Guest Post: Want More Tax Revenue? Increase Jobs Not Rates

Tyler Durden's picture

Submitted by Lance Robert from Street Talk Advisors

Want More Tax Revenue? Increase Jobs Not Rates

The Obama campaign has amplified its push on increasing taxes on the wealthy and has painted Mitt Romney as a Robin-hood in reverse saying that he wants to take from the poor and give to the rich.  The attack on Romney is incorrect as the real truth is that it is the current Administration that is failing, once again, to recognize that the problems facing the economy has nothing to do with the current tax rate structure.  

It is election season, however, and the Obama campaign's "eat the rich" rhetoric will play well with the 22% of the population that is either unemployed, discouraged, working part-time for economic reasons or have just given up looking for work.  It will also play well with the rest of the country that are living paycheck to paycheck as real wages have been on the decline over the last couple of years while the cost of living has risen.  While the speeches, finger pointing and podium pounding will certainly tug at the heart strings of those living in a recessionary economy - it only serves to deflect attention from where it should be directed - employment.

employment-full-part-2009-080312The current administration, since the recessionary lows, has seen employment increase in the U.S.  While more informed individuals will quickly point out that employment growth has been primarily observed in lower paying retail, service, healthcare and temporary hires - it has been an increase in employment nonetheless.  Likewise, the economy, as measured by GDP, has grown albeit at a very sub-par growth rate.

Unfortunately, it is this very anemic, and lower end, employment that allows Obama's attacks on the rich to reverberate so loudly.  Since the beginning of 2009 full-time employment is still lower by 1.485 million jobs.  The rest of the employment has come from temporary hires which have surged by 1.585 million jobs during the same period.  This has suppressed median family incomes exacerbating the problem of maintaining their standard of living leading to record levels of dependence on government assistance.

taxes-employment-gdp-080912However, Obama's own employment record, as poor as it is, is evidence that the real answer for increasing economic growth, and tax revenue for reducing the deficit, is not from raising taxes but rather by increasing employment.  The chart shows the annual changes in employment, federal receipts and GDP. Not surprisingly when employment has increased federal receipts and economic growth have followed.  With an economy that is currently greater than 70% based on consumption - higher levels of employment leads to higher levels of consumption.  

Consequently, increasing taxes on "the rich" has the exact opposite effect.  In a weak economic environment, where aggregate end demand is low, businesses remain on the defensive.  Increasing productivity to suppress employment and wage growth, combined with extensive cost cutting, are the primary weapons of choice to protect profitability.  By threatening to increase taxes, or actually doing it, businesses and individuals become more defensive in order to combat higher taxation which reduces consumptive capabilities and stifles end demand.

taxes-rates-revenue-gdp-080912The chart shows the top marginal tax rate (the rate that the rich would pay) going back to Calvin Coolidge.  There are two important points to be made:  1) Tax rate adjustments have a very limited impact on economic growth as the economy very quickly absorbs and adjusts to the rate and; 2) tax revenue is much more correlated with economic growth.  The first point is critical.  When tax rates are adjusted, either up or down, there is an immediate, but brief, reaction to the adjustment.  In every instance where tax rates were increased - tax revenue and domestic growth were negatively impacted as businesses and individuals adjusted spending to accommodate for lower incomes.  Secondly, as I stated, tax revenue growth is much more closely associated with economic growth as shown in the next chart.

taxes-gdp-080912It will surprise most people that over the last 50+ years regardless of the level of tax rates - tax receipts as a percentage of GDP have remained mired between 16 and 21%.   Why?  Because when you raise taxes; you lower economic growth and less revenue is collected.  When economic growth slows, or slides into a recession, tax revenue also slows.  This is why during recessions tax collections are at the lowest and during periods of economic growth they are at their highest.

While the current administration continues to demonize "the rich" for not paying their fair share - the real culprit is the administration itself.  The continued lack of actions to provide fiscal policy measures to promote economic growth, a health care plan that has guaranteed higher taxes in the coming year and continued expansions of federal debt to GDP continues to stifle both economic and employment growth.  With the level of federal debt rising - the increasing levels of debt service continues to rob from future economic growth as revenue is diverted from productive uses. 

taxes-feddebt-gdp-080912The chart shows the Federal Debt to GDP overlaid with tax revenue and economic growth.  When debt to GDP was on the decline both economic growth and tax revenue were on an increasing trend.  However, as debt to GDP began to climb the economic growth rate began to deteriorate.

