The Job Creators

7/31/2019 The Job Creators

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THEJOBCREATORS

D. F. PAULAHA, PH. D.How many jobs

Could a job creator create

If a job creator

Could create jobs?


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THEJOBCREATORS

Thou Shall Not Tax The Job Creators!

The eleventh commandment?

Dennis Paulaha, Ph. D.

Patron Books


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Copyright 2011 by Dennis Paulaha.All rights reserved. No part of this book may bereproduced or transmitted in any form or by any meanselectronic or mechanical, including photocopying,recording, or any information storage and retrieval systemwithout permission in writing from the author or

publisher.

Printed in the United States of AmericaI H G F E D C B A

Downloaded free from paulaha.com


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How many jobs

Could a job creator createIf a job creator

Could create jobs?


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Thou Shall Not Tax The Job Creators!

The eleventh commandment?

Some people argue we should not tax the job creators.

It is not a bad idea.

The catch is: If we are going to not tax the job creators,we have to know who the job creators are.

Republicans, who say they do not want to tax the job

creators, want everyone to believe that big business

and the very wealthy are the job creators, which is

why they are against raising taxes on big business and

the very rich.

But they're wrong.

The real job creators are consumers.

A business with no customers cannot create jobs,

because it cannot sell anything. Give it a tax break,

and it still produces nothing. Create customers, and it

will hire workers.


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That is why trickle-down economics never works.

It is also why any policy that helps big business andthe very rich at the expense of consumers (the real job

creators) costs our country jobs.

That is not a political idea. It is the explanation given

in every economics textbook that exists.

D. F. PAULAHA

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1

A new beginning

It was in the 1980s that Ronald Reagan, with the

academic backing of Arthur Laffer and his Laffer

Curve, initiated the idea of trickle-down economics as

a way to help an economy that was not doing well. It

was a throwback to the supply side economics of the

1800s, and a refutation of modern economics.


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The Laffer Curve was based on the idea that tax rates,

if they are too high, can reduce economic activity and

economic growth. And if that were true, then

reducing high tax rates would increase economic

activity and economic growth. An important part of

the argument was that by increasing economic

activity, tax collections would also increase. Therefore,everyone would win. The reduction in tax rates,

which would reduce tax collections, would also

increase economic activity, which would then

(meaning some time in the future) increase

government tax revenue. It was a good idea. Reduce

tax rates, which will create both a deficit and

increased economic activity; and the increasedeconomic activity will create profits and jobs, which

will increase tax revenues and wipe out the deficit.

D. F. PAULAHA

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Who could not like an idea where everyone wins?

There were, however, problems putting the idea into

practice. The most important, which had been

described by Milton Friedman when he looked at the

Kennedy tax cut years earlier, was that regardless of

the expected benefits of a tax cut, if the tax cutincreases the deficit, then dealing with the deficit will

be detrimental to economic growth and economic

activity. In other words, the expected benefits of a tax

cut may never see the light of day. In Reagan's case,

after taxes were reduced, taxes were then increased

again, because the hoped for benefits were not

immediately visible, but the detrimental impact of thedeficit was.

D. F. PAULAHA

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!There are other flaws in the academic logic of theLaffer Curve. But whether or not the Laffer Curve and

the Reagan tax cut were flawed, most people seem to

remember them fondly. The problems with the Laffer

Curve and the fact that President Reagan raised taxesafter lowering taxes are mostly forgotten.

What is remembered is one or another version of the

big idea. The big idea being: Thou shall not raise taxes

on the job creators.

D. F. PAULAHA

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2

Why not tax the job creators?

The argument against taxing the job creators is an old-

timey economic argument that was a core belief of

economists from the 1700s and 1800s into the early

1900s. The long-held idea, which is part of the supply-

side economic thought process, is that the key to

production, employment, wages, income, profits, etc.

is supply (meaning producers). It was the original, "If

you build it, they will come," idea.


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The idea, which was at the center of what is called

Classical Economics, is that if producers produce

things, they have to buy or pay for resources and

labor to do so. Therefore, the argument continues, it is

the very act of production that creates the incomeneeded to buy what is produced. It is an idea that,

even today, appears to be somewhat logical. Of

course, the argument was dismissed in the middle of

the Great Depression when even non-economists

could see that just because someone produced

something, it did not mean anyone would buy it. Or

buy all of it.

