Federal Worker Pay Freeze Unjustified and Ineffective

by Mark Sumner on November 30, 2010

Here’s a shocker for you: rich people don’t create jobs. Demand creates jobs. And demand is created when the vast majority of people, lower and middle class people, feel secure enough in their lives to spend some of their very hard earned cash.

The White House Council of Economic Advisers has stated that extending tax cuts for the wealthy is a bad idea. In fact, there’s very good evidence that low tax rates at the top depress the economy. Low tax rates encourage the already wealthy to keep even more funds for themselves by cutting staff and reducing benefits.

Extending the high-income tax cuts would provide very little job creation in 2011. … The Congressional Budget Office lists a tax cut for high-income earners as a particularly ineffective job creation measure. … The vast majority of economic research shows that higher-income earners spend less of a tax cut and so tax cuts to those earners create fewer jobs throughout the economy.

Reducing taxes on corporations is also highly ineffective as a means of stimulating the economy.

Numerous government and independent studies agree that corporate tax rate cuts provide relatively little “bang-for-the-buck” as stimulus.

What does work? Making sure that lower and middle class workers have enough funds on hand to meet their immediate needs. Which is why freezing the pay of federal workers is far, far worse for the economy than allowing the tax cuts to expire for the wealthy. It could be seriously (and convincingly) argued that raising tax rates for corporations and the wealthy would actually be good for the economy. It can’t be argued that imposing a $60 billion penalty on middle class workers — which is exactly what this is — will do anything but retard economic growth and reduce job production.

Of course, there’s chatter both on the right and among the punditocracy that government workers are overpaid, based on a study that showed federal workers often earning more than their counterparts in private industry. What this study doesn’t point out is that the specialists being hired by the government are often those with years of experience, exactly because the government is hiring experts in their fields to help determine effective means of regulating health and safety. You could staff the CDC with interns and FEMA with rookies if you want cost savings, but the real price would be very dear.

Freezing the pay of federal workers is an ineffective means of generating savings, and a certain means to punish a large number of middle class workers because the funds that might have gone to their paychecks, went instead into the bonus checks of Wall Street executives.

Mark Sumner is the author of the nonfiction work “The Evolution of Everything” as well as several novels including “Devil’s Tower,” and is a front-page editor at Daily Kos. This piece was first published on Daily Kos.

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