Today, what is not understood by the current administration, is that we are mired in a "balance sheet" recession.  The deleveraging process is compounded by a sub-par growth economy and high levels of unemployment.  Dependency ratios on government welfare incentivizes individuals to be less productive leading to lower productivity and reduced demand.  

It is this lack of final demand from consumers that keeps businesses from creating jobs or expanding.  The NFIB (National Federation of Independent Business) has continually reported that "poor sales" are a major concern of those surveyed.  Furthermore, those saying this is a good time "expand" their businesses remains at recessionary levels.   This isn't the type of backdrop that you need to create jobs or economic growth which would increase tax revenue for the government in a "healthy"manner.  Raise taxes in this type of environment and you guarantee that economic growth will be reduced even further.

While Obama may refer to Romney as "Romney Hood" - Romney has the right idea of focusing on economic growth first which will provide revenue growth later.  Obama's plan is the same as the "Sheriff of Nottingham"  who tried to tax his way to prosperity from the meager earnings of the serfs in his kingdom.  It will work for a while but ultimately those serfs will rise up and revolt.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
reader2010's picture

Tax em to death!

AldousHuxley's picture

but that's how government creates jobs.....takes taxes from private workers and creates low wage shit job in the government shuffling lawyers.


want more tax revenue? get rid of tax exemptions. Either government provides the product or services, or you get nothing...

government cheese or no food. Forget EBT.

Benisprintingquintillionsbehindourbacks's picture

To create jobs there would have to be a fuckload of cash to cover all the paychecks. That shitload of green is not there because the Bankers stole it all. They have ALL the wealth. To create jobs, they would have to let go of some of that green. Good luck with that. The only way we're ever going to get our wealth back is we're going to have to start hanging them. It's going to be a long, long depression.

Stoploss's picture

Long, long, LONG LONG ago, there was an outfit that would use capitalist pricing theorum, in the arena of high and low pricing, by balancing the prices in the arena with a slight bias to the high side. They would use competitive rates to control those prices, and when the odd price collapsed, they loaned fresh capital to another indepent entity to pick up what pieces were left and create a new entity from the ashes of the old.

There were no tax issues to deal with as a result.

New job's were always created, on their own, with no help, from, any body..

Some might call that price stabiliteeeeeeeeeeeeeeeeeeeeeeeeeee,

and job creation............


Any guesses who this was??


AnAnonymous's picture

Any guesses who this was??



Sofa King's picture

Sheriff of Nottingham, my ass. More like the Sheriff of Rock Ridge.

LMAOLORI's picture



Someone should tell obama that robin hood robbed from a tyrannical govt. who was taxing the people into abject poverty and returned the stolen money to the people. Of course he's playing to his base and it's likely they don't understand that either.

GeezerGeek's picture

His base would have to know how to read to be familiar with the story of Robin Hood as originally written. I suspect most of those just watched the "Men in Tights" version of the story. Meanwhile, everyone should spread the meme that Robin Hood was anti-tax, anti-big government, and pro-working class. Not only that, he used his ability to keep and bear arms to put venison on the table. So he was an early adopter of the 2nd Amendment, as it were.

Marco's picture

Nice meme, of course you have to ignore that the tax was actually rent paid to the fully legal landowners (or at least as legal as land ownership can ever get).

govttrader's picture

Seriously...I'm not running for office...I just need to make jack trading and then retire to my farm...trying to fix the system is like banging ur head against the wall and expecting a different result.  Buy bonds!!!

vast-dom's picture

you mean buy bond bubble!!!


nice try.

bankruptcylawyer's picture

i'm so against taxes, that now i'm against jobs.

vast-dom's picture

i'm so against anything gov related. it's all out of control and disgusting. lose the obamney abomination as well as their respective parties and shitcan income taxes.

LawsofPhysics's picture

I agree, shut it all the fuck down, no wars, no industrial military complex... NOTHING. Then and only then do we find out the true value of everyone's labor. Fucking bring it. Plus one for you sir!

GeezerGeek's picture

We do need some sort of taxes to fund necessary governmental functions. The federal tax code, however, is an abortion, or more properly stated, it should be aborted.

