Recipe for Recovery Our country is in debt, yet politicians voted another huge tax cut last year and now intend to slash public budgets: precisely the opposite of the policies that created the American middle class and made us a prosperous nation. When we all paid our fair share of taxes, we built the federal highway system, schools and parks, and helped our veterans to go to college. Public spending on transportation, education and infrastructure generated good jobs in both the public and private sectors. Workers could afford to buy homes, furniture, appliances, consumer goods, and to take vacations. The impact of money rippling through the economy creates a multiplier effect which can generate a virtuous cycle. Such was the case between the end of World War II until the 1970s when all income groups made gains. What isn’t working now and why?
What worked before and why?
Spending by public and private sector workers generated additional jobs in manufacturing, retail and hospitality industries. In 1953, more than a third of American workers were union members, and there was a growing middle class.
The capacity of our government to rebuild the virtuous cycle has been crippled by:
· A national debt exploded by the cost of two wars coinciding with a series of tax cuts.
· An ideological belief that the private sector is not dependent upon the public sector.
· The mythology that tax cuts are a cost-effective way to create jobs.
Build & Thrive vs. Slash & Owe
The best “bang for the buck” is still public spending because it generates a multiplier effect for all sectors of the economy. Of the five policy options considered for economic stimulus beginning in 2011, the tax cut extension was least cost-effective. Providing aid to the states for purposes other than infrastructure would raise output cumulatively between 2010-15 by $0.40 and $1.10 per dollar of total budgetary costs, and investing in infrastructure would raise output by $0.50-$1.20 per dollar. The extension of tax cuts will raise output by $0.10-$0.40.[1]
Tax cuts are primarily political pandering – politicians treat voters like children – telling us that we don’t have to pay our bills. As long as politicians get what they want (winning elections) with this irresponsible strategy, they’ll continue to promise bad public policy.
The 2011 tax cut cost $424 billion
The 2011 tax cuts for the wealthiest Americans, with incomes averaging $1,397,100 amounted to nearly $77,000 each.[2] That’s about $1,400/week. Tax cuts for the wealthy are particularly inefficient because they tend to spend the extra money wherever they can make the highest return – overseas investments, corporate mergers, luxury items, and contributions to political campaigns.
The middle class – folks with incomes ranging from $33-53,000 per year are getting an average tax cut of $1,521. That’s nearly $30/week. Will this help to stimulate the economy? Since the middle class is more likely to spend it on activities that will create jobs, it’s better than the tax cuts for the rich, although still not as cost effective as public spending for states and infrastructure.
However, while we’re advocating public investment and working to elect politicians who will do less pandering and more policy, we can also focus our $30/week to maximum advantage. It’s the old adage: when you’re given lemons, make lemonade.
Strategies to use our tax cuts to create jobs in the USA
1. Cycle at least $15/week (roughly half of our tax cut) into the domestic economy and giving to charity
2. Buy fewer imports – intentionally focus a portion of your spending on domestic products
3. Seek out local small businesses to patronize and tip generously
4. Avoid big banks that created the financial crisis. Use small community banks that lend locally.[3]
5. Other ideas? Write to Jobsmob@comcast.net or post on the JobsMob Facebook page.
[1] Congressional Budget Office (CBO) Policies for Increasing Economic Growth and Employment in 2010 and 2011. January 2010. http://www.cbo.gov/doc.cfm?index=10803
http://www.ctj.org/pdf/taxcompromise2010.pdf
[3] Move your Money. http://moveyourmoneyproject.org/