Debunking McCain's Myth that Tax Cuts "Create Jobs"

John McCain, while pretending to perpetuate the image of a "maverick", steadfastly hews to the economic orthodoxy of the Republican Party. In fact, he often skews further to the right (at least when it is politically expedient, as it has been during this primary season) on issues of tax cuts, namely the permanent codification into law of George W. Bush's 2003 tax cuts. According to his website, McCain believes tax cuts to be essential because:

"Entrepreneurs are at the heart of American innovation, growth and prosperity. They create the ultimate job security – a new, better opportunity if your current job goes away. Entrepreneurs should not be taxed into submission. "

Essentially, McCain attempts to make the connection that cutting taxes thereby frees up revenue for employers to therefore provide more jobs. The logical opposite is thus that raising taxes saps the resources and impetus for entrepreneurs to provide new jobs. He said as much in a speech in Denver last week:

"He (Obama) will raise estate taxes to 45 percent. I propose to cut them to 15 percent. His plan will hurt the American worker and family. It will hurt the economy and cost us jobs. "

Notwithstanding the specious argument that the average family will be buttressed by a reduction of the estate tax (a tax on the estates of only the very wealthy), McCain, in these two quotes, clearly lays out his economic philosophy: tax cuts create jobs. And McCain, in this context, does not mean merely a McJob, but rather a job with a living wage that provides ample benefits. McCain is correct in literally asserting that tax cuts create jobs. However, his interpretation of the importance of tax cuts in creating sustainable jobs is the one in which we will operate for this analysis, otherwise we can get trapped in the semantics. More over, McCain's definition of tax cuts largely refers to a tariff reduction for the wealthiest Americans, not for the "small businesses, or American families" as his rhetoric might lead you to believe. It is within this framework that we will assess the assertions of John McCain about tax policy.

So do tax cuts for the wealthiest of our citizens, as John McCain often promises, create jobs for the normal member of the electorate, when compared to the economic plans that are not as reliant on tax cuts, as Barack Obama has espoused?

Almost unequivocally, the answer is no.

1. For one, as Paul Krugman mentioned last week in a column in the NY Times, George W. Bush's tax cuts have created a mere 5 million jobs, not even enough to meet the pace of population growth. On the other hand, President Clinton's administration created 22 million jobs, despite an economic policy that did not rely on the mythical tax cuts often espoused by John McCain. In June 2003, according to United for a Fair Economy, George W. Bush's 2003 tax cuts, which the Administration firmly alleged would create at least 5 million jobs, in fact created a mere 2.6 million jobs, 1.6 million less than would have been created naturally in the absence of President Bush's "economic stimulus." McCain's notion that tax cuts are the best way to create jobs, is already debunked given the statistics presented by Paul Krugman.

2. In addition, Clinton achieved the robust job growth without gutting the federal treasury, as Ronald Reagan did during his rash of tax cuts in his first term. Reagan apologists love to claim that "Reagan tax cuts reinvigorated the economy", as Milton Friedman once asserted, but these tax cuts did nothing but aggrandize both the federal budget deficit and enrich those already wealthy at the expense of the working class. McCain's tax policies would only exacerbate the inherent inequality in the Reagan and Bush 43 policies. These facts prove that tax cuts, in contrary to what neo-liberal acolyte McCain likes to tell you, that the negative aspects of indiscriminate tax cuts, far outweigh any of the purported gains.

3. McCain's theory of tax policy also rests on the flimsy logic that once the rich find their pockets bolstered by tax cuts, they thus spend it on creating jobs for their workers. Evidence hardly bears out this theory. In fact, the rich are more likely to place their increased wealth in bonds, stocks or savings accounts, none of which provide direct employment to workers. In fact, the windfall received by the wealthiest hardly lead to a discernible increase in consumption, something that would have a marked impact on job creation. Instead, grants or payouts to beleaguered city organizations would have saved many more jobs than giving Bill Gates and Steve Ballmer a greater tax return.

As Robert H. Frank, a Cornell economist, laid out in a Times editorial back in 2005, the tax cuts did not impel entrepreneurs to make new hires, for simple reasons of math. The business owners, even with the newly instituted tax cuts, did not have ample extemporaneous revenue to justify the costs of paying a new worker. The incoming revenue from said tax cuts did not provide sufficient relief for the implicit costs of bringing on a new workers. Obviously, having more money theoretically would permit owners to hire more employees. But, as Frank points out, the tax cuts do not make doing so profitable. Bush and his cadre don't care to specify the difference, and therefore attempt to play it off as having the requisite money for hiring someone is the same as the ability to make a sustained profit. This is yet another example of how fallacious the argument that tax cuts directly lead to jobs really is.

4. Finally, historical analysis has laid out that tax cuts have led both to job creation, and job loss, thereby vitiating the notion of the McCain campaign that tax cuts have a cogent relationship to job creation. 60 years worth of empirical data analysis vividly illustrates that widespread tax cuts both take and add jobs, but that tax cuts have always been responsible for an increase in societal inequality. That's exactly been the hallmark of the Bush Administration; strafing inequality while enriching those already the most well off. They have attempted to hide their avaricious policies in the misleading connection between tax cuts and increased job creation. John McCain has attempted to navigate the same course, and will do so, no matter the facts laid out above.

Given that the conceit that tax cuts for the rich create jobs has been now thoroughly repudiated, it's time to look at why McCain still pursues this line of rhetoric. In essence, his position is one that advocates inequality, unfairness, and discrimination, and as a result, he must cloud it with rhetoric that renders these patently unfair polices palatable to the American public. In order to protect his friends in the corporate world, McCain must offer deceitful rhetoric that does not, in practice, have any effect on the creation of jobs.

I guess you can't blame him; the facts give him no other choice.