I started doing some tax planning, this being my first year of retirement and on the Social Security wagon. My wife still works (which is as it should be - she's younger) but has a below-average salary. Anyway, I first calculated taxes based on her income, my SS income, and a pension from long ago that covers the utility bills. I felt great when the taxes came out at zero. Then I added in a $20K withdrawal from my IRA. Suddenly the taxable income jumped, not by $20K, but by that plus more than 50% of my SS payments. The marginal tax rate for the $20K increase in income resulted in a tax increase of $3850, or more than 19% of the IRA withdrawal. I tried it with a $30K withdrawal and got similar results, with the marginal tax rate on the next $10K being 27%! Having had all my possible SS converted to taxable income, I suspect that an even larger withdrawal from the IRA would be less disadvantageous. But still, WTF?

I'd also like to mention again a recent interview on French TV with Will Smith (I saw it on youtube). He was saying he didn't mind paying taxes, but then he heard of the proposed 75% tax rate there. "75?" he asked,  then paused. Finally he said "God Bless America!". Even Hollywood types get it when they get hit hard enough in the wallet, I guess. 

vast-dom's picture

what the hell are you talking about? need income tax revenues? have bernankzi and the illegal fed print up whatever funds are needed rather than gift it to wall st!!!!! and of course gov can sell their bogus bonds to raise revenues.  and let us not forget ALL the sales taxes, real estate taxes, DMV taxes, etc etc etc heaped on us!



Sudden Debt's picture

I thought taxes created jobs....
you know...
poolcleaners, servants, chauffeurs, etc... for the bankers, senators and all...

HelluvaEngineer's picture

D to the U to the H

Xibalba's picture

The last act of a dying government is to loot it's people.  

Doubleguns's picture

Those running the govt loot the people.

bankruptcylawyer's picture

the last act of a dying people is to die or run away or get enslaved and reincorporated into a foreign culture. 

this is why the only way to survive in the long run, is to spread. jews know it.your mom knows it. planet mars knows it.

Mithril's picture

The whole system is bssaackwards!

roadsnbridges's picture

The quickest way to increase jobs and revenue is evidenced by this:

(disclosure:  long Soylent Corp.)


Crud, subtlety suks sometimes.

Arnold Ziffel's picture

Do I still get my $3,000?

Dr. Engali's picture

Obummer's campaign theme; Tax the shit out of them until they stop moving then tax them one more time just for the hell of it.

Bohm Squad's picture

Where I grew up, we called that a double [tax] to the head.

Caggge's picture

Maybe we need a situation like this: Live within your means. Pay for what you are getting and stop sending the bill to the next and next and next generations. If you go to for it. Bush should have raised taxes if the US needed to go to war. Everyone wants something for free and the weak politicians will always give as much of someone else's money to get re-elected.

Obama shouldn't raise taxes. He should stop borrowing 1.3 Trillion and make the American people live with the reality of the situation they are in. Then watch all the politicians try to get re-elected on the truth of the situation. The first place to cut is the politicians pay, benefits, budgets,  and pensions. They have created this monster over many years. They should be the first in line to take some responsibility for creating the problem.

Benisprintingquintillionsbehindourbacks's picture

"Make the American people live with the reality of the situation"? Where in the fuck do you live? Everyone I know is broke as fuck. They don't have shit. All that fucking money your talking about, well it didn't go to the people. It went to all the rich cocksuckers. Get a fucking grip

Caggge's picture

Everyone you know is broke as fuck? Are they driving a SUV or car. Maybe they should be riding a bike if that is all they can afford. Maybe if your broke friend had to live with the reality of the situation they would demand more of their political "leaders". Americans aren't entitled to a better standard of life then the rest of the world. I don't live in the US anymore. Go to another country once in your lifetime. See what the reality of the world is. America isn't special. They don't deserve a free ride. If all the money went to the rich cocksuckers, which I agree most of it did, then living with the reality of the situation is where change will begin. America is in desperate need of a revolution. Balance the budget and you will get your change. The rich cocksuckers don't want that so they bribe the politicians to keep the status quo. You might want to get a grip on the situation. For an American to cry because everyone they know is broke as fuck while they live a standard of life that is higher than 90% of the world is amusing.

Caggge's picture

Most people in other countries would risk death to be as "broke as fuck" as an American. You just don't realize what broke as fuck is.



Most people in other countries would risk death to be as "broke as fuck" as an American. You just don't realize what broke as fuck is.....yet. It is coming though and sooner than you imagine.

knukles's picture

Jesus people!
That proposition sounds so... uh... well... capitalist and free enterprise, smaller gubamint.
I wonder....

razorthin's picture

Jobs, and ultimately tax revenue, will come back when prices are allowed to fall and the $US comes back, i.e., never.  The "credit" for the expansion in the 80's was misplaced with Reagan.  Since we live in a universe centrally-planned by fed chairmen, Volker was really da man - he set the stage.

billwilson's picture

Really????? What fucking economics school did you go to?????

