Do higher taxes kill jobs?
Being a mathematician, I find myself forced to consider statements like “higher taxes kill jobs” as statements of theorems with missing stated assumptions. How could you fill in the assumptions and prove this theorem?
First I think about extreme cases- sometimes extreme situations need fewer assumptions, they kind of spill out as obvious. So here’s one, the tax rate is at 80%, what would happen if we raised taxes? My first reaction is, 80%!? That must mean you have way too much government and regulation and for those reasons businesses are probably already quite pinned down and don’t have lots of freedom- don’t tax them more, that will make their good ideas (if they have them) all the more suffocated. Just think of the paperwork you’d need to go through in a society that government-heavy, to hire someone.
What’s another extreme case? How about taxes are super low, more like fees for doing business. Then no, I don’t think raising them a moderate amount would kill jobs at all, in fact it may introduce enough government to make things less wild west and safer for businesses to operate.
So in other words at some level I buy the anti-regulation anti-government angle. I don’t want super duper high taxes because I think it encourages too much bureaucracy and that stuff is boring (but some amount of it is necessary to make things safe).
Moreover I’m assuming that governments generally use taxes to protect people from food poisoning and the like, regulate to force companies to play fair, and as social safety nets when things go bad, and that they’re not particularly efficient. Those of course are my assumptions, which anyone can disagree with.
But in terms of proving my theorem, I’m stuck thinking it’s more like, there’s some point in between very low and very high taxes where it gradually becomes true that raising taxes more will indeed start to kill jobs.
How about our situation now? Right now we have pretty low taxes by historical measures, and moreover the known loopholes mean that businesses (especially big ones with fancy lawyers) pay much less than their stated tax rate.
Why, in this case, would a moderate bump in their tax rates kill jobs?
Here’s a possible argument: if higher taxes actually encourage more regulation, then that could be a major problem for smaller businesses, who don’t have the margin for dealing with hiring that many lawyers for compliance issues. Although this article argues that “regulation kills jobs” is an invalid statement in general.
Pet peeve of mine: when you hear conservatives talk about killing jobs, they often frame it in terms of struggling small businesses, often run by a woman. But it’s easy enough to imagine that we introduce taxes and regulation that are easier for small businesses to avoid smothering them. It’s really the huge businesses that we want to see start hiring, and it’s the huge businesses that pay so little taxes.
Here’s another one: if you raise taxes people will spend their cash on taxes instead of hiring people. But wait, that doesn’t apply right now when we have so much frigging cash on hand (and hidden in other countries). In other words, companies are not not hiring people for cash flow reasons, it’s because they don’t see the demand.
In the end I can’t see how to prove or even argue that theorem, assuming today’s conditions. Would love to hear the argument I’m missing.