IBJOpinion

MARCUS: Tax cuts are not efficient as a job stimulus

Back to TopCommentsE-mailPrintBookmark and Share
Morton Marcus

Many of the best minds in the nation are endorsing the latest stimulus package, which retains the Bush tax cuts and reduces workers’ Social Security contributions nearly one-third.

What do we want from a stimulus at this stage of the business cycle? I thought we wanted to increase employment. This package gives people who are on a payroll no change in their federal withholding for income-tax purposes. That’s right—no change in your pay. Instead of seeing your taxes rise, they will stay the same as they have been. Similarly, extending unemployment benefits does not increase consumer demand above current levels.

Take-home pay, however, does go up slightly. The Social Security portion deducted from your pay by your employer will decline. That puts more cash in your pocket. How much?

If you make $10 per hour and work 2,000 hours per year, you’ll see $400 spread over 12 months. No matter how spread out, $400 is not chopped liver to the recipient. However, consider how paychecks are spent. An added $10 per week will be spread over many goods and services. The chances are that some money will go for groceries, some to pay off bills, some for beer, some for church and some for the lottery.

That will happen in large numbers, but will the producers of these goods and services hire more workers?

The answer, according to the best economic tradition, is, “it depends.”

If the companies have huge inventories of these goodies, they don’t need to hire workers to produce more. If the companies don’t have huge inventories, they might have to produce more. That does not mean, however, they will hire more workers, not if the companies have excess capacity in their factories.

If companies are at the point where they must expand capacity, will they hire more workers? Not under this tax bill. As I understand the bill, which is longer than any of the Classic Comics, there is an incentive (temporary accelerated depreciation) for businesses to invest in new equipment. It has been new, more productive equipment that has reduced the demand for labor and given rise to great leisure for the past 200 years.

At this time, how eager are employers to hire workers? Every worker must be regarded in terms of the cost he or she adds to the firm versus the value of the added revenue from the production by that worker. Businesses are wary about what will happen to health insurance costs and they don’t want to hire workers if the economy does not sustain its growth. With good cash balances, many firms would rather buy a new, trouble-free machine than hire workers who complain about the parking and the canteen.

If the government wants to increase private-sector employment, it should reduce the costs to business of employing workers. Alternatively, if the private sector doesn’t hire the unemployed, then hiring directly or indirectly by government becomes necessary. How? One example: Workers with high school diplomas could be taken off unemployment compensation and placed in better-paying jobs as tutors in our schools. 

Tax cuts are a roundabout way to get more people employed. Seems simple: If you want people working, you find ways to make sure they are hired. This tax-cut program just “holds tight” and does little as a stimulus. But it satisfies the cynical adage: If people seem to need help, you should seem to give them help.•

__________

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.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. Hello Dear Are you tired of Seeking Loans and Mortgages,have you Been Turned down constantly By your banks and Other Financial Institutions or Micro Finance scheme. This is let you know with 100% guarantee that we Offer loans ranging from $1,000 Minimum to $1,000,000.00 Maximum at 3% interest rate per Month. We give out LOANS for developing business. a competitive edge/business expansion. email address: michealscottloan124@gmail.com We offer the following kinds of loans and many more; * Personal Loans ( Unsecured Loan) * Business Loans ( Unsecured Loan) * Consolidation Loan * Combination Loan * Home Improvement * Xmas Loans for contact to seek for loan email this email address: michealscottloan124@gmail.com Thanks

  2. My name is Mr Henry Josh and i live in the USA California and life is worth living right now for me and my family and all this is because of one man sent by GOD to help me and my family, i once had a life filled with sorrow because my first SON needed a kidney transplant and all our savings were going towards his medications and this normally leaves us with no money to pay our bills or even put enough food on our table and our rent was due and no funds to pay these bills and life felt so unfair to me and every night my wife will cry herself to sleep every night until one day, i was browsing through yahoo answers and i saw a striking advert of a man that gives out personal loans and that the offer is opened to all and i have heard so many things about internet scams but at this point of my life, i was very desperate and ready to take any risk and at the end of the day, i applied for this loan and from one step to another, i got my loan within 12 hours through bank transfer and you know, it was all like a dream and i called Mr Daniel Jones A Man who is the GOD sent lender i found and said, i have received my loan and he smiled stating that to GOD be the glory and i was so shocked as i have never ever seen anyone with such a GOD fearing and kind heart and today, i am the happiest man on earth because by GOD’S grace, my SON kidney transplant was successful and today he is healthy, i and my family are living very comfortable and happy and if you are in my former situation or in serious and legitimate need of a loan, you can reach this GOD sent lender via fidelityloanfirm@outlook.com

  3. Greetings to everyone reading this comment!!! I am Greg William by name. I am out here to recommend the effort of Mark Oscar,I was in need of a consolidation loan amount of 50,000 and as soon as I got in contact with Mark Oscar Loan Firm on Wednesday last week and on Friday last week as well I receive an alert from my bank(Royal Bank of Scotland Group) that the fund was transferred,I want everybody on this site to contact Mark Oscar now via email on how to get a loan because I got my loan from them and I am very happy,so contact them now. Oscarloanfinance@hotmail.com Thanks!!!!!!

  4. Elected officials, like Mourdock, get vested in 8 years. It takes 10 years for all other public employees, most of whom make a lot less money. So much for the promise to finish out his term.

  5. Great state treasurer and a good man!! Just curious if the folks who didn't quite understand his quote would like to tell my daughter-in-law that God didn't intend her! Mourdock's comment was correct but twisted and the article didn't mention that his opponent and the press let the impression stand that Mourdock meant that the rape was intended. Stupid people!!

ADVERTISEMENT