D. F. PAULAHA

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But Reagan brought the idea back to great applause,

and tied it to the idea that government is evil. Why is

government evil? Because, according to the old-time

supply-side argument, the only thing government can

do is get in the way of private producers who are

doing all they can to make the country great while

employing as many workers as possible and payinggreat wages. (Well, that is not exactly true. In the good

old supply-creates-its-own-demand days, economists

followed Adam Smith's belief that while

industrialization would increase the wealth of the

nation, most workers would remain poor.) Most

important: Way back then, as well as now, it was and

is argued that one of the most important waysgovernment hurts corporations and the very wealthy

is by making them pay taxes.

D. F. PAULAHA

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Of course, all but the very poor pay taxes. Well, that is

not really true. The truth is that the very poor pay a

lot of taxes. They pay sales taxes. They pay property

taxes even if they do not own homes, because thelandlord uses part of the rent to pay the property

taxes (and because rental properties are often taxed at

a higher rate than owner-occupied properties, the

poor can pay more). The poor pay taxes on

automobile registrations. They pay gasoline taxes.

They pay excise taxes added to the prices of many

products. And so on.

D. F. PAULAHA

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When it comes to the Tax Commandment, however,

the new idea focuses on income taxes for both

wealthy individuals and the largest corporations. It is

not quite clear who came up with the idea that the jobcreators are not only producers, but also the very rich.

But it is an idea the very rich enjoy.

D. F. PAULAHA

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The Tax Commandment argument is pretty simple

(no surprise there). Every dollar in taxes thatproducers are forced to pay is one less dollar they can

(substitute "will" in political arguments) use to

employ more people; or invest in things that will also

employ more people. That, of course, is the main

selling point for the idea (and it is an idea that does

have to be sold over and over again in order to get

people who do not make much money, but do paytaxes, to happily sacrifice their own well being and

the well being of their children so that the rich do not

have to pay too much). In terms of advertising

campaigns, the Tax Commandment is, without a

doubt, one of the most successful campaigns in

history. Getting someone to buy a Coke or a Pepsi or a

box of soap is trivial compared to getting people(adults?) to believe that they and their children will be

better off if they pay taxes so the corporations and the

very rich - the job creators - do not have to.

Of course, the advertisers do not call it advertising.

They call it economic truth.

And that is the big error.

D. F. PAULAHA

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3

The big error

Like many ideas that catch on with the Americanpublic, the Tax Commandment sounds pretty good as

long as the advertisers are not forced to answer

questions. To be more precise, there is really only one

question that matters. It is: Who are the job creators?

The Tax Commandment guys think they know the

answer. And they think their answer is backed up by

the economics profession. Their answer, as we already

know, is that the job creators are private businesses

and the very rich.


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And that is the error. The really big error. The biggest

and greatest error to have ever become part of theAmerican mind (whatever that is).

D. F. PAULAHA

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Anyone who wants the real answer to the question

can find it in any of the hundreds or thousands of

economic textbooks published since the end of WW

II. Not just in some. In all. In terms of the economics

profession, this is not a debatable question. (Ofcourse, the economics profession includes some folks

who do not know too much about economics.)

The answer is: Consumers are the job creators.

D. F. PAULAHA

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Businesses do not create jobs. Businesses hire people

and resources to produce goods and services they sell

to consumers. Without consumers, business sells

nothing, and there are no jobs. Even if it is true (and itis) that consumers are the job creators, part of the Tax

Commandment is the idea that a decrease in taxes

will give businesses and rich people more money they

can use to expand production, which will then create

jobs.

D. F. PAULAHA

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That idea is also refuted in every economics textbook.

In fact, it is a common question on Principles exams.

The question is: Will a decrease in corporate income

taxes lead to an increase in production?

The answer is, No. Why? Because economists assume

that producers operate at an output level thatmaximizes their profits. And because businesses pay

income taxes on profits, a change in tax rates does not

change the output level. It only changes how much

money they can take to the bank. The only things that

cause businesses to increase output and employment

are a decrease in the cost of production or an increase

in customers (supply and demand). Taxes are not acost of production, which is why changing income tax

rates does not affect output or employment.

D. F. PAULAHA

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It is pretty simple. Which is why anyone who took

even one economics course knows that is the correct

answer. Of course, economic textbooks are not alwayseasy to read. So here is how three real businesspeople

explained the economic argument in a June 4, 2011

Huffington Post article titled "Small Business Owners

Demand Repeal Of Bush Tax Cuts."

D. F. PAULAHA

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Rick Poore, owner of Designwear, Inc., a screen-

printing business based in Lincoln, Nebraska: "We are

fed by our consumers, not by our tax breaks. If youdrive more people to my business, I will hire more

people. It's as simple as that. If you give me a tax

break, I'll just take the wife to the Bahamas."

