Paul Krugman Obliterates the Myth that Low Business Taxes Create Jobs

When Paul Krugman was confronted with the right wing myth that lower business taxes create jobs on ABC’s This Week, the Nobel Prize winner pounced a delivered some economic straight talk.

Video from ABC News:

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Here’s the transcript from This Week:

FIORINA: But we’re also trying to overcome something else. And I think it gets to Jennifer’s point. I said there were three structural issues in the economy. One is small business. There are two others.

The rest of the world has also changed. And the two other structural problems in our economy are we now have the single highest business tax rate in the world. Guess what?

With the highest tax rate in the world, we see the same thing around the world that we see in states — states with lower tax rates have more jobs, more people. People leave states with higher tax rates. The data is crystal clear….

KRUGMAN: Just..

FIORINA: — a robust recovery.

(CROSSTALK)

KRUGMAN: Nothing you said about business taxes is actually true.

FIORINA: Everything I said…

(CROSSTALK)

FIORINA: — about business taxes…

KRUGMAN: — we can have that discussion (INAUDIBLE) place…

FIORINA: — is true.

KRUGMAN: But — but it’s not true. If you look at the actual tax collections…

FIORINA: This isn’t an academic discussion. It’s clear it’s true.

KRUGMAN: If you look at the actual tax collections in the United States on business, they’re lower than — than other advanced countries. And if you look at the alleged finding that high business taxes cause job losses in states, it — it goes away — on even the kick the tires, even slightly and the whole thing falls apart. It’s just not true.

Carly Fiorina got on her I’m a businessperson, so I know the economy high horse, spit out a few ridiculous Republican talking points about America having the highest tax rates in the world, and lower tax rates creating jobs, and when confronted with reality by Paul Krugman, her only response was to try to belittle Krugman as an academic.

If Carly Fiorina has the answers for the economy, then we are all in big trouble. Fiorina was such a failure at HP that her own board of directors, including her mentor at the company, repudiated her leadership, and showed her the door. It is impossible for Fiorina to intelligently discuss the economy, because her professional history tells us that she doesn’t know anything about it.

Here is what the data really tells us. Since 1950 when taxes are lowered at the top, economic growth goes down. The notion that the US has the highest tax rate on business is another numbers manipulated canard put out there by there by the right in order to justify their policy of cutting taxes at the top while raising them for everyone else. It is true that the US corporate tax rate is 39.2%, but the effective tax rate, what businesses and corporations really pay, is 12.1%. After corporations take advantage of loopholes in the tax code, they actually pay less than a third of what they are supposed to.

Paul Krugman isn’t some academic. He is a Nobel Prize winning economist, who knows bullshit when he hears it. Carly Fiorina represents what happens when businesspeople try to enter into politics and fix the economy. Business people understand business, but business isn’t the same thing as running an economy. Due to the lack of a profit motive, the economy can’t be run like a business. George W. Bush has an MBA and his policies brought about the worst economy since the Great Depression. Mitt Romney was a successful businessman, but his record as Massachusetts governor suggests that he knows nothing about creating jobs.

Krugman challenged Fiorina on her claims and she couldn’t back them up. Instead of proving her point with actual data and facts, she resorted to saying it was true because she knew it was true, and tried to insult Krugman.

The Krugman/Fiorina exchange was a perfect example of our fractured political dialogue. Fiorina substituted ideological talking points for facts. Krugman tried to inject the facts. Fiorina got defensive, substituted her feelings for facts, and replied with a personal attack.

Unlike most Sunday morning guests, Paul Krugman didn’t treat Carly Fiorina’s BS as if it was an intellectually valid point. Krugman demonstrated just how easy it is to debunk the mysticism behind right wing economic theory. If Democrats would speak with a unified message, not only would Obama win reelection, but we could also get the Democratic Party to stop buying into the right wing’s economic fool’s gold.

Paul Krugman didn’t offer Fiorina’s talking points equal intellectual weight, and if Democrats want our nation to prosper again, they too must do the same everyday every time the right revives their economic talking points between now and November.

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33 Replies to “Paul Krugman Obliterates the Myth that Low Business Taxes Create Jobs”

  1. Si Carly thinks offering tax breaks to bribe businesses to move to a state is a free market like Jennifer said that’s no good for the country.

  2. Republicans!! Give me a break. This stupid theory was proven wrong during the Hebert Hoover years. Ever heard of the Great Deppression?

  3. The only one on that panel who has the credentials to comment on Economics is Paul Krugman he has Earned a Noble Prize in economics no one else there has more knowledge or experience than Krugman. . . It is about time someone called the Repugnant-Cons on their ignorant notions. . .GOP tax cuts? are like giving your dog a bone and after you do you ask him to do a trick He is eating that bone later for tricks.. . .You raise taxes high and offer tax credits for new hires Hire: 100 people first and then you get a tax cut..Taxes Are the price we pay to live and earn here.
    Too the GOP has all signed a pledge not to raise taxes or revenues. I think that is criminal in time like these. if you agree
    Will you Please sign this petition? Click on link: http://signon.org/sign/obligation- to-voters?source=c.em.cp&r_by=4447507

    Thank You!

