Not Just Tax Increases, but ANY Deficit Reduction Will Cost Jobs

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Thursday, 18 October 2012 04:34

The Washington Post ran an incredibly confusing piece on the ending of the Bush tax cuts which was highly favorable to those wanting to keep the tax breaks for the rich. First, the piece repeatedly uses the term "fiscal cliff," which implies that there is some ledge that the country will hurtle over at the end of the year. This metaphor is completely wrong. The impact of letting the tax cuts expire on January 1 is in fact minor. There will only be a substantial impact if the higher tax rates are left in place as written through much of the year.

The piece also presents comments from an aide to House Speaker John Boehner about the impact of higher tax rates on jobs without any explanation. Boehner is quoted as saying:

"'The hard truth, which even the president’s advisers must know, is that raising those tax rates will have a major effect on small businesses and cost hundreds of thousands of jobs,' said Boehner spokesman Kevin Smith. 'In this troubled economy, it’s hard to see how anyone in a post-election scenario could be for that.'"

In the middle of a steep recession, any measure that reduces the deficit will cost jobs. That is because it will reduce demand. If anyone wants to see a lower deficit in 2013 (certainly the Post does), then they want to throw people out of work.

This is sort of like pulling the trigger on a gun pointed at someone's head. Presumably this is not done unless the desire is to see the person dead.

The Post should have reminded readers of this fact, since many may not remember the relationship between deficit reduction in a downturn and jobs. It also would have been worth reminding readers that tax increases on rich people have less impact on jobs than almost any other form of deficit reduction. In other words, if we want to reduce the deficit by some fixed amount in 2013, there is no way that leads to less job loss than raising taxes on rich people.

It would have been helpful to remind readers of this fact, since many may not have not realized that Boehner's aide was being deceptive.