Friday, March 11, 2011

How to Improve the Unemployment Situation

Just for my own reference somewhere in a comment stream I'd provided a link to a CBO report which evaluated different methods of reducing unemployment. I couldn't find the comment, so I'm just putting it here so I have access to it in the future. Right wingers take the trickle down approach. "We need tax breaks for the wealthy. They create the jobs. I've never been hired by a poor person."

That sounds plausible, but the flip side is that if you give poor people more money they are more likely to spend it and that also creates jobs. Which force is more powerful? The CBO says that getting money into the hands of the unemployed is VASTLY superior. Reduction of income taxes was the least cost effective method dollar for dollar. Increasing unemployment benefits was the most cost effective.


theVOID said...

That's a bit of a false Dichotomy.

I agree that Laffer's trickle down economics is bunk, giving wealthy individuals tax breaks doesn't work nearly as much as the proponents espouse, they just spend and save more, only a small portion of it will be reinvested.

In that sense giving tax breaks to low income workers would be better, but to do that you either need to get into even more debt to finance the tax cuts, cut spending or raise taxes, but there is another scenario I find more attractive...

Cut sales tax, completely. The government will have to balance losing revenue where possible and raise income tax proportionately to cover the rest, but the effects should be beneficial for the cost of living and economic growth.

As far as the cost of living goes: Someone who earns $700 a week before tax is taxed, say 20% of their income, taking home $560 a week, an amount that is barely enough to cover expenses, they have to essentially spend the entirety of their income, meaning the $560 is taxed again at, say, 15%, meaning they only get $476 dollars of goods - Their entire income has been effectively taxed twice, they lost 32% of their income - A low income earner who spends their entire paycheck is essentially taxed the same amount as a person who earns more and spends less.

As well as moving the tax burden towards higher income earners in order to lower the cost of living for low income earners companies can sell their products for lower prices, not only to local markets but to export markets, this lower price for goods makes the exporters more competitive increasing the demand for their goods, subsequently creating more demand for labor which will lower the unemployment rate and the amount the government spends on welfare, which should eventually account for the lost revenue from removing sales tax. Increased demand also means more income for employers, removing some of the burden on them from the initial increase in income taxes.

I haven't had time to fully thrash out this idea but it seems at a glance to work well.

What are your thoughts Jon?

Jon said...

Yeah, I think you're right. Anything that makes our tax structure more progressive is what we need. But it's interesting that it's really not on anybody's agenda. I just saw a poll that says 81% of people favor raising taxes on millionaires to solve the financial crisis in Wisconsin. Makes sense. You can't get revenue from those that don't have money. The wealthy are making an absolute killing. The money is coming out of their ears. There's no other way. But it's not being considered.

Of course the right wing asserts, based on Koch brothers funded think tanks, that the rich are already paying tons. That's all bunk as usual. Having investigated it a bit recently I'm going to post the facts soon on that topic.

Irl Hudnutt said...


I heard you today on Dutko's show. Doesn't it feel a bit like pounding your head against a wall?


Jon said...

Ha! Well, I just try to focus on the fact that it's not about him. He doesn't even hear what I'm saying I don't think. All that matters is income taxes, since they are progressive? The contributions of the poor should be ignored. It's like he couldn't even hear me. But I'm thinking somebody listening might hear. It's not stop propaganda on behalf of wealth with Bob. Progressives need to flood shows like his with facts.

I've posted the audio if you want to suffer through it again.