  4. Fiorina said in a discussion about taxes on CNN last year that an average family makes $250,000 a year, “you know add a policeman and a teacher’s income and your have $250,000”.

    These Republicans reside in some alternative universe where lower taxes on business creates jobs, and where $250,000 a year is an average income.

  5. “…if Democrats want our nation to prosper again, they too must do the same everyday every time the right revives their economic talking points between now and November” Yes all we need are more democratic talking points for prosperity, more jobs and a lower debt…

  6. Is Carly Fiorina really a businessperson? perhaps someone who has failed as catastrophically as her at business can not be called businessperson.

    By the way, this is the way Carly Fiorina ran a successful and innovative company into the ground: Imposing her wrong view of things stooping to insults and personal attacks when contradicted with evidence.

  7. They’ve been doing that in this county for decades, and in every instance the company moved here, made a mint, and then left. Only ONE company lured here by lower taxes and so on has remained (according to a long-time politically connected and active resident I know).

    I was talking with a friend about this topic (someone born in this county and lived here for a long time) and his comments were to the effect that only the politicians and very rich ever prospered here from their “low taxes to lure businesses” scheme. That seems to be accurate from what I’ve observed… besides the one company I know of, the only other large firms here originated here and they’re connected to the richest people in the area.

  8. If corporate taxes are high wouldn’t businesses plow more into the business, purchasing capital goods and paying wages instead of creating profits which are taxed? Seems like raising taxes would create more jobs. Conversely, if capital gains taxes are low, isn’t there more incentive to take profits?

  9. In that exchange, the interesting thing I noticed was that Carly Fiorina said that our public education system is not working, but so far in states that are run by Republicans public education is often on the chopping block and grossly underfunded. How can you have good schools if you don’t want to pay for them? In Virginia there is word that the Republican led legislature wants to completely dismantle the public schools. How is that going to produce educated young adults that can be hired in a workforce that needs smarter and smarter people?

  10. I think Carly Fiorina needs to study more about the economy. – We had a severe recession in 1981-1982. Many people still believe that the so-called Reaganomics (i.e., Supply-Side Economics) saved our economy at that time. It might have done so to some degree, but we should also remember that the Digital Revolution also started from the early 1980s, beginning with the proliferation of PCs. The great increase of efficiency and universal application capabilities resulting from that made possible the development and spread of many digital devices. And that led to huge economic growth in the technology and manufacturing sectors, which led to the improvement of employment conditions in the market as a whole. – I believe the Myth that Low Business Taxes Create Jobs is wrong!
    For more information, please see: “A Real Market Revolution as a Solution for the Cur…” http://savingtheworldeconomy.blogspot.com/2010/11/real-market-revolution-as-solution-for.html?spref=tw

  11. As a conservative (read, Libertarian or more precisely, Classical Liberal), I agree with Krugman. Using the Keynesian economic model, then relatively higher tax rates on the highest earners (wealthy and corporations) fed into the government and the injected at the base of the economy should promote growth.

    However, at the moment, it’s not the cyclical flow of money that is stagnating our economy so the Keynesian model falls short. The instability in the government and the burden of crushing regulations calls for an Austrian approach. The government needs to back off the bureaucracy a bit. I’m not saying corporations should be allowed to pollute drinking water, market endangered animal pelts or harvest senior citizens’ organs or any of the other strawman arguments associated with lowered regulation, but surely we can all agree that companies shouldn’t have to hire fleets of lawyers to make sure they stay in compliance with a spider web of regulation.

  12. This is what I’ve been thinking! Same with personal income tax. The higher their tax rate the more likely they are to not take the profit as income and put it back into the business so it isn’t taxed.

  13. Small businesses have comprised the strongest job creating block in the U.S. for decades now. The government is a freaking sponge. Welfare is a black hole of spending. Military is about killing people and breaking stuff. Corporations export a lot of jobs due to the highest corporate taxes in the world. To call these people morons would be a compliment.

    Incidentally, it would take more than tax cuts to create substantial job growth in the small business sector. The regulations that are strangling the economy to the tune of over a trillion dollars also need to be banzai’d. Sorry, this has been a greeting from the real world.

  14. When I read your post, it gave me a laugh. You ARE trying to emulate “Conservative Heart” by parodying the conservatives, right?

    Seriously… I lived in that business world for years. Small business… yeah, they get the shaft – from the bigger businesses and the rich, as well as too much taxes. It’s a top-heavy world out there with the big guys stomping all over the little guys. The rich ripping off the poor and building their ill-gotten wealth through the suffering of those who don’t have much in the way of resources.

