IBJOpinion

MARCUS: Lower business taxes don't stimulate hiring

Morton Marcus
March 20, 2010
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Morton Marcus

“I am so proud,” Puffy Possum says as we wait for our lunch orders, “to live in this great land where an educated electorate has chosen ladies and gentlemen of fine judgment to serve in public offices where they boldly take steps to resolve the most pressing problems of our trying times.”

“And what might those ‘most pressing problems’ be, Puffy?” I ask.

“Jobs,” Puffy responds. “Jobs are the essential necessity of every era. People need work. A job is the foundation of self-esteem, the linchpin for connecting to the community, the instrument by and through which the individual connects with the greater international marketplace and derives the income that provides security for the family. A job is identity, the credential for health insurance, the badge of respectability, the affirmation of personal morality.”

Our orders have arrived. I turn my attention to the bowl of chili before me while Puffy admires his red, white and bleu burger (bleu cheese and horseradish sauce on a very rare half-pound of ground beef).

“And,” I ask, “What makes you so proud?”

“These sensational proposals from Indianapolis and Washington,” Puffy says as he plans to attack his burger. “I admire the legislative bodies that propose to increases jobs by reducing or keeping low taxes on businesses, particularly small business—the heart of American capitalism.”

“Some folks,” I say, “would call small business the heartburn, heartache or heart attack of American business.”

“Fallacious, fatuous and fractious,” he says.

“Nonetheless,” say I, “it’s unlikely that small businesses will hire workers because of the tax breaks politicians want to throw at them. Neither Democrats nor Republicans realize that the demand for workers is based on or derived from the sales of the firm. If customers are not buying more, the firm has no incentive to hire more.

“Lowering the cost to business of hiring new workers sounds great. But how much of a tax break is needed to get the firm to hire a worker? The incentives being offered are trivial compared to the cost of an added worker. If there were enough business to hire that worker, the company would probably do it without any push from the government.

“Indiana just voted to forestall increasing the unemployment compensation tax on business. That will amount to a savings of approximately $140 per worker over the course of a year. A firm would need more than 100 workers to have saved enough money to hire one worker at $15,000 per year. Since when does a small firm have 100 workers?”

“Now, now,” says Puffy, “some of the finest, sharpest, most informed leaders in the state supported that bill.”

“They supported keeping taxes on business low,” I retort. “That means all companies, large and small, pay less in taxes regardless of their hiring efforts. There is nothing that says that if companies have lower taxes they will hire more workers, cut prices, increase dividends or raise wages. They may do some or none of those things. They may just sit on the money, enjoying larger cash reserves, or they may pay bigger bonuses to executives.”

“Everyone knows …” Puffy starts to say.

“What everyone should know,” I interrupt, “is that we don’t know what any given tax cut or increase will do at any specific time. We have theory, but not knowledge. It’s wonderful that so many politicians subscribe to theory. It’s a shame they are so ignorant of reality.”

Puffy does not like these statements and turns to talk with people at the next table. I focus on my developing indigestion.•

__________

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.

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  1. If what you stated is true, then this article is entirely inaccurate. "State sells bonds" is same as "State borrows money". Supposedly the company will "pay for them". But since we are paying the company, we are still paying for this road with borrowed money, even though the state has $2 billion in the bank.

  2. Andrew hit the nail on the head. AMTRAK provides terrible service and that is why the state has found a contractor to improve the service. More trips, on-time performance, better times, cleanliness and adequate or better restrooms. WI-FI and food service will also be provided. Transit from outlying areas will also be provided. I wouldn't take it the way it is but with the above services and marketing of the service,ridership will improve and more folks will explore Indy and may even want to move here.

  3. They could take the property using eminent domain and save money by not paying the church or building a soccer field and a new driveway. Ctrwd has monthly meetings open to all customers of the district. The meetings are listed and if the customers really cared that much they would show. Ctrwd works hard in every way they can to make sure the customer is put first. Overflows damage the surrounding environment and cost a lot of money every year. There have been many upgrades done through the years to help not send flow to Carmel. Even with the upgrades ctrwd cannot always keep up. I understand how a storage tank could be an eye sore, but has anyone thought to look at other lift stations or storage tanks. Most lift stations are right in the middle of neighborhoods. Some close to schools and soccer fields, and some right in back yards, or at least next to a back yard. We all have to work together to come up with a proper solution. The proposed solution by ctrwd is the best one offered so far.

  4. Fox has comments from several people that seem to have some inside information. I would refer to their website. Changed my whole opionion of this story.

  5. This place is great! I'm piggy backing and saying the Cobb salad is great. But the ribs are awesome. $6.49 for ribs and 2 sides?! They're delicious. If you work downtown, head over there.

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