D. F. PAULAHA

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Lew Prince, owner of the Vintage Vinyl record store in

St. Louis, Missouri: "The economic premise, that

people won't hire because they might have to paymore taxes if they make more money, is beyond

laughable. You hire when you think there's a way you

can make more money with that hire. The percentage

the government takes out of it has almost nothing to

do with it."

D. F. PAULAHA

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Michael Tehan, owner of Espresso Resource, a

company that supplies parts for espresso machines

(and who has an annual income above $250,000,

which places him in the two percent of smallbusinesses that actually get a tax break from the Bush

Tax Cut): "What we do in business, how we spend our

money, how we allocate our resources -- that has very

little to do with tax policy. I map my business based

on my customers, and what my customers want to

buy, and what they can afford to buy."

D. F. PAULAHA

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According to the textbooks, the same is true for large

corporations. It is the economic condition of

consumers, not corporate or business tax rates, that

affect hiring and investment; and it is after-tax profits,

not tax rates, that matter to any real business.

Which leads to the conclusion that following the TaxCommandment means not taxing the people

(consumers), because it is the people who are the job

creators. Hurt consumers and you hurt business. Give

business a tax break at the expense of consumers and

you hurt business. Improve the economic position of

the people and you help business. Are major U.S.

corporations setting up production in other countriessimply to avoid taxes? Not if you listen to what they

say. They say they are moving to other countries

because that is where the consumers are.

D. F. PAULAHA

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4

Taxes and investment

But what about investment? If corporate income taxrates are lowered, corporations will have more money

to invest. Right? Yes, they will. But will they invest it?

The answer depends on economic conditions and on

who pays for the the corporate tax break.


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If the economy is in a recession, with declining or

stagnant sales, companies will not use their tax breaks

for new investment. They might invest it out of the

country. But if sales are declining, a tax break is notlikely to lead to increased investment and new jobs.

D. F. PAULAHA

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Just as important is who pays for the corporate tax

break. If there is a government deficit, it means that

corporate tax breaks are either paid for by those who

actually pay taxes, meaning consumers, or the

government has to borrow money (sell bonds) to

cover the lost revenue. The huge federal debt, as well

as the annual deficits, can be traced in large part togovernment borrowing money to give to corporations

through tax breaks and out and out subsidies. And

that huge debt is hurting business. Also hurting

business is the fact that tax breaks for business and

the wealthy have hurt consumers, who are the ones

paying for the benefits to the wealthy.

D. F. PAULAHA

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5

Consumers are the real job creators

According to The New York Times, General Electricdid not pay any taxes last year. "The company

reported worldwide profits of $14.2 billion, and said

$5.1 billion of the total came from its operations in the

United States. Its American tax bill? None. In fact,

G.E. claimed a tax benefit of $3.2 billion."

Pretty good for GE, which, like many large

international corporations, is doing more than half its

business outside the US. But why is the American

public so happy to pay taxes so that GE does not have

to? And to even give extra money to GE? Because of

the sales pitch. The American public feels good about

losing jobs and losing homes to foreclosure becauseGE is a job creator. And no patriotic American wants

to hurt the job creators.


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But that is not true. GE is not the job creator.

Consumers are the job creators. And GE is finding

more job creators (consumers) outside the US than

inside.

General Electric is not the bad guy. General Electric isa producer that has done a good job finding

customers for what it makes and sells. But that does

not mean American workers should pick up GE's part

of the tax bill.

D. F. PAULAHA

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6

President Obama followed the Reagan trickle-

down economic plan

Why has the Obama administration, with all thesmart guys from Harvard, failed to turn the economy

around?

The Obama team took over with the economy in a

recession, intending to fulfill a campaign promise to

make things better. On one hand, they did; the

economy stopped its steep decline, bankruptcies

ended, and corporations began reporting record

profits. On the other hand, employment is growing

slowly. Very slowly. Possibly too slowly for the

Democrats to do well in the 2012 elections.


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What went wrong? The answer is simple: The Obama

team followed the trickle-down economic policies

brought back from the dead by Ronald Reagan. And,

as everyone should know by now, supply-side

economics does not work in the real world, becausethe entire supply-side, trickle-down economic idea is

based on the false premise that corporations and the

very wealthy are the job creators.

D. F. PAULAHA

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To be more accurate, supply-side economics, based on

the idea of deregulation and cutting taxes for the very

rich, does help those who receive its direct benefits.

The bailouts and corporate loans saved many large

companies. And because of the fact that even in themiddle of a terrible recession, more than ninety

percent of the American people still had jobs, many

corporations saved by the Obama team ended up

making huge profits.

D. F. PAULAHA

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The part of supply-side economics that does not work

is the trickle down part. That is why unemployment

remains at an unacceptable level and why wages are

falling in many industries. It is also why home

foreclosures have not been stopped.

