There was a time in America when tax cuts to the wealthy may have made sense. Wealthy individuals sitting on accumulated wealth would have naturally looked for a place to invest those funds. They might have decided to expand the factory they owned or build a new one in the next city. They might have invested in another local business, allowing it to expand and hire new workers. The benefit of this system to American workers was simple and direct. Wealth was either invested or wasted, investments were local or regional, and they meant more jobs for Americans.
That time is long past. Today the wealthy pour their accumulating riches into a dizzying array of financial instruments. They invest in options, swaps, and futures. They invest in asset backed securities, credit derivatives and other structured products. They put their money in hedge funds and currency markets. Most of these investments are nothing more than gambles on things like the future price of commodities, whether the value of a stock or bond will rise or fall, whether a foreign currency will strengthen or decline. These are not investments that build factories or expand businesses. They are little more than a high stakes poker game, not the source of jobs.
When the wealthy do invest in a business, as often as not they invest it overseas in multinational or foreign corporations. Some of their additional wealth from tax breaks and lower rates may actually go into building a factory or expanding the workforce, but the chances that the factory they build is here in America are slim to none, and it’s not American workers who are being hired. We’re giving tax breaks to millionaires while cutting government services and benefits to Americans so factories can be built in China.
You wouldn’t know that from listening to some politicians. They would like you to believe that cutting taxes on the wealthy will unleash their job creating powers here at home. Maybe that’s what would have happened in 1950, but that’s not what happens today. Today the extra income we lavish on the wealthy ends up either in the vast gambling hall of modern financial products or creating jobs in countries where people work for slave wages. If lower taxes for the wealthy actually produced jobs, then the Bush tax cuts we’ve had for the last ten years should have produced some by now.
A better way to help our economy would be to rescind the Bush tax cuts and end the lower tax rates for capital gains and investment income for wealthy Americans. We could use the revenue to build needed infrastructure and put some of the millions of unemployed construction workers back to work. We could also use the revenues to hire back some of the 600,000 state and local employees that have been laid off over the last few years. If we did that, we would reduce unemployment rolls, increase tax revenues for struggling local governments, spur our economy, and reduce the deficit. all at the same time.
That would be a real investment in America, its workers, and the health of our economy. The only jobs that might be lost would be some of the dealers in that vast casino where the wealthy gamble against each other as millions of Americans wonder how to pay their bills.