To spur more demand, we need more hiring
The Kansas City Star
As the legislatures in both Kansas and Missouri move to cut business and personal income taxes in hopes of spurring job growth, now seems like an appropriate time to ask a simple question. Does reducing the tax burden on companies and high-income “job creators” actually result in more jobs?
President Ronald Reagan, with the help of Nobel prize-winning economist Milton Friedman, certainly thought so. And as a result, “trickle-down” economic theory has been a staple of conservative politics since the late 1970s. With more than 30 years’ hindsight, you would think we’d have a clear answer as to whether or not this policy actually works.
But instead, politicians cling to sharply divided opinions on tax policy based on the same set of facts but with opposite conclusions.
Maybe the answer shouldn’t be left to Nobel laureates and politicians. If job growth is what we’re after, maybe we should ask small business owners what they think.
After all, according to the Small Business Administration, the more than 27 million small businesses account for about half of all private sector employment and 64 percent of net job growth. It stands to reason that if the goal of tax policy is to increase jobs, then maybe we’d benefit from the opinions of the people actually doing the hiring.
So to start, I’ll offer my opinion. I am a small business owner. And ultimately I decide when my company hires and when we don’t.
Let’s say that through a combination of tax incentives, lower tax rates on business profits and lower personal income tax rates I was to generate $35,000 in additional income next year. Would those tax cuts motivate me to hire?
Absolutely not. The demand for my services didn’t increase. My overhead just went down. Why would I need to hire?
What’s also important to consider is that like a lot of small business owners who are blessed to be able to make ends meet, I’d likely keep and invest that money, rather than immediately spend it. Some might say that my investments ultimately help spur big, publicly traded companies into hiring.
But publicly traded companies are sitting on big piles of cash right now and aren’t hiring for hiring’s sake any more than I am.
So, if giving me $35,000 in tax breaks wouldn’t get me to hire someone then what would? Only one thing: an increase in demand for my services.
What makes sense to me is to give those same tax breaks and incentives to the people who make up the majority of most small business customers — working and middle-class Americans. Put more money in the pockets of people who will actually go out and spend it and they’ll buy more of what my customers are selling.
As soon as they do, I’ll have to hire to support an increase in demand for my services. At the end of the day, this increase means I’d likely make more than the tax breaks anyway.
Now, I’m sure there are many small business owners just waiting for the cash flow to hire. But my guess is that there are also a lot of them out there like me.
So, the next time you meet one, ask that person what he would do. Then pass along that opinion to your elected representatives. They obviously need all the help they can get.
Jeff Bowles owns Proforma Promotionally Yours, a marketing and promotions company. He lives in Kansas City with his wife and children. To reach him, send email to email@example.com or write to Midwest Voices, c/o Editorial Page, The Kansas City Star, 1729 Grand Blvd., Kansas City, MO 64108.