No Credit
5 January 2009
Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281
To the Editor:
Barack Obama wants tax credits "for companies that make new hires or forgo layoffs" ("Obama Eyes $300 Billion Tax Cut," January 5). Be wary. By artificially lowering firms' cost of increasing output by employing more workers, such credits tamp down firms' incentives to increase output by investing in capital such as machinery, R&D, and worker training. Because real wages rise as worker productivity rises - and because worker productivity rises with greater amounts of capital - such tax credits will prevent wages from rising as fast as they would otherwise rise.
A far better policy would be to cut the rate of capital-gains taxation. That way, firms would still have heightened incentives to produce, but with a better mix of labor and capital.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281
To the Editor:
Barack Obama wants tax credits "for companies that make new hires or forgo layoffs" ("Obama Eyes $300 Billion Tax Cut," January 5). Be wary. By artificially lowering firms' cost of increasing output by employing more workers, such credits tamp down firms' incentives to increase output by investing in capital such as machinery, R&D, and worker training. Because real wages rise as worker productivity rises - and because worker productivity rises with greater amounts of capital - such tax credits will prevent wages from rising as fast as they would otherwise rise.
A far better policy would be to cut the rate of capital-gains taxation. That way, firms would still have heightened incentives to produce, but with a better mix of labor and capital.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Thursday May 28, 2009 at 11:04am