Archive for July, 2011

Do Tax Breaks Create Jobs?

July 11th, 2011

There are two fundamental Republican articles of faith with regard to the economy. First, “tax cuts increase tax revenue.” Second, “tax cuts create jobs.” We have already debunked the first of these ideas (see: Do Tax Cuts Increase Revenue?), so let’s look at this second Republican belief.

There is really one fact that significantly challenges this faith-based belief: Profits are at record highs, and the level and lengths of unemployment it at a high. The idea that tax cuts create jobs is based on the idea that letting people keep more of their money will lead them to growth their businesses by hiring more people, and thus decrease unemployment. If profits are up and unemployment is down, this logic does not work.

When politicians talk about tax cuts, they are typically referring to personal income taxes. If I am a highly compensated executive, and I get a tax cut, that means I take home more money. What will I do with this extra money? Will I go out an hire someone? Probably not. Why? Because companies hire people, individuals don’t hire people with their net salary.

“But,” I can hear my Republican friends say, “if that highly-compensated executive decides to invest that extra income in a business, this will create jobs.” Again, probably not. If I own a business, my primary concern is not to create jobs, it is to maximize profits. If there is extra money, and I don’t absolutely have to hire more people to grow the business, I am not going to hire. I am going to pay myself and my shareholders first. And because taxes are paid on profits, not revenue, I am actually inclined to keep my costs (labor) down so I can maximize profit.

There is a reason that the rich don’t suffer in a recession; that middle-class wages have been stagnant for 30 year; that the majority of the nation’s wealth is in the hand of the top 1%. Conservative tax policy has dominated for 30 years. And in this Great Recession, with profits way up, there is not need to hire more people. And in this context, with a skyrocketing national debt, with millions out of work, the Republicans can still talk endlessly of how tax cuts are the answer to creating jobs. No. Tax cuts are the answer to enriching the already-wealthy.

A Forbes blogger asks the question, “do tax cuts create ‘real’ jobs?” The answer in this pro-business publication is rather surprising: “Do tax cuts create jobs? No, just deficits.” This article goes on to say,

U.S. public companies pay well-below the official 35% tax rate while 13.5 million American workers search unsuccessfully for jobs  And start ups tell me that tax cuts don’t affect whether they’ll create new jobs. In short, the tax cut rhetoric, while effective politics, is lousy economics.

George H. W. Bush wisely pointed out in his 1980 debate with Ronald Reagan that expecting to balance the budget with tax cuts and defense spending increases was “voodoo economics.”  But along with Reagan’s ascendancy came the rise of huge budget deficits — that Bush wisely helped end when he agreed to raise taxes in 1990.

Despite $858 billion in December 2010 tax cuts, companies still complain that they pay too much in tax. General Electric (GE) has become famous for paying no taxes on its $5.1 billion in 2010 U.S. profits while keeping a big staff of lawyers on hand to make sure it pays as few of them as possible. Meanwhile, the New York Times reports that GE is not alone and that the prevailing estimate for the actual U.S. corporate tax rate is 25% — costing the U.S. about $100 billion in lost revenue.

But corporations have absolutely no reason to complain about taxes. After all, they earned record 2010 profits of $1.68 trillion and 85% of them are beating their first quarter 2011 earnings estimates as 70% are growing revenue faster than expected while their operating margins stand at a near record 19.8%.

And companies are achieving that record profitability by squeezing workers. After all, 2010 productivity rose 3.9% while unit labor costs fell 1.5%. To get more work out of the same number of workers while paying them less, it helps to have 13.5 million people out of work and the easy ability to hire part-time labor and outsource to countries that pay much lower wages.

So tax cuts have not spurred big companies to create jobs. But what about start ups? Based on my October 2010 interviews with 17 start up CEOs, my conclusion is that not a single one of them would create a job based on tax cuts. All of them told me that their decision to create a new job would be based on whether the long-term cost of that new job would be offset by higher revenues and profits.

As Dick Cheney famously pointed out — deficits don’t matter. And his supporters are probably profiting from the weak-dollar, commodity-inflation bet whose profitability depends on the persistence of those deficits.

If Washington was serious about creating new jobs, it would make companies pay the 35% rate — yielding $600 billion in tax revenue on their 2010 profits. That and the peace dividend that should flow in the wake of Bin Laden’s execution, would go a long way towards balancing the budget and creating a climate that would spur a boost in capital flows to new ventures.

As always, Rachel Maddow brings up some excellent issues on this topic:

Another astute blogger pointed out:

“Rush Limbaugh famously said, “Ive never been employed by a poor person” which is true, if irrelevant

­. I’ve never been employed by a rich person myself… I’ve been employed by a lot of companies though. An increase in taxation on millionair­es would mean nothing, let me repeat, NOTHING in the way of jobs.

