As the battle over the payroll tax cut extension is set to continue today with the introduction of the GOP package, the point of contention is over how to pay for the tax cut.
In order to fund the bill — legislation that would provide an additional $1,500 take-home income to 160 million middle class families — Senate Democrats are calling for a surtax on those with gross income over $1 million, while the Republicans are seeking instead for a Federal pay freeze and a gradual reduction of the Federal work force in lieu of millionaire surtax.
This debate, once again, highlights the over-emphasis of wealthy Americans’ positive role in spurring the domestic economy. But in an economy where consumer spending is nearly two-thirds of GDP, it is the middle-class consumers who are the job creators, not the wealthiest Americans.
Many Republican lawmakers call the millionaire surtax a “job-crushing tax hike," arguing that any additional tax on these “job creators” will do nothing to improve, and will likely even further increase, the unemployment rate.
But are the rich in America really the all-important job creators that should be protected from any kind of tax increase, even if protecting them will provide additional take-home income for the middle and lower class? As Nick Hanauer, founder of a venture capital company Second Avenue Partner so persuasively wrote recently on Bloomberg, real job growth stems mainly from the actions of the average American consumers, not from the super-rich. Ultimately, it is the everyday consumers that create the economic environment for job growth.
Of course, business entrepreneurs invest, hire workers, and make products and services – but they do so if and when there is demand for what they produce. And the more disposable income Americans have in their pocket, the more money they can spend on products that the rich invest to produce.
The rich don’t magically create jobs. They don’t hire more workers simply because they have money to spend. They hire when they know they will make additional profit by hiring more workers. And similarly, even if a tax increase leaves them with less capital to grow their business, they will expand and hire if they know there are consumers out there who will spend and buy their products.
Yes, rich investors and business owners do hire and create jobs. Their reason behind doing so, however, are not solely determined by how much money they have left after paying taxes, but by how much opportunity there is for profit in the economy.
This is why the tax breaks on the middle-class and surtax on the millionaires to pay for them make sense. According the Moody’s Analytics, this payroll tax holiday extension would “spur enough new consumer spending to add about 750,000 jobs.” The middle-class consumers are the real job creators here. This tax on the rich is not about class-warfare or income redistribution. This is about getting the economy going again.
Photo Credit: Matt McGee