Taxation and Employment

Two well known economists have written short posts in the past 24 hours commenting on the expiring tax cuts, as well as the Obama administration's tax policy in general.

Greg Mankiw posted a summary of the effective tax rate on the richest Americans, concluding that it will be about 50% by 2013.
This post is presented as a stating of "facts", however Mankiw's use of language such as "stealth provision" suggest that he believes himself to be illuminating some sinister attempt to steal the hard earned, or unfairly appropriated, your choice, surplus of our wealthiest citizens.

Paul Krugman's post "It's Demand Stupid" argues that an effective tax increase on "small business (earning over $250 000 a year) will not not affect firms ability to hire more workers in a meaningful way. Rather, to hire more workers companies need to see an increase in demand for their commodities, regardless of tax rate.

I decided to write on this tonight when Krugman's Keynesian perspective was backed up anecdotaly in conversation with a republican small business owning friend of mine. My friend mentioned that he needed to hire two new helpers because business has been steadily increasing this year. When I asked him if his effective tax rate influenced his decision to hire new workers he looked at me like I was crazy. Justin's* response was "I need to hire more workers because I have more work to do". Makes sense to me, even if Krugman did frame it with a title that makes him seem like a pretentious jackass.

I realize that Mankiw's post was not directly about employment, but my current opinion is that the greatest challenge facing the US economy during this Great Recession is the suffering being heaped on lower income Americans by sustained high unemployment rates.

The important question that I wish to ask and provide a part of an answer for here is, "what is the most effective way to allocate surplus to create the largest amount of (good) jobs?" Should we let the very wealthy in our society (and the not so wealthy small business owners, who are the new "Joe the Plumber" in the republican campaign this fall) keep more of the surplus they have gained through exploitation of their workers in the hope that they will distribute it to expansion, thus bringing more workers into the production process? Or should the government demand a higher share of the surplus from the wealthy so that it can be redistributed in such a way as to increase demand for commodities (transfer payments, reconstruction programs, cash for shitty cars, etc.)?

Neither of these options has been particularly successful in lowering the national unemployment rate over the last couple of years. I believe proponents of both sides would argue that the unemployment rate would be higher without their weapon of choice being in place, tax cuts and "stimulus" respectively. In reality neither strategy has been nearly effective enough, and the pain and suffering of the unemployed continues to be our country's most pressing economic issue. Perhaps neither strategy has worked because of an inability to implement policy to the extent necessary because of pressure from the other perspective? Perhaps because these theories just do not result in effective policy? Perhaps for a large and complex number of reasons not listed here?

The short and long term consequences, economic, social, and otherwise, of massive unemployment are a topic for another time. Suffice to say that more needs to be done soon to get more people into full time jobs. The damage to individuals and to working Americans in general grows more drastic by the day as unemployment stays high and meager benefits begin to run out.

I would like to propose a third alternative. It is time to change things so that instead of extracting surplus from workers, and then distributing more or less of it to the government in the form of taxes, depending on how effective you think the government can be in creating effective demand, and/or how much you believe a business will hire people because of the relative amount of their surplus that they have to distribute to the government via taxes, or not distribute to taxes, we should allow more workers to be the first appropriators and distributors of the surplus that they create in the production process in our economy.

Perhaps the distribution decisions of workers will be more effective at creating jobs for fellow workers than the decisions of a very small number of our wealthy citizens have been. And perhaps the distribution decisions of workers will be more effective than those of committees of professional politicians, who as a general rule are also among our wealthiest citizens. The current system run by and for capitalists is failing the working people of this country in epic proportion in terms of employment.

Is it not time that workers at least consider trying to run things themselves? Even if worker appropriation and distribution does not solve the unemployment problem would we not be better off having tried to help ourselves and failed than waiting for those who exploit us to "fix" the unemployment problem while our lives and families are destroyed by being out of work? Before the US can become the land of the free for the working class we need to be free to distribute the surplus we have created in an attempt to fix our own problems.