Trends tend to burn themselves out over short periods of time; some return, only to recede back into the oblivion where they belong. Then there are those that keep coming back, like the hydra, where no matter how many times its heads are lopped off, it keeps sprouting new ones. Something akin to the latter is happening in politics today, more specifically, with the economic policies Republicans keep resuscitating from the dead. Perhaps the most aggravating, yet tenacious trend in current Republican hydra-headed policy is the notion that tax cuts create jobs. In fact, they may very well do the opposite, especially under the prevailing economic conditions. Despite this, the Republicans have clung tooth and nail to their tax cut policies. They play a large role in Paul Ryan’s budget and Mitt Romney has repeatedly declaimed their significance.
There is no doubt, that having more money in hand boosts public sentiment. Despite this a question should be asked, do tax cuts create jobs? Or more poignantly, do tax cuts do all of the things that Republicans claim that they do, create jobs, stimulate the economy and increase opportunity. Indeed this has been a prevailing conclusion of conservative ideology going back to the Reagan era. The question becomes complicated by the fact that we are currently in a recession.
The real problem is this: the private sector is still deleveraging. Money is going to paying down debt. Thus there is a lack of demand, which adversely affects businesses and investors. Moreover, high unemployment expands the labor pool, driving down wages. Factor in free trade phenomena such as outsourcing and you compound the problem. With high debt and lower wages, the total demand within the economy, or aggregate demand, decreases. Without adequate demand, investors are less likely to put their capital into new ventures that could create jobs. Instead, they pour into safe havens, and that is precisely why the U.S. government has been able to borrow at historically low rates while piling high its debt load. So long as demand is low, capital will seek safety and Uncle Sam will be able to borrow on the cheap.
With all this in mind, the tax cut-heavy budget of Ryan and the tax cut pledges of Romney make a lot of sense. They prove that the Republican Party represents the interests of private wealth, and private wealth has thrived throughout this recession. It turns out that what ‘recovery’ there has been, has primarily been for corporations and the rich. Perhaps a more apt title for the state of our economy should be, ‘Recovery-Rich/Recession-Rest.’ Thus, tax cuts are a great boon; more money to line the coffers, more money to invest safely and more guaranteed returns. Unfortunately, the rest must suffer, since the lack of security, jobs, and demand means a lack of recovery. With this in mind, we may safely conclude that the Republican budget proposal, exemplified in Ryan’s plan, is an awesome formula for perpetuating the current status quo, which means historic levels of inequality, without much change in sight and, as is implied, a lack of jobs.
Let’s suppose for a moment that Mitt Romney attempts to give another rousing speech on the sublime effects of lower taxes. Then this clever politician (if he can be called clever), playing on his crowd’s high sentiment, decries that this will stimulate the economy and bring America back to her rightful glory. That’s where reason should snap you out of reverie and bring you back to reality. According to the dreadful realities of economics, what he just proposed won’t make for greatness, nor create jobs, but more likely serfdom.