    Regarding welfare and all that – if you’re being serious, then you REALLY need to get out and talk to the real people instead of listening to the liars (such as found on Fox News and in the conservative churches).

    Better yet, if you mean what you’ve written, may I suggest you get an education… one in the social sciences? You might realize just how wrong you are, just as I realized how wrong I’d been (and how brainwashed I’d been) when I was a conservative. The information and tools to analyze it are readily available… you just have to learn how to use them.

  15. Actually, more regulation is needed. I’ve seen some of the stupid response to regulation that companies come up with… rather than rethinking and spending a few more pennies on improving their products so that regulation doesn’t become a factor, they’ll spend dollars coming up with stupid and crazy quick-fixes that reduce the quality of their products and give them a legal excuse to not look at their basic business model.

    You might also look at the policy behind the regulations… it’s very top-heavy in favor of the rich and big business, and tends to repress the smaller ones. In other words, the ones that need regulation the most are the ones who have the least, and those who don’t need it find themselves being asked to carry a burden that the bigger fish don’t have.

    Let’s put it this way… if they’d stopped trying to make their products as cheap as possible (and skimping in every way possible), then they wouldn’t need those “fleets of lawyers”. Those are on their payroll because they want to maximize profit and stupidly think it’s more profitable to keep the lawyers than spend a few pennies on the product (or on their employees).

  16. I’m not an economist, but I’ve been keeping track of unemployment figures and tax rates that cover post-war America to the present day. One thing I’ve noticed is that everytime there is a tax cut at the top tier of the tax brackets, there always followed an increase in unemployment.

    My theory? Why should the top-earners reinvest their money when they can do next to nothing and keep it? When I was a kid, I always heard about things called “tax shelters”. These “shelters” would be business investments, usually involving the building of new businesses. Venture Capitalists (versus, say, VULTURE capitalists) are still out there, but the need for them is superfluous as investors don’t need to fund a new business because they no longer need the shelters.

  17. business and personal taxes should be 25% on everyone – no deduction – no scoobies for this person or that person or this bank or that bank.. everyone pays the same… on everything.. it’s easy, add up your income and multiply it by 25% — we should also have a standard national sales tax of 10% — no more individual state sales tax.. but that will never happen because then there’s no way for all the wealthy guys to line politicians with pockets full of cash. let’s not be stupid… borrowing 50¢ of every $1 will not last forever… but if you let the babyboomers stay in charge… we’ll see the Greatest Depression of all time… the entire system in the global economy is built on borrowing cheap money forever…. and we need to figure out a way to get business out of subsidizing health care.. every country but the US has a national system.. all those things you hear is already happening… as baby boomers get older.. and there’s less doctors .. rationed healthcare is here already…

  18. You’re F’ing CRAZY. When so many people are barely surviving as it is, 25% taxes??? 10% sales tax???

    A progressive tax is the only fair tax. It is the only tax that will work. A flat tax has been shown time and time again to be severely regressive… it hurts the poor while helps the rich. The poorer you are, the worse it hurts. The richer you are, the less you feel it!

    Levy a 50% tax on every cent over $500,000 a year. No different rate for “investments”. Then lower the rate down to where those on the bottom pay no taxes (because they’d just have to get help to survive – to replace the money they were forced to give to the government).

    That would solve the money problems, and as the resources are freed up from the greedy hands of the rich, everyone would start benefiting – even the rich.

  19. I would suggest instead tax brackets, define taxes as an moderately simple equation with terms for inflation compensation etc. for example, simple linear equation (ax+b) could be used to specify tax rate simply and cleanly especially if we had no exemptions. But even with exemptions, it still could be fairly simple. Not quite as simple as a flat tax but far more practical for those of us who are mathematically literate.

    Play with the idea. See if you don’t find it as appealing as I do.

  20. It seems that most people agree with Krugman. Great! Let’s vote for Obama to help him win a 2nd term and vote for Democrats to help them control both houses. I think polarization in the US Congress is kind of annoying to think about. If you guys want to change that then using your votes to make a difference.

  21. Krugman is a complete idiot. Stereotypical of the Keynesian academia indoctrinated ivory tower types with zero experience outside of academia.

  22. Krugman still believes in Area51 economics -where ditch diggers can turn the economy around just by being provided a job. A typical academian nut trying thinking textbook logic works in the real world. The problem with the US is that there are more freeloaders, then people producing saleable products are reasonable prices. The only ‘fair tax’ is a flat tax, for the very simple reason that there are not enough rich people to go around. That’s what the sheeple left does not get increasing gov’t ‘revenue’ (taxes) just means a bigger govt.

  23. And what you dont get is that there are not enough jobs for the “freeloaders” But you like to say your BS anyways. Try not to think of root causes, it will hurt you

    If there are not enonugh rich people, why does less than 20% of the population own 80% of the wealth?

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