Who Are The Real Job Creators? What Happens When We Lower Their Taxes?

Who Are The Real Job Creators?  What Happens When We Lower Their Taxes?

Should we avoid raising taxes on the job creators?  Would decreasing taxes on the job creators help our economy?  If you answered 'Yes' to both of those questions, then I agree with you.  But who are the job creators?  Do you believe the idea that rich people and big businesses are the job creators?  If so, you, along with many others, have been swindled by those who benefit from your naivety.  Let's think this through logically.

What causes jobs to be created?

Is it because business owner says to himself, "I am in a good mood today, I think I will just hire another person"?  Probably not.  Businesses create jobs because they believe they can make a profit off of the person they hire.  So if they hire someone for $50,000 per year, that is because they probably expect to make $80,000 to $150,000 per year off of the work that person does.  Businesses don't create jobs because they have extra cash to spend.  Businesses create jobs in response to the opportunity to make more money, and a business will hire someone for $50,000 that increases revenue buy $100,000 even if the business has to borrow money to do it.

Therefore, reducing business taxes provides little incentive for businesses to create jobs.  Giving businesses tax breaks doesn't lead them to create jobs.  A business will create jobs when they believe the income produced by the new hire exceeds the cost of the new hire.  To put in another way, perhaps more clearly, if a business can hire a new employee for $50,000, and in hiring that employee they will only make $40,000, the business will not hire that new employee even if the government gives them a million-dollar tax break.  Businesses hire people because they expect, generally in the long term, that doing so will increase business profits.

So how are jobs created?

Jobs are created by the demand for the products and services that businesses produce.  If there is an increase in demand, if more people want to go bowling or more people want to buy electric cars, then businesses selling bowling and electric cars will hire more employees in response to that demand.  Businesses hire more employees when they assume they can make more money off each employee hired than it costs to pay the employee.  So, if we want to create jobs, we can do that with an increase in demand which persuades businesses to hire more employees to meet that demand.  

How do we increase demand?

Those who spend money in America create jobs in America.  Think about this:  We could give a tax break to a wealthy person allowing him to have one million more dollars, or we could give a tax break of one thousand dollars to each of one thousand poor people to use to spend their money.  Either way, the government collects one million dollars less in taxes.  And, either way, the money spent by those receiving the tax breaks creates jobs.  But saving money in a bank account does not create jobs.  Vacationing in Asia does not create jobs, at least not for Americans.  Buying stocks as an investment doesn't create jobs.  Buying groceries and going bowling and buying furniture does create jobs.

So who is going to create more jobs in the U.S.?

Do you think it is the 1,000 poor people who spend their money at the local grocery store, or is it the millionaire, who is more likely to save the money, invest it, or spend it in foreign countries?  Common sense, and decades of economic data, tell us that the poor people are likely to spend nearly 100% of the money locally and the wealthy person is likely to spend a smaller percentage of that money in their own country.  So, if you want to create jobs, give money to the job creators - the poor people; and not to the rich.

Poor People Spend Money Faster, Which Creates More Jobs

Not only are poor people more likely to spend all the additional money they acquire within the U.S., but they are also more likely to spend it more quickly than rich people.  Poor people have debts to pay and repairs they have put off due to the expense.  The have bills overdue and small but expensive items they would like to treat themselves to.  Money spent quickly speeds up the flow of money in the economy, and the velocity of money greatly impacts the output, growth, and demand for jobs in an economy.  When Jan spends $1,000 dollars in January to buy something from Fred, and Fred spends that $1,000 in February to buy something from Mark, and Mark spends $1,000 in March to buy something from April, you can see that the money is moving quickly and buy the end of the year that $1,000 could represent $12,000 in spending.  But if Jan puts the money in savings in January, or uses it to rent a Bed & Breakfast in Singapore for a month, or puts the money in the stock market for a year; the money does not move as quickly through the economy, or leaves the U.S. economy all together.

Spending money, and spending it quickly, creates demand for goods and services which leads to jobs.  And poor people will spend the money a lot more quickly than rich people.