With the healthcare bill on the sidelines, I can’t voice my displeasure with it this week. That’s OK, because the cartoon below is equally entertaining.
I’ve argued more times than I can count that the human behavior problem with tax cuts for businesses is just as this cartoon indicates. The theory is that tax cuts for businesses will lead to more hiring because the firm has more cash flows to invest back in the business. The problem is businesses only hire and invest when the net present value is positive. In other words, just because a business gets a tax cute does not mean they will hire more workers if it will not be profitable.
Rather, the business owners will use the additional cash flows to take their families on more vacations or invest. Which, honestly, isn’t terrible as a better work life balance is critical to the development and success of a marriage. But this is not what we are told tax cuts are for. We are told cutting taxes on businesses leads to more jobs. In reality, it leads to lower government revenue and marginal (if any) improvements to the labor market.