The people who have created the tax cut framework that was presented by the Trump administration have based its success on one main claim that reducing taxes for the wealthy and corporations will spur growth. They argue that this will be possible as it will open opportunities in investments and entrepreneurship which will revive the American economy and lead to job growth. While this might sound like something logical, it’s far from the truth. An economic expert recently narrated his story to the New York Times in an effort to explain how the tax cuts will not work. The expert says that he considers himself as a job creator, at least this is what many politicians call him. He further says that he established a company in Silicon Valley 16 years ago with his other five friends. He says that the software company grew after experiencing some difficulties in the beginning and now serves millions of people that are spread in 30 countries. At the same time, the company employs over 2,000 people across the globe and has an annual revenue of $500 million. The company being referred here is Guidewire States and has a valuation of $5 billion in the New York Stock Exchange. The economic expert is the chief executive of this company.
As a result, our expert says that lower tax rates do not guarantee people will establish new companies. What the administration has failed to understand is that people establish companies for many reasons. This could be because they are frustrated by their employer, some want to be their own boss while others have a compelling reason. People may establish companies because they want to make fortunes and make names for themselves in the process. He further says that he has never heard a person say that the reason they didn’t start their own company is because of high tax rates. In fact, some of the most successful entrepreneurs in America established their ventures at a time when taxes were high. This includes the likes of Jeff Bezos, Steve Jobs, and Bill Gates. Empirical research from scholars such as Mark Wilhelm and Robert Moffit has also shown the same. Going by the words of Warren Buffet that he has never met an investor who refused to invest due to tax rates also solidifies the reasoning that tax rate reduction will not result in increased employment. All that a tax cut will help us achieve is the post-tax profitability.