Corporatio­ns employ large numbers of people, not individual billionair­es. If a billionair­e got a tax break, he wouldn’t immediatel­y invest it into his company for the purpose of hiring new employees. There is a salient difference between taxing an individual CEO’s paycheck, and taxing the corporatio­n itself.

Rather he would most likely save it (along with his other excess funds); which again does NOTHING to stimulate the economy or jobs. A Poor person with excess funds, on the other hand, would be prepared to spend it, which WOULD stimulate the economy.

If you really wanted a fairer system, I’d eliminate the tax on the first 20k of EVERYONE’s income. Then leave all the loopholes and tax cuts that the rich enjoy in the dust, and raise taxes on everyone making over 250k a year. If everyone is sacrificin­g, those poised to benefit societal rewards should pay most of the costs.” (source)

Republicans say they know how to create jobs but they never produce the results. Take Mitt Romney. According to the Huffington Post: “[A]s Massachusetts governor from January 2003 to January 2007, Romney presided over one of the puniest rates of employment growth among the 50 U.S. states, at a time the nation’s economy was booming.” (Huffington Post, 5/31/11). According to MarketWatch:
While he was Governor, “according to the U.S. Labor Department, the state ranked 47th in the entire country in jobs growth. Fourth from last. The only ones that did worse? Ohio, Michigan and Louisiana. In other words, two rustbelt states and another that lost its biggest city to a hurricane. The Massachusetts jobs growth over that period, a pitiful 0.9%, badly lagged other high-skill, high-wage, knowledge economy states like New York (2.7%), California (4.7%) and North Carolina (7.6%). The national average: More than 5% (MarketWatch, 2/23/11).
FactCheck.org noted, “By the end of his four years in office, Massachusetts had squeezed out a net gain in payroll jobs of just 1 percent, compared with job growth of 5.3 percent for the nation as a whole.”
If you look at how Romney made his millions, you get a sense for how important jobs really are to his class.  In 2007, the Los Angeles Times reported:

From 1984 until 1999, Romney led Bain Capital, a Boston-based private equity group that earned jaw-dropping profits through leveraged buyouts, debt hedge funds, offshore tax havens and other financial strategies. In some cases, Romney’s team closed U.S. factories, causing hundreds of layoffs, or pocketed huge fees shortly before companies collapsed.

See more of Romney’s record.
Conclusion
To says that tax cuts do not necessarily create jobs does not mean that all tax cuts/breaks are without value. There are certainly ways to offer tax breaks as incentives to businesses to invest in areas that stimulate the economy. But these incentives should be offered to businesses to encourage investment, not gifted to individuals who already make great money.
In conclusion, Republicans hold fast to their two faith-based economic axioms: (1) tax cuts generate more revenue; (2) tax cuts create job. Both of these idea are false. But it is worth exploring why Republicans push these ideas so forcefully. Why is it so important to Republicans to make sure the rich continue to have low taxes, even at the expense of many social programs that they happily cut? What is it in the system that allows they to get away with this? Why do the American people tolerate this? We’ll have to tackle these questions in another post. But I think we already know the answer: Follow the money.

More resources:

Afghanistan in Hindsight

July 5th, 2011

We are approaching the ten year anniversary of the September 11th attacks. So much has happened since that day. Over time, history seems to have been blurred quite a bit, especially when it comes to the war in Afghanistan. Let’s review a few critical facts about what led us to Afghanistan in the first place. This is a common story of imperialist scope creep (and we don’t hear much about how this mission has added to the much-discussed national debt). We just don’t learn the hard lessons of history, therefore we are condemned to repeat it. Here are some facts worth reviewing:

