Wilberne Persaud, Financial Gleaner Columnist
David Leonhartd in the September 15 issue of the New York Times Sunday Review discussed the issue of tax cuts and the claim that they lead to economic growth. Considering perfor-mance of the United States economy, he argues that "the defining economic policy of the last decade, of course, was the Bush tax cuts. President George W. Bush and Congress ... passed a large tax cut in 2001, sped up its implementation in 2003 and predicted that prosperity would follow.
"The economic growth that actually followed - indeed, the whole history of the last 20 years - offers one of the most serious challenges to modern conser-vatism. Bill Clinton and the elder George Bush both raised taxes in the early 1990s, and conservatives predicted disaster. Instead, the economy boomed, and incomes grew at their fastest pace since the 1960s. Then came the younger Mr Bush, the tax cuts, the disappointing expansion and the worst downturn since the Depression."
To these observed facts, let's add one more: the cost of two unfunded wars and the resultant huge fiscal deficit.
The article doesn't argue that the tax cuts are responsible for the 'worst downturn since the Depression'. Basically, the issue is the philosophy underlying modern-day US conservatism: investment income is to be encouraged, it is to be taxed at levels lower than earned income following upon which further investment shall be made in subsequent cycles.
It is this reinvestment that then creates jobs. Hence the 'job creators' exist among those most likely to benefit from tax cuts at the higher end of the income scale. The past 20 years of US economic performance refutes this argument comprehensively.
It is not difficult to understand why. Simply look at the premises or assumptions of such a view. First, people who own capital, benefiting from profits on investment seek to, or like to create jobs. Second, if the tax regime allows wealth holders to keep more of their income, they will invest more of the increments gained from tax cuts.
Neither of these two assumptions fits the facts. Wealth holders, whether individuals or corporations, seek first to maintain the value of that wealth holding and after that, increase it. Sometimes this requires investment in production which may necessitate creating jobs, but not always.
The interesting thing in the US is that private-sector job growth has been in evidence consecutively for in excess of 20 months. All of this occurs despite the huge budget deficit and inability to approve job-creating infrastructure and other projects President Obama wished to put in place.
Any lessons for Jamaica from the US experience? Just from one perspective it might be interesting to consider.
The defining characteristics of our last 20 years of economic performance have been growing budget deficits, widening debt service requirements and a secular devaluation of the currency.
Many years ago, government offered tax credits to businesses that undertook to employ youngsters just out of school or university. The impact was negligible.
At the time, an official suggested to me the potential benefit was miniscule since the tax burden was not at issue. Go one step further, should we reduce corporate tax as a means of generating more employment? Appears to me this places the cart in front of the horse.
Considering the high unemploy-ment numbers, levels of poverty, proliferation of street youngsters and prevalence of low-paying jobs spawning a group we may call the working poor, it is evident that the level of domestic effective demand shall remain much too low to tease out significant new investment.
Notoriously, tax collection and the effective contribution to government coffers of taxation remain small.
One fact impressed upon my mind is a comment oft repeated over the years, by visiting officials from multilateral funding agencies.
In some form or other, particularly among those assigned to Jamaica for the first time, there always was a remark referring to the lavishness of their hosts' dwellings and the fare offered - whether it be fine wine, ocean-fresh tuna or caviar - never mind, ackee quiche also made it to the buffet table.
Note these comments had no malicious undertone. It was merely the impact of first impression. The picture painted tended not to be of a people in need of assistance.
What's the point of all this? Jamaica's wealth on display for many to perceive, does not square with aggregate taxes finding their way to Government's coffers. And the minuscule sums that do, are subject to too much discretion in their disposition.
Government is not solely to be blamed for our poverty and unemployment problems. We need, as a society, to come to grips with inequality. We need to consider our changing demographics and resource endowment.
It is not bauxite or beaches that are our greatest resource asset, rather it is our people. Freshman parliamentarian Damion Crawford who wants to deploy his Constituency Development Fund for education in many of its ramifications - homework ambience, etc - is taking a step in the right direction.
Wilberne Persaud is author of 'Jamaica Meltdown: Indigenous Financial Sector Crash 1996'. email@example.com