A study from the University of Chicago indicates that tax cuts do create jobs, just so long as they’re not targeted at the wealthy.
Zidar examined the short- to medium-term impact of tax changes at the state and federal levels going back to 1948. On the national level, he found a 1 percent gross domestic product (GDP) tax cut aimed at the bottom 90 percent translates to job growth of 2 to 5 percent, but the impact of a similar cut on the top 10 percent of earners has a negligible effect. He reached similar conclusions on the state level: Tax decreases for most of the population generated 5 percent employment growth, but yielded little change when applied to the top income bracket.
Why is this relevant to Arkansas? In Gov. Asa Hutchinson’s tax cut plan, he omitted the bottom 40 percent from ANY benefit. The poorest working Arkansans, those making less than $21,000 a year, got NOTHING. Everybody else got a break. The very wealthiest got the biggest tax cut of all.
The capital gains rate is declining by more than 33 percent. Overwhelmingly, it’s a benefit the wealthy enjoy. Worst of all, the super wealthy got a total exemption on income over $10 million in capital gains. In the paper today was news of a banker who’s reaped $30 million this year on sale of stock acquired for pennies as a banking executive. As much as $20 million of that will incur NO tax liability, a savings under the old tax rate of more than $900,000. Were jobs created in the bank merger that created the riches? Will jobs be created with that windfall? Or will it merely be invested (wherever the return is highest, not necessarily Arkansas.)
It’s simple. Give poor people more money and they spend it, thus stimulating the economy.
[Researcher Owen] Zidar says the paper carries policy implications, too. If lawmakers want to stimulate job growth, “this suggests payroll tax reform could be a pretty powerful tool,” he says. Scrapping those taxes up to a certain amount would be a far more effective means of creating jobs than say, slashing income taxes on the top 1 percent.
Reduction of tax income also stifles investment in things that produce income growth — good education, healthy people, sufficient infrastructure.
Again, Republican orthodoxy knows better. In addition to stiffing working poor on the tax cuts, Hutchinson and Republicans also rejected a bill to give the poor an earned income tax credit, a state rebate of some payroll taxes.
In Arkansas, the rich must be served. We are a “unique” state, Hutchinson said yesterday in talking about the Common Core curriculum standards. Indeed. And look around. Our emphasis on corporate welfare, welfare for the rich and punishment of the working poor — even if it meant beggaring public services — has produced a model for the nation, has it not? And if the tech companies weren’t already flocking here for that, they soon will be thanks to Gov. Asa Hutchinson’s strong support for legal discrimination in employment against gay people.