Brief – TAX INCREASES LEAD TO MORE JOBS? THE 2012 ECONOMY AND ITS IMPLICATIONS

by Marco Vasquez

Slowly but surely, our economy is pulling itself out of the recession that took the nation by storm in 2008. There are a few encouraging signs; according to the Department of Numbers, the national unemployment rate in January 2012 was 8.5%, but dropped to 7.8% by year’s end. California appears to have made progress as well, starting at an unemployment rate of 10.9% and finishing the year at 9.8%. But obviously California lags behind the national average, and those numbers are still not close to what they were pre-recession. Only time will tell if the economy is recovering at an acceptable rate, as the effects of the recent tax hikes have yet to be seen.

Passed in November, California’s Proposition 30 includes a base sales tax rate increase of 0.25% as well as an increase on those with higher incomes. The Fiscal Cliff deal also raises the tax rate on top earners from 35% to 39.6%. Although elevating taxes on those with higher incomes is politically popular among the masses to solve the local and national budget crisis, considering its implications on the economy is crucial.

While these new tax increases only provide a minimal boost in revenue compared to the nation’s compounding debt, their effect on job creation is disconcerting. Because small businesses create many employment opportunities across the nation, increasing the taxes of higher bracket business owners only hurts them in an already stifled economy. How can they be encouraged to hire new employees with tax rates climbing higher? Entrepreneurs may even consider starting their businesses in nations with lower tax rates that provide less of a gamble. With less business revenue, jobs in the private sector cannot be expected to flourish. Instead, these tax increases may cause job growth to head in the opposite direction.

Before agreeing to make taxes “fair” by shouldering the burden to the wealthy, we should consider its potential negative impact on job growth as our nation slowly climbs out of an economic recession. Going forward, a better solution to the problem would be finding a responsibly balanced budget that prevents the consideration of tax increases in the first place.

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