To add a little bit to what Jon Chait has to say about Rep John Shadegg the whole notion that you drive the economy forward by directing more money into the hands of “job creators” (i.e., rich people) makes basically no sense. A job creator is basically a businessman with an idea. If it’s a good idea, a business based around his idea will attract customers. And if it attracts customers, he’ll hire employees to serve those customers’ needs. This is where growth comes from.
But a businessman with a good idea who needs capital doesn’t need a tax cut to get that capital, he needs a loan or an equity investment. This is what we have a financial system for. Sergey Brin doesn’t need to first get rich, then finance Google out of his own pocket. He just needs to start Google and that’s how he gets rich.
The thing of it is, though, that your idea really only works if you have some customers. If everyone in Yuma, Arizona is unemployed then even a very competent proprietor of a dry cleaning establishment is going to have a hard time expanding his business. He won’t take out a loan to expand, he won’t get an equity investment to expand, and he won’t invest his own money in an expansion. You can give the guy all the money you want, and he won’t invest in expanding his business. That’s because unemployed people don’t need much dry cleaning and also don’t have much money to spend on dry cleaning. A guy with $0 and a good idea and a lot of potential customers will find a way to start his business. A guy with $1 billion and a good idea and no potential customers is just a guy sitting on a huge stockpile of cash. Things like the availability of credit matter, but credit is currently available. What’s not available is customers with money and an inclination to spend it. More government spending and more money-creation will lead to more purchases, more customers, more business expansion, and more hiring. Then people with good ideas will make a lot of money and complain about their high taxes.