Job Creation 101

The word is that when President Obama looks at taxes, he won’t be seeking to lessen our surging deficit by doing away with Bush tax cuts for the rich. Why? Because the thinking of Democratic circles in Washington is that, while these tax breaks may have been excessive, during a recession with so many job losses we need the rich to stay that way so they can provide funds that create new jobs.

Rich people are the prime job creators? So sayeth economists. So endlessly parrot conservative think tankers. And these worthies have a paradigm (you’ll forgive the expression) to show how this works. The rich, it’s said, look for obscure geniuses working in garages to invest in so as to realize huge profits down the road. Or the rich sink their money into all kinds of other investments that in diverse ways end up puffing the employment rolls.

An interesting and appealing notion. Which alas is largely hokum. In the Bush years the rich have never done better in terms of taxes and the job rolls grew at pathetic rates even before the present recession took hold.

In today’s real world, not the one occupied by economists and think tankers, rich people don’t look for good ways to make money on their own. They give their money to professional money managers to do the job. And these managers are all working to produce short term profits so as not to lose their business to other managers. They are thus inevitably drawn to Madoff-like investments, or directly and indirectly to private equity firms whose takeovers almost always lead to firing employees to produce short term profit improvements. And oh yes, the very rich also hire accountants who find loopholes in the tax code that send money to things that rarely if ever generate new employment.

You can therefore soak the rich without sending many more people (fund managers excluded) to the unemployment lines. But how, then, in the real world, do you create more jobs through taxing policy? The answer, of course, is to give tax breaks to the poor and middle class.

Put more money in these people’s paychecks and they will spend it. They will buy things that have to be manufactured, creating manufacturing jobs. They will be able to afford more services that create jobs in the service sector.

Soak the rich to keep the deficit under control. Bestow tax breaks on the poor and middle class to create jobs. Too bad that Mr. Obama has apparently been sold on overlooking the first part of this sensible prescription.