Investment without Job Creation

Some time within the last few years, conservatives decided that people who have lots of money shouldn't be called "the rich" or "the wealthy" but "job creators." Give them credit—they know how to use language to turn a problem into an opportunity. After all, defending low tax rates for the rich is hard, but defending low tax rates for job creators is easy. Every now and then you might get an apostate like this venture capitalist coming out and saying that the real job creators are middle class people who buy things and not rich people, but on the whole the "job creator" framing allows conservatives to make their tax arguments without any discomfort.

That gentleman's argument is completely valid: if you have enough middle class people buying Acme Widgets to require 100 people working in the widget factory to meet the demand, it doesn't really matter whether C. Montgomery Acme gets his income taxed at 35 percent (the current, Bush-established, free enterprise-supporting level) or 39.6 percent (the Obama-supported, freedom-crushing, socialist level).

But what about when Mr. Acme takes some of his money and invests in the stock market? Well, obviously there he's creating jobs, right? Because we need "investment" to drive the economy, right?

That's certainly what conservatives say whenever anyone suggests that we might consider taxing investment income at the same rate as wage income. The economy needs investment to create jobs! And in many ways, it does. But when we tax income from investments at such a low rate (capped at 15 percent), much of what we're rewarding isn't really job creation. After all, if I invest in a start-up company and provide that company with some of the capital they need to expand, I've helped to create jobs. But let's say I buy a few shares of General Electric and then sell them a few months later after the share price goes up. Has my investment created any jobs? No. When I bought the shares, the money didn't go to G.E. so they could build a new plant—if they decide to do that, it'll be because they have demand for their products and the money to build it. My money went to another investor looking to sell his shares. The trading of G.E.'s shares is just me and a bunch of other investors gaining or losing some money depending on the movement of the share price.

I'm not a stock market expert, so maybe there's something I'm missing here. But what's undeniable is that the tax code treats that G.E. investment as though it has higher value to society than the work that I or anyone else does, since wages are taxed at a higher rate than income people get from things like selling stocks, or getting stock dividends, or all the other ways that wealthy people's money makes them more money. And there's a lot more of that than there is of people giving the struggling start-up the money they need to expand and create new jobs.

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