Investors vs. labor

January 16th, 2004 – 11:42 pm
Tagged as: Uncategorized

There’s an excellent analysis over at the Washington Post of how the changes to the tax code that Bush pushed through benefit investment over work.

If you work for a living in George W. Bush’s America, you’re a sap.

Take a quick look, or a long one, at the tax code as Bush has altered it during his three years as president, and you’re compelled to conclude that work has become a distinctly inferior kind of income acquisition in the eyes of the law. Bush tax policy rewards investment and inheritance. Relying on work for your income, by contrast, turns you into a second-class citizen.

And there’s more….

But a broader theory is at work here, too. It says that investment, rather than labor, powers economic growth, so rewarding investment is merely the most direct way to help the economy. As Ernest S. Christian, a former Treasury official in the Reagan administration, recently told The Post’s Jonathan Weisman, the tax reform proposals advanced by the Democratic presidential candidates — most of which restore some of the taxes on investment and cut the tax rates for work-derived income — won’t do the economy any good. “Tax reform is supposed to mean removing barriers to economic growth,” Christian said.

A lovely theory, but if anyone thinks the Bush tax cuts have spurred economic growth, I have a low-tax investment in a bridge to Brooklyn. To be sure, investment income and corporate profits are high. But just 278,000 new jobs have been generated since June, which means the recovery is about 7.5 million jobs shy of the norm for post-World War II recoveries. Bush’s Council of Economic Advisers had predicted job growth of 510,000 from the 2003 tax cuts, plus another 1,335,000 new jobs, during the second half of last year.

To say that reality is lagging behind the theory of investment-led growth, then, is to understate. The problem is that to invest today in stocks or mutual funds doesn’t mean you’re investing in job creation in the United States.

Outsourcing has turned the phrase “investment-led growth” into the grimmest of oxymorons. It means that Bush’s tax policy subsidizes job growth in India and China rather than the United States. And in failing to create more employment here at home, the tax cuts have also helped depress wages. Real wages in the United States actually fell 0.7 percent in the fourth quarter of last year.

I think the important point here is that the Bush tax strategy is meant to improve the economy for the holders of capital, while harming labor by failing to actually create jobs or increase real wages in the U.S. As the author concludes:

But the burden of proof is on those on the right to demonstrate how private investment in a global economy creates jobs here at home. And why the hell our tax policy should boost income in Bangalore, not Baltimore.

It’s not that people in India somehow don’t deserve jobs, but that’s an issue for the Indian government to deal with. Shouldn’t the American tax structure be designed to create good jobs for the people of America, rather than being designed to benefit the very American investors who send those jobs to other countries?

[via Sisyphus Shrugged]

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