Farid A. Khavari
Florida Governor Rick Scott is planning to cut business taxes by raising the exemption on corporate income from $50,000 to $75,000, saying that this would eliminate the business tax for 2,000 more Florida businesses and reduce tax revenues by $8,000,000.
Are things really so bad in Florida that only 2,000 businesses earn between $50,000 and $75,000 in pre-exemption taxable income? And how do you get $8,000,000 in tax savings for businesses out of this? Florida’s 5.5% tax rate, times $25,000 (the additional exemption), equals $1,375 maximum savings per business. $1,375 per business, times 2,000 businesses, equals $2,750,000—assuming all 2,000 businesses could use the maximum exemption.
Governor Scott’s math is as flawed as his idea that this tax cut would create any jobs. The result would be to create more unemployment.
I would like to meet the first businessperson who would invest $40,000 in a new employee because of a $1,375 tax cut.
Economics 101 for Dummies and Politicians, Lesson 1: Businesses hire people when they need them, regardless of tax rates, and they don’t hire people when they don’t need them, regardless of tax rates. They need people when there is increasing demand for their products or services.
So the proposed tax cut won’t cause businesses to hire anyone they were not going to hire anyway. However, adding $8,000,000 to the state’s $3 billion+ deficit is guaranteed to cut at least 80 to 100 jobs. In turn, these lost jobs will cause more jobs to be lost in Florida down the road. Within three years Scott’s senseless largesse will put 300 people on unemployment, which in turn will cost far more than $8,000,000 per year.
There are dozens of ways a smart governor could create hundreds of thousands good jobs in Florida’s private sector without subsidies or giveaways. All of them involve using leadership to organize demand, by representing over 18,000,000 Florida consumers, and also the spending power of the state, to encourage production of products and services which reduce costs and improve standard of living, from solar energy products to hurricane-proofing houses to medical care and on and on.
Economics 101 for Dummies and Politicians, Lesson 2: “Demand” means people want to buy things. When people buy things, money circulates in the economy and creates more economic activity and more jobs. When insurance or health care or interest costs rise, for example, people have less money available to buy things. When less people buy less things, you get less economic activity and more unemployment. Any questions?
Create jobs by passing out $1,375 tax cuts to businesses who are already making enough money to pay taxes? This beau geste is a jest we just can’t afford.
Farid A. Khavari, Ph.D., is an economist and author of ten books and many articles about economics, environment, oil, energy, Middle-East, healthcare, banking, financing, outsourcing, corruption, cost and social cost. He can be reached at email@example.com