On Tuesday, the Senate Finance committee held a hearing on tax reform during which Dr. Leonard E. Burman offered an interesting response to the oft-cited connection between hiring and tax rates. He argued that since labor costs are tax-deductible, employers benefit so long as a worker produces as much as the costs of hiring him or her. Demand, he added, is the far more significant factor in a business' hiring decisions and the more serious problem as of late.
This week, President Obama proposed paying for the American Jobs Act with tax increases on the very wealthy, or as the Heritage Foundation puts it: "tax hikes on job creators." This is typical of conservative messaging, dubiously framing all people who earn more than $200 thousand per year as "job creators," and repeating the unsubstantiated claim that moderate tax increases on the wealthy cause businesses to hire fewer workers. The Heritage Foundation cites themselves as the source to backup this claim.
As Dr. Burman argued, US businesses are far less responsive to tax rates than many would have us believe. The non-partisan Congressional Budget Office notes that "increasing the after-tax income of businesses typically does not create much incentive for them to hire more workers in order to produce more, because production depends principally on their ability to sell their products."
The fundamental point about how raising taxes on small businesses would affect hiring is an important one, but the important thing is that labor costs are deductible. So, if a worker can produce as much as it costs to hire him or her, it's worth doing because after tax they would still make money. The big problem small businesses have right now is that there's not demand, it's not the tax regimen. Now, it could have some affect on investment over the long term, but I think all of those affects are, when I read what Mr. Entin writes, I have this feeling that if you believe this you would think that you had to have an absolutely perfect tax system to have the economy grow at all. And if that were the case, we'd be in really big trouble. I think that the fact is that we're much less responsive to tax rates than you might think from these theoretical models.
Senator Bernie Sanders (D-VT) took to the floor today to speak out in opposition to the debt deal as negotiated by the White House and Congress. He says the deal is "grotesquely unfair and it is also bad economic policy." Specifically, he criticizes the deal for leaving Social Security, Medicare, and Medicaid on the table as part of deeper cuts to follow while letting top earners off the hook, going so far as to say that the rich and the powerful are asked to contribute "not one cent" towards reducing the deficit.
Sen. Bernie Sanders today issued the following statement on why he plans to vote against a deficit-reduction deal proposed by the White House and congressional leaders:
"The wealthiest people in this country and the largest corporations who are doing phenomenally well today are not being asked to contribute one penny in shared sacrifice toward deficit reduction. On the other hand, middle-class and working families who are suffering terribly in the midst of this horrible recession are being asked to shoulder 100 percent of the human cost of lowering our deficit. This is not only grossly unfair, it is bad economic policy.
"This two-part deficit-reduction legislation is complicated, and it is impossible to predict exactly which programs will be cut and by how much because the process requires action by appropriation committees and a new super committee in months to come.
"But it is very clear that there will be devastating cuts to education, infrastructure, Head Start and child care, LIHEAP, community health centers, environmental protection, affordable housing and many, many other programs. I am also concerned that when we hear that ‘everything is on the table' in terms of what this super committee deals with it will certainly include devastating cuts to Social Security, Medicare, Medicaid and veterans' needs, while protecting the interests of the wealthy and large corporations.
"This country needs deficit reduction, but we need to do it in a way that is fair and which will result in economic growth and job creation. This proposal does neither and I will oppose it."