We've Become a Nation of Takers, Not Makers

[Macamus Prime]

We've Become a Nation of Takers, Not Makers

Correction; the rich take the jobs to overseas and they make more money as a result.

 

[Gonad the Barbarian]

Tax cuts lower the marginal cost for hiring an employee. When you look across the entire economy of America, a few thousand dollars can easily change the calculation from a hire that is not worth it to a hire that is.

It still doesn't change whether or not the employee wage is offset by that hire bringing in marginally more revenue.

 

[werepossum]

Also, if hiring additional employees brought in more money than what it was costing the company to employ them, i.e., a net positive, the company would have hired them regardless of the tax cuts. On the other hand, if the employees were a net negative, then why would a company intentionally hurt their bottom line? To quote a Republican line, "Its not a charity."

That's true, but it's not a hard and fast rule. Most new employees are net drains at first, but hopefully become net assets. But while business investment and hires sometimes happen in reaction to increased demand, it's just as common for business investment to be intended to increase demand or cut costs. Businesses will buy equipment and hire production people to start a new product line in the hopes that they will eventually turn a profit on it, or to fill a void that is perceived as costing the company business. Similarly, a teenager hired to stand on the sidewalk in a mattress costume is not filling some increased demand for teenagers in mattress costumes; he or she is hired in an attempt to increase demand. Similarly, a business will hire a new salesman to call on clients not previously called on, or to sell a new line, in the hopes of increasing demand. Business is not a passive endeavor of waiting for demand and hiring to meet it.

But at heart everyone knows we cannot consume our way out of a recession, else the government could merely hire every out of work person and we'd be good to go.

 

[her209]

Tax cuts lower the marginal cost for hiring an employee. When you look across the entire economy of America, a few thousand dollars can easily change the calculation from a hire that is not worth it to a hire that is.

How so? The cost of hiring an employee doesn't change with tax cuts. The additional revenue that would be gained wouldn't change either. If it costs $X a month to employ and brought $Y in additional revenue, but X>Y, then it would make more economic sense to not hire. Tax cuts won't incent a company to hire them.

 

[werepossum]

Tax cuts lower the marginal cost for hiring an employee. When you look across the entire economy of America, a few thousand dollars can easily change the calculation from a hire that is not worth it to a hire that is.

Exactly. Tax cuts will not cause every business to rehire, but will cause some businesses to hire.

Unfortunately today most of our tax cuts are targeted, either for some societal purpose (which isn't necessarily a bad thing) or a negotiated benefit for a particular industry or even company.

 

[fskimospy]

How so? The cost of hiring an employee doesn't change with tax cuts. The additional revenue that would be gained wouldn't change either. If it costs $X a month to employ and brought $Y in additional revenue, but X>Y, then it would make more economic sense to not hire. Tax cuts won't incent a company to hire them.

Actually they do. Of course there are many types of tax cuts, so it all depends on what you're talking about. Specifically over the past couple of years Obama and co cut the payroll tax, which is specifically a tax on extra hires, directly lowering the cost to have an employee on the rolls. Also if you're lowering taxes on various types of activities the employees undertake, every transaction/action they do is inherently slightly more profitable, again changing employees from unprofitable to profitable.

I personally think that these forms of tax cuts are not the most effective method of generating jobs, but it's pretty hard to argue that they don't do it at all.

 

[fskimospy]

It still doesn't change whether or not the employee wage is offset by that hire bringing in marginally more revenue.

Well sometimes it does and sometimes it doesn't. Employee costs are more than just wages.

I generally agree with your position, btw.

 

[her209]

That's true, but it's not a hard and fast rule. Most new employees are net drains at first, but hopefully become net assets. But while business investment and hires sometimes happen in reaction to increased demand, it's just as common for business investment to be intended to increase demand or cut costs. Businesses will buy equipment and hire production people to start a new product line in the hopes that they will eventually turn a profit on it, or to fill a void that is perceived as costing the company business. Similarly, a teenager hired to stand on the sidewalk in a mattress costume is not filling some increased demand for teenagers in mattress costumes; he or she is hired in an attempt to increase demand. Similarly, a business will hire a new salesman to call on clients not previously called on, or to sell a new line, in the hopes of increasing demand. Business is not a passive endeavor of waiting for demand and hiring to meet it.

But at heart everyone knows we cannot consume our way out of a recession, else the government could merely hire every out of work person and we'd be good to go.

In the examples you posted, they are doing it with the expectation of bringing in more than its costing to employ them. If after a time if it is not,, they'd let those people go. Also, on the demand point, certainly you can create demand where there was none, but most of the time, I'd argue, they are just redirecting demand to their businesses and away from other businesses.

 

[Gonad the Barbarian]

Well sometimes it does and sometimes it doesn't. Employee costs are more than just wages.

I generally agree with your position, btw.

And yeah, you're right about payroll taxes, they hadn't been what I had in mind.