  • Feb. 1998 – bin Laden releases a statement declaring Jihad against “Jews and Crusaders”; explains that the Jihadist war is over (1) US occupation of holy lands in Saudi Arabia (since the gulf war); (2) America’s continuing aggression against the Iraqi people; and (3) its support of Israel
  • 1999 - UN imposes an air embargo and financial sanctions to force Afghanistan to hand over Osama bin Laden for trial.
  • Early 2000 –  The FBI was warned about the attacks more than a year before 9/11 (see also: link)
  • January 2001 – UN imposes further sanctions on Taliban to force them to hand over Osama bin Laden.
  • Aug. 2001 – President Bush received a briefing on Aug 6th, 2001 that read “Bin Laden Determined to Strike in US”
  • Sept. 11th, 2001 –  Attacks on Trade Towers and Pentagon
  • Sept. 20, 2001 – President Bush warns that the Taliban must deliver bin Laden of they will share his fate (source).
  • Sept. 22, 2001 - Afghanistan’s Islamic clerics asked bin Laden to leave the impoverished country on his own volition (source).
  • Sept. 22, 2001 – Taliban envoy to Pakistan, Abdul Salam Zaeef, states: “Our position on this is that if America has proof, we are ready for the trial of Usama bin Laden in light of the evidence.” Asked if the Taliban were ready to hand bin Laden over, he snapped “No” but his translator said, “No, not without evidence.” He said, “We are ready to cooperate if we are shown evidence.” (source) This was seen as a rejection of Bush’s ultimatum.
  • Sept. 21, 2001 –  Bush explains “Why they hate us”; he explains, “They hate our freedoms.” He declares a “war on terror.” (source)
  • Sept. 2001 –  The US Prepares for war in Afghanistan
  • Oct. 2001 –  bin Laden releases a statement to explain to Americans why there “is hate against you.”
  • October 2001 - US, Britain launch air strikes against Afghanistan after Taliban fail to hand over Osama bin Laden
  • Oct. 14, 2001 –  Taliban offers to turn over bin Laden if the US stops its bombing campaign; Bush rejects the offer (source).
  • Nov. 2001 – Taliban government falls
  • Nov. 2002 -  bin Laden writes a “letter to America,” explaining why he opposes America (and it was not, as Bush asserted, because they “hate our freedoms”)
  • June 2002 - Hamid Karzai elected as interim head of state.
  • May 2005 – Details emerge of alleged prisoner abuse by US forces at detention centers.
  • May 2006 – Violent anti-US protests in Kabul, the worst since the fall of the Taliban in 2001, erupt after a US military vehicle crashes and kills several people.
  • August 2007 – Opium production has soared to a record high, the UN reports.
  • June 2008 – Taliban engineers massive jail-break from Kandahar prison, freeing at least 350 insurgents.
  • September 2008 – President Bush sends an extra 4,500 US troops to Afghanistan, in a move he described as a “quiet surge”.
  • November 2008 – Taliban militants reject an offer of peace talks from President Karzai, saying there can be no negotiations until foreign troops leave Afghanistan.
  • February 2009 - Up to 20 Nato countries pledge to increase military and other commitments in Afghanistan after USA announces dispatch of 17,000 extra troops.
  • March 2009 – President Barack Obama unveils a new US strategy for Afghanistan and Pakistan to combat what he calls an increasingly perilous situation. An extra 4,000 US personnel will train and bolster the Afghan army and police, and there will also be support for civilian development.
  • December 2009 - US President Barack Obama decides to boost US troop numbers in Afghanistan by 30,000, bringing total to 100,000. He also says the United States will begin withdrawing its forces by July 2011.
  • May 1st, 2011 – Osama bin Laden is killed by US forces.
  • June 2011 – US opens talks with the Taliban; Secretary Clinton declares talks with Taliban as “necessary.” (source)
  • June 2011 – Obama give speech. Promises removal of 10,000 troops by the end of 2011, 33,000 by July 2012, and all U.S. troops by 2014. (source)

This time line tells a powerful story about how the hunt for one man (or a small group of men) turned into the longest war in American history. George Bush was determined to go to war, and it did not matter if the Taliban would have been willing to hand over bin Laden for a trial. And at the time, the American people were understandably behind Bush, with strong emotions after 9/11. Over time, support for the war has eroded. Yet more recently, people are optimistic. Now, 60% of American adults say we are winning war on terror, up from 41% before capture of Bin Laden (source). Many are now saying that “Osama Bin Laden is dead, our original mission in Afghanistan has been accomplished, let’s bring the troops home.” I agree. We should bring them home. But no one is really asking why we have been there so long in the first place. We wanted to hunt down a gang of thugs who attacked our country. Did we really need to send 100,000 military personnel (and even more military contractors) to occupy an entire country in order to accomplish the mission of hunting down bin Laden and his fellow conspirators? Why are we failing to take any lessons from this horrible experience, this tremendous waste of lives and treasure? Instead, we seem to be accepting what Noam Chomsky calls the doctrine of “change of course.” He explains:

“The doctrine is ‘yes, in the past, we did some wrong things because of our innocence or out of inadvertence, but now that’s all over, so we can’t not waste any more time on this boring, stale stuff, which incidentally we suppressed and denied while it was happening, but must now be effaced from history as we march forward to a glorious future.’ And if you look, it is literally every two or three years that the doctrine is invoked. There is a qualification. We are permitted, in fact, required to recall with great horror the misdeeds of official enemies, and we’re also required to admire with awe, our own magnificent achievements in the past in both categories, relying in no small measure on self-serving reconstructions, which quickly collapse if you follow the path of paying attention to the facts, but fortunately, that dangerous course is excluded by the convenient doctrine of change of course, which blocks any such heresies. The doctrine is entirely understandable on the part of those who are engaged in criminal enterprises, which means just about any power system, any system of concentrated power past and present, and of course, it includes its acolytes, one of the major commitments of respected intellectuals right throughout history is to be the acolytes of the systems of power…[The] doctrine is dishonest, cowardly, but has advantages. It does protect us from the danger of understanding what’s happening before our eyes, and, therefore, inducing the kind of conformism that is useful to systems of power and domination…If you want to understand anything about the world that is to come, and have any influence on the way it evolves, [it is] more than useful to keep this in mind.” (source)

