Who Are the Real Job Creators?

It is regularly argued in American politics that taxes must be lowered for the wealthy so that they can continue to act as “job creators.” This is a dangerous myth.

Tax Cuts  CEO LETTERThe rich are not the primary job creators in America. Most wealthy individuals prefer to safeguard their wealth rather than investing it in risky ventures. Studies have shown that

over 90 percent of the assets owned by millionaires are held in a combination of low-risk investments (bonds and cash), personal business accounts, the stock market, and real estate.

Many of the überwealthy also keep vast fortunes tucked away in offshore tax havens where they cannot be touched. The bottom line in either case is that this vast wealth is not used to create jobs.

So who are the real job creators? Nick Hanauer is a young entrepreneur and venture capitalist with a net worth of over $1 billion. [Nick Hanauer] In March 2012 he delivered a TED Talk in which he tried to set the record straight. His argument is simply this:

In a capitalist economy the true job creators are the consumers.

 

Hanauer points out a simple fact:

Anyone who has ever run a business knows that hiring more people is a course of last resort for capitalists. It is what we do if and only if rising consumer demand requires it.

Only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary consumer is more of a job creator than a capitalist like me.

Current economic policy focuses on placing more wealth in the hands of the rich so they will use it to create more jobs. This policy, Hanauer says, is upside down:

When the biggest tax exemptions and the lowest tax rates benefit the richest all in the name of job creation, all that happens is that the rich get richer. … If it was true that lower taxes for the rich and more wealth for the wealthy led to job creation, today we would be drowning in jobs.

There can never be enough super-rich people to power a great economy. Somebody like me makes hundreds or thousands of times as much as the median American, but I don’t buy hundreds of thousands of times as much stuff. My family owns three cars, not three thousand.

I can’t buy enough of anything to … make up for the falling consumption of the vast majority of middle class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.

Consumers are the job creators

Hanauer says it is hard to justify the “extraordinary differential between the 15% tax rate that capitalists pay on carried interest, dividends and capital gains and the 35% top marginal rate on work that ordinary Americans pay.” He calls for a shift in policy so the wealthy pay a higher rate of taxes with the added revenue going to strengthen middle class consumers. He points to the obvious fact that

When the middle class thrives, businesses grow and hire and owners profit.

Hanauer concludes his TED talk with this forceful statement:

Taxing the rich to make investments that make the middle class grow and thrive is the single shrewdest thing we can do for the middle-class, for the poor, and for the rich.

About politspectator
Edward Clayton grew up in the US but has lived in Canada for the last 4 decades. He is a long time peace activist and committed to issues of social justice and good government. He reports on Canadian, American, and global politics from a Canadian perspective.

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