January 14, 2004

More on Tax Cuts and Unemployment

Jeff Cornwall has more on the notion that tax cuts increase the official unemployment rate by luring more people into the workforce, discussed here yesterday in response to a post by Roosevelt University economics professor (and EconoPundit blogger) Steven Antler. Cornwall, a professor of entrepreneurship, postulates a similar impact of tax cuts on entrepreneurialism and the interest people have in starting a business.

Tax cuts create more potential, or at least perceived potential, for real wealth for entrepreneurs since most entrepreneurs choose legal forms for their companies that tax them at the personal rate (i.e., S-corp, LLC, sole proprietorship, or partnership). That is, the potential risk for becoming an entrepreneur is off-set by higher returns due to the lower tax rates.

Meanwhile, in related economic data, employment in the United States at the end of December 2003 stood at 138,479,000 people employed - 2,643,000 more than at the end of December 2000, right before George W. Bush became president.

That's right. 2.6 million more people are working today than at the end of the Clinton administration.

(All of the monthly reports are here.