Today Representative Paul Ryan (R-WI) – the guy who wants to end Medicare – attacked President Obama’s proposal that people with incomes over $1 million a year should pay taxes at at least as high a rate as middle income people do. Obama cited the investor Warren Buffet’s statement that it is unfair that he pays 17% tax on his income, while his secretary pays 20% on hers, and called his proposal the “Buffett rule.”
Ryan, in response, told Fox News that Obama was taking the “class warfare path,” adding Class warfare … may make for really good politics, but it makes for rotten economics.” Ryan offered the following explanation for his claim that it was ‘rotten economics:’
If you tax something more, you get less of it. If you tax job creators more, you get less job creation. If you tax their investment more, you get less investment.
Not for the first time, Ryan displays his economic idiocy here. He is ignorant of the most basic economic categories. Specifically, taxing income is not the same as taxing the thing that produces the income. For example, imagine that I take advantage of owning a bike to get a job as a bike courier. When the income I earn is taxed, that is not a tax on my bike (I am not going to decide to give up my bike, because then I would have no income at all). It is just a tax on my income. (And the tax won’t make me want to stop earning income, either – if I earn $100 and have to pay $20 in taxes, I am still $80 ahead of where I would be if I hadn’t earned it). Similarly, a tax on the income earned from investment is not a tax on investment; and it is certainly not a tax on “job creation,” since most investment does not create any jobs.
(This is an aside – but if I invest money in the stock market, I am not creating any jobs – I am just buying someone else’s right to share in the profits of a company.)
Right now, there are two basic causes of unemployment: lack of consumer demand, and a shortage of government revenues.
- Consumers are not buying at normal levels. This does not make investors stop investing (they have to invest – otherwise their money loses its value), but it does make them invest in something other than producing jobs – speculating, buying other companies, and the like.
- Nevertheless, private sector employment has gone up over the last year. However, public sector employment has gone down. Teachers, police officers, firefighters, librarians, and others who perform necessary public services are being laid off and not replaced. Why? Not because their services are not needed – they are – but because governments (especially state and local governments) do not have enough revenue to pay them.
Government needs more revenues, and more government revenues will create more jobs, not decrease them. And government spending will put money in consumers pockets (and in their bank accounts), increase consumption, and create more private sector jobs as well.
So Ryan is making a idiotic argument – about on a par with his claim that he wanted to destroy Medicare in order to save it. But why?
That’s where class warfare comes in. I’ll write more about this later this week. But to start with, think about what a “class” is. It’s a group of people who get their income in (broadly speaking) the same way.
- The working class is paid for the work it does. That work can vary a lot, but what makes the working class a class is that its income comes from selling its labor.
- The capitalist class gets its income from investing its capital – that is, by using its money to hire other people (namely, the working class) to work for it, then selling the products of the labor it hires for a profit.
You can see from the above that the less the working class gets for working, the more the capitalists get from investing. Guess what? They want to get as much as possible; so they are trying to destroy unions, lower wages, and also lower the “social wage” – the benefits that government provides so that workers don’t have to pay for them directly, such as health care, education, and social security.
What Ryan is doing, then, is engaging in pure class warfare himself: trying to defend the outrageously high incomes of the rich by undermining not only social services but the jobs of working people. So we need a little class warfare on the other side. We need to understand that anyone who makes over $1 million a year has not earned all that money, and should be made to use more of it to support society.
T
OK, but how are jobs created? I keep asking people to explain to me how 21st century jobs happen. I get a lot of ‘not this way’ and ‘not that way’ – race to the bottom, exporting jobs to low wage areas, robots replacing people – but very little solid theory about how we are really going to get people decent employment.
Judith,
Thanks for your comment! And for reading my blog!
As for your question, there are two kinds of jobs:
1. Public sector jobs, which have been declining because state and local governments’ revenues have been declining – so they are laying off and failing to replace lots of people doing important work: teachers, firefighters, health and safety inspectors, etc. They are also slowing down construction projects, such as fixing bridges, maintaining the MBTA’s tracks, etc. Those are sort of hybrid jobs – people work for private sector companies, but their customers are the government. So for both those categories, job creation is simple: governments create the jobs directly, by hiring more people, or almost directly, by awarding more construction contracts. The important point is that these are real jobs, doing necessary work, not some kind of wasteful boondoggle (I mean, it could be wasteful, but there’s a lot that really needs to be done).
2. Private sector jobs. Here the argument is whether the barrier to job creation is consumer demand or a shortage of investment funds. I think it’s consumer demand, because a) sales are down, and b) companies are sitting on about $2 trillion in cash right now that they could invest if they only thought it would be profitable to do so. So here the key is to get more money in people’s hands – by hiring people into the public sector who will then spend more money than when they were unemployed, by increasing the Earned Income Tax Credit, and by cutting taxes on working people. (Cutting taxes on the rich doesn’t stimulate demand, because they are already rich – i.e., they can already buy anything they want).
That’s the nutshell answer. You can find the whole thing argued much more completely by Robert Reich. I think his blog is robertreich.org, though it seems to be down at the moment. He’s on Twitter as rbreich.