Rep. Paul Ryan's Budget: Lots Of Tax Cuts For The Rich, Not Many Jobs

April 05, 2011 3:28 pm ET — Jamison Foser

Rep. Paul Ryan

Given that Rep. Paul Ryan (R-WI) has produced a budget that he claims will lead to a historically low (and deeply implausible) four percent unemployment rate in just four years, let's take a look at how he plans to accomplish this impressive feat, shall we?

The words "job" and "jobs" appear a total of 68 times in Ryan's budget document, many of which are devoted to criticizing President Obama and various straw men. Specific statements about positive job-creating effects of Ryan's budget are few and far between, and fall into three categories: drilling for oil, cutting taxes on the super-rich, and cutting taxes on corporations. (There's also a passing reference to "lifting debt-fueled uncertainty" to foster "a better environment for private-sector job creation.") That's it. And, to be clear, Ryan doesn't explain how these things will create jobs, he just asserts that they will.

Here, for example, is Ryan's plan to promote job creation by cutting taxes for the richest Americans:

Simplifies the broken tax code, lowering rates and clearing out the burdensome tangle of loopholes that distort economic activity; brings the top rate from 35 to 25 percent to promote growth and job creation. [p. 6]

That current 35 percent top rate applies only to taxpayers who make more than $373,650 a year. And remember: That's a marginal tax rate, which means it only applies to income above $373,650, so if someone makes $400,000 a year, she is only paying the 35 percent rate on the last $26,350. The average tax rate for the top 1 percent of taxpayers is only about 23 percent. Finally, keep in mind that the 35 percent top marginal rate is already quite low by historical standards: Since the Great Depression, there have only been five years in which the top rate was lower than 35 percent: 1988-1992. (The low top marginal rate in place during that time didn't prevent a recession from occurring in 1990-91.)

Put that all together, and here's what you get: Paul Ryan's big plan for job creation is to lower the top marginal tax rate, which affects only the very few Americans who make more than $373,650 a year, and which is already quite low by historical standards.

But that's not all: Ryan wants to cut taxes for corporations, too:

Improves incentives for job creators to work, invest, and innovate in the United States by lowering the corporate tax rate from 35 percent, which is the highest in the industrialized world, to a more competitive 25 percent. [p. 6]

As Paul Ryan certainly knows, the effective corporate tax rate in America is lower than that of several other industrialized nations, including Germany, Canada, and Japan. And Ryan also must know that corporations are doing quite well, and profits are soaring. But demand isn't high, in part because a lot of people don't have jobs and those who do have seen their wages stagnate. So those highly profitable corporations aren't hiring as many people as they would if demand was higher. Paul Ryan's solution to all of this is to give those highly profitable corporations more money.

In short, Ryan's job-creation proposals are great — for the tiny number of Americans who already have jobs that pay more than $373,650 a year, and for the corporations who employ them.