Cutting Taxes Still Doesn't Create Jobs

It isn't just the Republicans in the U.S. Congress that are trying to convince Americans that the way to prosperity and new jobs is to cut taxes for the rich. Republican governors and state legislatures are spreading the same lies. Several Republican governors are trying to cut taxes for the rich, saying the rich will then use that extra money to create jobs (instead of just tucking it away in their already bulging bank accounts).

The problem with that argument is that taxes and job creation are not connected at all. Many jobs have been created in times with high taxes and many jobs have been lost in times with low taxes. That's because there is only one thing that spurs new job creation -- a rise in the demand for goods/services. When demand rises for their goods or services, businesses will hire additional workers to make sure they are able to meet that demand. But hiring more workers without a rise in demand just cuts profits (something no business wants to do).

This is eloquently illustrated in the chart above. It shows the growth in employment of the five states that cut taxes the most between 2000 and 2007. Note that those states actually created fewer jobs than the average of all other states -- something that could not have happened if what the Republicans are saying was true.

Someone looking at the chart could think that just the opposite case could be made -- that cutting taxes costs jobs. But that is not true either. Jobs can be created or lost whether taxes go up or down. It simply doesn't matter, because cutting taxes doesn't create jobs and raising taxes doesn't reduce jobs. Rising demand creates jobs and falling demand creates layoffs. That's just an economic reality.

NOTE -- Austerity (sharp cuts in government spending) will cause a reduction in jobs, because it takes money out of the economy and reduces demand. But once again, it's all about the demand.