There were a lot more jobs when the rich paid higher taxes. Now all they do is sit on their money instead of spending it ... constipating the whole economy. TAX them til it huts ... and NO they are not the job creators. The job creators are the pople buying stuff ... you know ... demand.


roadsnbridges's picture

"The rich", as in John Kerry, Dingy Harry, Schmucky, and Pelousy?  I agree.  Tax them to death.

Benisprintingquintillionsbehindourbacks's picture

Tax every last dime out of them, then sentence them to death. They never created one single job, instead they destroyed a few hundred million jobs. Hang the motherfuckers and then feed their entrails to the hogs

Dr. Engali's picture

The rich were taxed at 90 % but there were so many deductions that the effective tax rate was 40%.

vast-dom's picture

bill wilson you desperately need a drink and new perspective. give your will over to those that comprehend the destructive nature of gov and taxation.

shovelhead's picture

The Kult of Krugman needs serious deprogramming, not a drink.

Careful of the foamy never know where they have been.


Bohm Squad's picture

Bill, Production comes before Demand...Say's Law.  


Terminus C's picture


So... If I don't grow any food, or hunt, husband or otherwise produce some form of protien I will never get hungry?

Fuck man! You just made diet plans a thing of the past!

TrulyBelieving's picture

Of course your being sarcastic.  It would be hard to believe anyone could really think with this perspective and have enough brains to know their own name. 

Jena's picture

Let alone find their way here.

TrulyBelieving's picture

Perhaps I was too harsh on bill, my apologies and I hope he does find his way.

Lednbrass's picture

Based on previous posts, you were accurate.

dirtbagger's picture

Right on, but from the negatives, facts just seem to be a minor inconvenience to most ZHer's.  Anyone as igonorant as this author should not be allowed to post anywhere except on telephone poles.  Problably collects his check from the Heritage Foundation.  Has the author ever heard of the feed back loop.  After 30 years of supply side economics and laffer curves horeshit, there is not one bit of evidence that lower taxes create jobs - actual real life evidence seems to prove the opposite.  

Let me explain it to the idiots-  without capital flow constraints, individuals are going to invest their excess capital where they can maximize return with the lowest risk.  If the best investments are outside of the US,  please explain how lower tax rates are going to create more investment . e.g more domestic jobs.    With higher tax rates, there is a greater incentive to re-invest profits back into the company, thereby deferring taxes and eventually paying at the lower capital gains tax rate.   

Why this concept is so difficult to understand escapes me.  There are a lot of really dumb fucks on ZH who swallow up the right wing swill.  They must believe that they will all be billionaires one day. 

MedicalQuack's picture

For jobs quit with the excise tax on medical device companies, doesn't fit anymore with change of economy.  Tax the data sellers and that included the HFT guys who are ven out pacing Facebook with profits on this.  We need a quarterly excise tax as companies won't build factories and hire employees for jobs when they can gather up a few geeks to write some algorithms and mine the web and sell the results for for nothing and the profits for free.  If we tax the heck out of these guys and not make it as profitable, it will stand to balance intangibles and tangibles. Shoot Walgreens makes just short of a billion a year, selling data only..big pot there.

Bohm Squad's picture

I like your idea!  We should selectively tax and redistribute that wealth to others who are doing what we deem as valuable.  That may work.  [/sarc]

I'm glad you are able to dictate how the economy should work better than its billions of participants and stakeholders.

For fun, you should read "iPencil".


emersonreturn's picture

installations such as Dying for Jobs will be increasingly prevalent.  hunger and injustice predictably reconfigure loyalties.  i don't think politicans, richer than god bankers, wall street barons, university presidents, corporate demi gods, union stucco heads are prepared for the massive animosity, the genuine disgust people of all walks are feeling; and it's wholly true, the privileged are no longer immune or...privileged.

papaswamp's picture

Problem is...most new jobs are so weak...they don't qualify to have federal taxes withdrawn. The US has to get into a trade war to save itself...and probably cause a depression, before it can generate the needed ~40 million jobs to bring the country back...otherwise everything else is lip service.

-3.8 million job openings (jolts)
-12 million on unemployment
-8 million part time that want full time
-20-40 million between 18-60yrs NILF that could/ should be working

We have a demographics problem that no one wants to talk about.........