DeWine, Tax Cuts, & Employment

In a statement on the Plain Dealer's blog, OPEN, Senator DeWine claims that he supports tax cuts because they lead to the creation of jobs. This reason is often offered by Republicans to explain why we should keep pouring tax cut upon tax cut on the wealthy while the Federal Goverment runs billions of dollars in deficits.

Although this job creation line is always parroted by tax cuts supporters, they never offer any evidence to back up this claim. Indeed, if job creation is casued by tax cuts, then why have so many jobs left Ohio? Since 2000 we have seen tax cuts at the Federal level and tax cuts at the state level, yet our unemployment rate has barely moved. Between 2003-2005 employment increased in Ohio by .1%, while it increased in the United States as a whole by 2.2%. Shouldn't the Republican tax cuts be kicking in and helping Ohio's economy?

Of course, whether Ohio's employment rate will ever benefit from Republican tax cuts depends on whether the underlying rationale for such tax cuts is sound. Republican rationale for tax cuts is that tax-payers will take their tax cuts and invest them in new jobs. There is, however, a fatal flaw in such reasoning.

The flaw is that employment doesn't depend on how much money the employer has, it depends on what it costs to hire a person versus the money that such person can make his/her employer. If an employer decides that hiring a person makes economic sense in terms of the income generated by such employee outweighing the cost of such employee, then the person is hired. If, however, the cost of such employee is not as great as anticipated revenue, then the employer is not going to make the hire.

Another way that tax cuts could lead to more economic activity would be if taxpayers used the tax cuts to purchase goods and services. There is scant evidence, however, that wealthy taxpayers, who received most of the benefit from Bush's tax cuts are using the money to purchase goods and services they otherwise wouldn't purchase. Indeed, most of the wealthy taxpayers are investing their tax cuts, not spending them.

So, the next time a Republican claims that tax cuts are good for the economy, we think reporters should ask, "Oh yeah? Prove it."
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