 

[piasabird]

How did all capitalists become republicans? Are you stupid idiots or what? I sure am glad there are no rich liberals.

 

[her209]

And yeah, you're right about payroll taxes, they hadn't been what I had in mind.

Based on your scenario, I was thinking on the tax rates being cut on the restaurant's profits.

 

[Gonad the Barbarian]

But at heart everyone knows we cannot consume our way out of a recession...

Umm, so where does all the production to take us out of a recession come from if not from a level of consumption necessary to spur it? You can't simply produce your way out of a recession either, which is what folks on the right seem in denial about by solely dumping money into the supply side.

 

[werepossum]

In the examples you posted, they are doing it with the expectation of bringing in more than its costing to employ them. If after a time if it is not,, they'd let those people go. Also, on the demand point, certainly you can create demand where there was none, but most of the time, I'd argue, they are just redirecting demand to their businesses and away from other businesses.

Of course. It's in no one's best interests to promote inefficiency, so if a new hire isn't a net asset that hire needs to be dismissed. In the long run it serves no one's best interests to keep an employee in a non-productive position. And you're partially right about redirecting demand from other businesses, but consider government redistribution. Government must take the money, audit those it takes the money from, dole out the money, audit those it gives money, and account for it all. Some portion of the money is inevitably consumed by all this.

Umm, so where does all the production to take us out of a recession come from if not from a level of consumption necessary to spur it? You can't simply produce your way out of a recession either, which is what folks on the right seem in denial about by solely dumping money into the supply side.

I don't necessarily think we need to dump money into the supply side either. Targeted tax cuts, especially payroll tax cuts, are good to help businesses retain employees, but the main thing one can do with a recession is wait it out. Other helpful things include TARP-like programs and bank bail-outs and loans to help keep major institutions from going under. But the problem with artificially creating demand, whether by tax cuts or by government spending money, is that this demand is inelastic. When the spending stops, the economic stimulus stops. We saw that this time, and we saw that in the Great Depression, where unemployment rates rose each time the government tried to cut its stimulus spending. Only the war had any success at ending unemployment.

As far as tax cuts stimulating hires, this works two ways. First, when a business receives a tax rate cut it now has more profit flowing in. It can use some or all of this extra income to hire new people, which it will hopefully only do if management sees a way to increase revenue and profit. Second, it can bank that extra money and save it up for hard times (not a hiring stimulus but helps prevent more unemployment from business failure) or a capital investment project. If the former, another business can borrow that money for its own investment. (Even in the hardest of times there are people with good ideas to try, often because they've lost other employment.) If the latter, it may stimulate employment directly (purchase of goods and services) and indirectly (people who get paid purchase other goods and services.) The bonus of a tax cut is that much less overhead is involved to not take something than to take it and redistribute it.

Something like the Great Depression may call for things like labor programs, but we should be clear: we aren't stimulating the private sector, we're supplanting it.

 

[Gonad the Barbarian]

I don't necessarily think we need to dump money into the supply side either. Targeted tax cuts, especially payroll tax cuts, are good to help businesses retain employees, but the main thing one can do with a recession is wait it out. Other helpful things include TARP-like programs and bank bail-outs and loans to help keep major institutions from going under. But the problem with artificially creating demand, whether by tax cuts or by government spending money, is that this demand is inelastic. When the spending stops, the economic stimulus stops. We saw that this time, and we saw that in the Great Depression, where unemployment rates rose each time the government tried to cut its stimulus spending. Only the war had any success at ending unemployment.

As far as tax cuts stimulating hires, this works two ways. First, when a business receives a tax rate cut it now has more profit flowing in. It can use some or all of this extra income to hire new people, which it will hopefully only do if management sees a way to increase revenue and profit. Second, it can bank that extra money and save it up for hard times (not a hiring stimulus but helps prevent more unemployment from business failure) or a capital investment project. If the former, another business can borrow that money for its own investment. (Even in the hardest of times there are people with good ideas to try, often because they've lost other employment.) If the latter, it may stimulate employment directly (purchase of goods and services) and indirectly (people who get paid purchase other goods and services.) The bonus of a tax cut is that much less overhead is involved to not take something than to take it and redistribute it.

Something like the Great Depression may call for things like labor programs, but we should be clear: we aren't stimulating the private sector, we're supplanting it.

Recession spending does not supplant the private sector. The private sector contracts during a recession. A void is created, there's nothing to there supplant. The private sector expands when there's profit motive to do so again. That's why tax cuts generally won't help during a recession. They don't create any profit motive to actually expand. They may make current production levels more profitable, but it doesn't make additional production more profitable. There HAS to be a demand increase to offset the additional production for that to happen. And that HAS to come from additional consumption somewhere. Our economy is one big circle of consumption/production, and without government filling that consumption void during a recession the whole damn thing stops. And unfortunately folks still have to eat, even waiting out a recession.