How Tax Cuts and Consumption Affect America's Jobs

07.08.08 | Taxes, Work | 0 Comments | by Fred Siegmund

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It has been common in politics to hear that tax cuts in the higher income tax brackets will be good for the economy because the wealthy and the well-to-do will be able to save and provide funds for capital investment spending and jobs.

Americans must have jobs. Large scale unemployment in an urban society guarantees untenable social, economic and political conditions. It is total spending that generates jobs, which includes the investment spending generated by our savings, but also consumption spending including government spending.

In the last two posts I quoted from Alan Greenspan, who told us there are not enough investment opportunities for our savings since the year 2000. Creating hedge funds or other speculative financial investments does not create many jobs: mostly financial advisors and lawyers.

Since financial investment speculation does not create enough jobs, America must rely more on consumption spending to keep ourselves employed.

The consumption spending America needs the most is for domestic services. Consumption spending that goes for luxury products imported from abroad creates foreign jobs, but not American jobs.

The growing importance of consumption spending for creating jobs makes credit card spending a necessity. Given the wages and taxes for millions of Americans, keeping up spending requires credit card borrowing. For those of us who save and read savings blogs, it is sobering that so much of our savings supports credit card spending.

It would be better if it helped pay for long-lived physical assets, but at least we can have an interest return knowing our savings support jobs and the economy.

The growing importance of consumption spending brings us back to the politics and tax cuts I mentioned above. If America is going to have enough jobs, the well-to-do must see to it that all of their income goes back into the spending stream.

They can only save if it helps create jobs, otherwise they must consume.

Washingtonian Magazine published an article over a year ago describing the proper things to buy for the well-to-do lifestyle. They included landscaping, flowers, dog walkers, sports tickets, club memberships, personal trainers, spa memberships, dining out and charity events. For those with kids, include coaches' fees, soccer camp, piano lessons, college consultants and live in nannies.

Perhaps the editors at Washingtonian were celebrating conspicuous consumption or encouraging the wealthy to do their duty and create jobs. That I cannot tell, but tax cuts to the wealthy pose a threat to jobs and economic growth unless they go into consumption. Like it or not; that's a fact.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

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