Brian Rogel

The Job Creators Myth Debunked

A frequently cited argument against increasing top marginal tax rates is it takes away money from the “job creators”.

This theory assumes:
1.) Job creators will cut employment to compensate for lower income
2.) Wealthy individuals will be less motivated to work resulting in decreased company production

Both of these assumptions are based off very flawed logic.

Flaws in the “Job Creators” Argument

Corporations Aren’t Affected

The Job Creators argument doesn’t apply to corporations. If the CEO of a company is taxed at a higher top marginal income tax rate it’ll have no effect on the corporation itself. A corporation makes hiring decisions based on the potential ROI of adding an additional person and not based on which tax bracket the executives fall under.

98.1% of Small Businesses Aren’t Affected

The only job creators possibly affected are small business owners currently in one of the top two income brackets. How many fall into this category? Well, a 2009 study revealed “Only 1.9 percent of taxpayers with small business income face either of the top two income tax rates.” (Source) The fact is, very few businesses owners make a salary high enough to be affected by a top marginal income tax increase.

Capitalism and Industry Demand Correction

If any small businesses affected did decide to take less clients it wouldn’t lower industry demand. These rare scenarios would be corrected by capitalism. If a business decided to take less clients because of higher marginal tax rates it would simply divert those potential clients to another business. Since overall industry demand wouldn’t drop it’s extremely unlikely total industry employment would either.

The Proof is in The Data

Chart: Source

Finally, historical data points to the conclusion that there’s no substantial positive correlation between increasing marginal income tax rates and decreasing job growth. The data may even suggest the opposite.

The argument does bring up a clarification that should be pointed out. Even though increasing top marginal income and capital gains tax rates is needed, an increase to top marginal corporate tax rates may be counterproductive. Raising corporate tax rates won’t necessarily help stabilize the economy. It could also potentially hinder hiring and a recovery to the unemployment rate.