In simple terms, the Obama recovery or stimulus plandid not help employment and stop foreclosures

because, instead of helping consumers, it gave

consumers' money to large corporations, with the

idea that if the government saved the big corporations

and the rich folks, corporations and rich folks would

use that taxpayer money to hire workers. Of course,

that did not happen. And it is still not happening,even though many of the corporations the

government saved are making more money than they

ever did.

D. F. PAULAHA

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Why are companies not hiring? For the reason

explained above by business-owner Rick Poore, "We

are fed by our consumers, not by our tax breaks. If

you drive more people to my business, I will hiremore people. It's as simple as that. If you give me a

tax break, I'll just take the wife to the Bahamas."

D. F. PAULAHA

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If GE had paid it's fair share of taxes last year, insteadof paying nothing and receiving more than $3 billion

from taxpayers, would GE have produced less, hired

fewer workers, or shut its doors? Not a chance. GE,

like any business, follows the logic of Lew Prince

above. "You hire when you think there's a way you

can make more money with that hire. The percentage

the government takes out of it has almost nothing todo with it."

In fact, General Electric Chief Executive Jeffrey

Immelt said the same thing when he told the Wall

Street Journal that moving production out of the

country was less about cheap labor than about setting

up production in countries with a growing demandfor their products. In 2000, 30 percent of GE's business

was in other countries; now it is more than 60 percent.

D. F. PAULAHA

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So did Jim Dugan from Caterpillar (a company with a

market value of $67 billion) when he told the WallStreet Journal that the reason Caterpillar is adding

more jobs abroad than in the U.S. is that their sales are

growing faster overseas than in the US.

D. F. PAULAHA

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In other words, production and employment start at

the bottom, with consumers, not at the top, with cuts

in business taxes. Economies grow and recessions are

turned around not with trickle down economics, but

with trickle-up economics. And companies, large andsmall, "follow the money," meaning they follow

consumers.

D. F. PAULAHA

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The Obama team made the same trickle-down

mistake with the housing crisis. They helped the big

financial companies that had sold the crooked

mortgages and who might have gone bankruptbecause of their own greed, and let homeowners lose

their homes and go bankrupt. The idea was that if the

government bailed out the big guys, the little

homeowners would also be saved.

D. F. PAULAHA

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How? There is no possible way to explain how givingmoney to big financial corporations would help

people who could not afford to pay their mortgages

(mainly because the mortgage contracts had built in,

and unjustified, interest rate increases). Why would a

bank voluntarily rewrite a mortgage to reflect current

market prices? It would not? And because the single

greatest financial asset for most families is theirhouse, when market values declined, so did the

wealth of millions of American families. And for the

millions who lost their homes to foreclosure, their

wealth was completely wiped out. Then there was the

stock market collapse that destroyed a large part of

the retirement savings of the average family. Again,

instead of protecting and helping American families,which would then have helped the financial industry,

the government chose to help the banks. As jobs

continued to disappear, because consumers were

being bashed from all sides, foreclosures escalated,

adding even more to the losses of the real job creators.

D. F. PAULAHA

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The government argument, of course, was that by

saving the big financial corporations, they were

saving jobs. That is partly true. But if the plan had

been to save the big guys by helping the little guys,

the result would have been different. It would have

been better for the country. It does not take muchthinking to realize that the thirty percent decline in

equity in American homes (a greater percentage loss

than during the Great Depression) would have a

disastrous impact on consumer spending. Or that

there was no way tax cuts for large corporations could

make up for the huge decline in consumer spending.

D. F. PAULAHA

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7

If they have to pay taxes, they will leave

What about companies that say they will, or must,move out of a high tax state in order to avoid that

state's high tax rate?


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There are real examples of companies requiring orneeding temporary relief in order to get through

tough times. Ronald Reagan helped save the Harley

Davidson motorcycle company by imposing tariffs on

imported motorcycles. And the US auto industry may

have been saved with the import quotas (technically

voluntary) pushed by the Reagan Administration on

Japanese auto manufacturers. Without the quotas,Japanese manufacturers may have run the American

auto industry out of business. In each of those cases,

as well as the more recent bail out of the auto

industry, the economic action was based on the

argument that a temporary change in market

conditions should not be an excuse to allow American

manufacturers to go out of business.

Harley Davidson survived and became the premier

motorcycle manufacturer in the world.

Without government help, however, Harley Davidson

would probably not even exist today.