So the American people, generally, have been willing to accept this war, since it has been so skillfully connected with the Sept. 11th attacks. But this war really has very little to do with attacks on America. We were not attacked by Afghanistan. In fact, Pakistan had (has?) just as strong of ties with the Mujahidin (i.e., Al Qaeda) as the Taliban who governed Afghanistan. We did not attack Pakistan. And if it was a human rights mission to deliver democracy to the brutal state of Afghanistan, we should has started with Saudi Arabia, a primary oil supplier to the US. The point is, we should be fighting the “war on terror” with intelligence, police work, and special ops–not with the military executing counterinsurgency tactics. This strategy has never worked. Ask the British how that strategy worked against the American insurgents they were up against during the American Revolution (AKA, “The War for Independence”). Ask a Vietnam vet how well this strategy worked in that conflict. It does not work.

The most troubling aspect of the war has been the rise of terrorism since the war started (source). President Bush was warned by the CIA that there would be a rise in terrorism if we launched a war in a Muslim nation (source: Chomsky, Hegemony or Survival, 2003, page 211; see also link). He was not concerned over the level of terrorism. We can speculate over what he was concerned about, but it could not have been to prevent or limit terror attacks. In fact, our decisions have played perfectly into bin Laden’s ultimate strategy.

Bin Laden: Mission Accomplished

FAIR journalist, Jim Naureckas, wrote:

“For bin Laden, the U.S. invasion of Afghanistan was not a threat to his plan for the triumph of his brand of right-wing Islam—it was the central element of that plan” (July 2011).

Rachel Maddow made a similar argument on her MSNBC show (5/3/11):

“Osama bin Laden’s stated goal for the 9/11 attacks was to cause us to spend ourselves into oblivion. His goal was to do something cheap and radical and traumatizing that would cause us to react in a way that bankrupted us. So that what they couldn’t take down by force or by ideological competition, we would take down ourselves by panic.”

Washington Post columnist Ezra Klein (5/3/11) also stated,

“Bin Laden, according to [Al-Qaeda expert] Gartenstein-Ross, had a strategy that we never bothered to understand, and thus that we never bothered to defend against. What he really wanted to do—and, more to the point, what he thought he could do—was bankrupt the United States of America. After all, he’d done the bankrupt-a-superpower thing before.”

What bin Laden learned from his fight against the Soviets in Afghanistan, Klein wrote, was that “superpowers fall because their economies crumble, not because they’re beaten on the battlefield,” and that they “are so allergic to losing that they’ll bankrupt themselves trying to conquer a mass of rocks and sand.” But, noted Klein, “it isn’t quite right to say bin Laden cost us all that money…. We didn’t need to respond to 9/11 by trying to reshape the entire Middle East, but we’re a superpower, and we think on that scale.” He concluded: “We can learn from our mistakes.”

In FAIR’s latest edition of Extra!, Jim Naureckas quotes Abdul Bari Atwan, editor of the London-based Arabic newspaper Al-Quds al-Arabi.  Abdul Bari Atwan was one of the few journalists based in the West to interview bin Laden, spending three days with him in the mountains of Afghanistan in 1996.

He told me personally that he can’t go and fight the Americans and their country. But if he manages to provoke them and bring them to the Middle East and to their Muslim worlds, where he can find them or fight them on his own turf, he will actually teach them a lesson.

According to Atwan, bin Laden expressed disappointment with the pullout of U.S. troops from Somalia:

He told me, again, that he expected the Americans to send troops to Somalia, and he sent his people to that country to wait for them in order to fight them. They managed actually to shoot down an American helicopter where 19 soldiers were killed, and he regretted that the Clinton administration decided to pull out their troops from Somalia and run away. He was so saddened by this. He thought they would stay there so he could fight them there. But for his bad luck, according to his definition, they left, and he was planning another provocation in order to drag them to Muslim soil.

Conclusion

We need to get out of Afghanistan, and completely out of Iraq. We need to open up a national dialogue about what we have learned from these experiences, and create or enforce laws that will prevent them from happening again. We need the media to responsibly report on the futility and horror of these wars. Amy Goodman recently said, “We need a media not brought to us by the weapons manufacturers.” We need to understand that many of our enemies were created by our own actions, and that we can significantly improve peace in the world. And it will not happen unless you and I do something about it.

More information:

Eyewitness Testimonies of Vets Against the War

9/11 Families for Peaceful Tomorrows

Civilian Casualties

Iraq (and Afghanistan) Veterans Against the War

This is a clip of President Obama’s recent speech about the war in Afghanistan.