nothing/increase investment:

  • A) You reduce investment to increase your profit, therefore paying the same tax but have more profit. (ie. you fire people or close factories or hold off capital purchases)
  • B) You do nothing, have more profit because you pay less tax. There is no increase in investment because profit is by definition, money that is not invested.
  • C) You increase investment to a point at which you have the same profit and pay the same tax as you did before. This is what politicians hope you do.

Which do you think shareholders want?

SavageHeathen Pro-Freedom Fanatic from Somewhere Since: Feb, 2011
Pro-Freedom Fanatic
#24: Oct 11th 2011 at 5:33:52 PM

That's why you should tie such tax reductions to the number of high-paying jobs created. Instead of the above alternatives, you present them a new set of options:

  • A) Do nothing. Production and tax rate are unaffected.
  • B) Hire new workers and boost production, paying more in wages but offsetting part of it through less tax.

Companies that do B) will have an advantage over those that do A).

edited 11th Oct '11 5:41:31 PM by SavageHeathen

You exist because we allow it and you will end because we demand it.
Thorn14 Gunpla is amazing! Since: Aug, 2010
Gunpla is amazing!
#25: Oct 11th 2011 at 5:53:08 PM

I hate that attitude of "If you even slightly raise taxes, they'll retaliate and fire workers!"

Doesn't that basically make the corporations/whatever hostage takers? Give into all of their demands or else!


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