D. F. PAULAHA

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The argument that cutting taxes will help a company

in trouble is not as clear. The reason is that companies

in trouble may not be paying any taxes anyway. More

important is the fact that when a state looks at tax

policies to help business in that state, it must also

focus on the idea that the most important thing it can

do for its small businesses is to help consumers. Asthe people quoted above explained, it is customers, or

sales, that drive business. Taxes are not a cost of

production and, therefore, do not have a large impact

on decisions to hire or expand.

The actual record supports that argument. There are

no solid examples of expansion and increased hiringcaused by tax cuts or tax breaks for large

corporations.

D. F. PAULAHA

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There are, however, many examples of state tax

policies that benefit the very rich at the expense of

consumers who are the customers of its state's

businesses. As such, policies, intended to not tax the

job creators, end up taxing the real job creators,meaning the consumers, and giving breaks to those

who do not, on their own, create jobs. It is the worst

possible tax policy any state can adopt if a state wants

to have a healthy economy and strong businesses.

D. F. PAULAHA

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If the argument or idea that companies will move to

states with low taxes made any sense, there would be

no businesses left in the high-tax states of the

Northeast. It does not take much thinking to realize

that businesses exist in every state. The decision tolocate is based on many factors, taxes being only one.

Other factors that are important include the natural

environment, education, government provided

services, and many other things that may be sacrificed

in order to let the very rich avoid paying their share

of taxes.

D. F. PAULAHA

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Still, companies continue to blackmail states by

threatening to move out if they are not given more

and more tax breaks. Even Harley Davidson, the

company that was saved by government, has done so

in Wisconsin. Whenever the state pays the ransom, it

does so while telling the people (using the same old

sales pitch) that even if they have to pay higher taxesor receive fewer benefits, at least jobs were kept in

their state. Of course, that may not be the case. When

a company receives large tax breaks, others have to

pick up the bill. And that means the people end up

paying higher taxes and higher college costs and

higher fees while also having their well being

diminished. As a result, they, as consumers, buy lessfrom other companies that serve the people of the

state. Which means the state may lose more jobs than

it saved by succumbing to the blackmail threat.

D. F. PAULAHA

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8

Solutions

The solution to both short-term and long-termeconomic health in the US is to implement economic

policies and tax plans based on the fact that

consumers, not businesses and rich folks, are the job

creators. That is standard free-market economic

thinking. It is textbook economics. It also means that

the Bush era tax cuts that are a major reason for the

growing deficits and national debt cannot be justified

by saying we do not want to hurt the job creators.

Those getting the tax breaks are not the job creators.

Consumers are the real job creators.


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Very simply, economic policies must be judged by

whether or not they add to or subtract from the

wealth and income of consumers. Because any policy

that benefits corporations and the very wealthy at theexpense of consumers may help some corporate

profits, but not others, and not employment.

D. F. PAULAHA

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It is not very tricky.

Given the fact that consumers are the job creators, we

should expect companies to go where the money is.

That makes sense. It is also why any policy intended

to help the American economy and employment mustbe based on the idea of helping American consumers

first. The economy cannot grow and prosper if it is

damaged by policies that help large corporations and

the very rich at the expense of consumers.

D. F. PAULAHA

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Fortunately, the economy is not a zero-sum game. In a

growing economy, everyone can win. It is not

necessary for some to win at the expense of others. As

history has proven, the better off consumers are, the

wealthier the corporations are.

The fastest growing consumer base is now indeveloping countries, which is where (and why)many

of America's largest corporations are moving their

business and their production.

There are some jobs being lost to outsourcing, but the

real problem is that US economic policies, including

deregulation, have been hurting American consumerssince the Reagan days.

D. F. PAULAHA

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Even President Reagan, when he was told that GEwas paying zero taxes (not paying taxes is not a new

policy for GE), called his folks together and had them

eliminate some of the loopholes GE was using to

avoid all taxes. GE ended up paying taxes at about a

32 percent rate. The Reagan/Laffer Curve idea was

not to have corporations and the very wealthy pay no

taxes. It was to reduce what many now believe mayhave been rates that were detrimental to the economy.

The problem was that the Laffer Curve was

mistakenly used to justify tax cuts for only the rich,

while the middle class was supposed to wait for the

benefits to trickle down.

That was not part of the Laffer Curve academic

argument. And it is why the economy continues to

struggle against the tide every time tax policies are

implemented that help the rich at the expense of

consumers.

D. F. PAULAHA

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On the simplest of all levels, if President Reagan had

tried to help Harley Davidson and the American auto

industry by giving them tax breaks instead of

protecting their customers, they might all have

disappeared years ago.

Most important, of course, is that anytime someone

wants to argue that we should not tax the job creators,

he or she should be reminded that the real job creators

are consumers.

D. F. PAULAHA

Documents

The Job Creators