Job Creationism

By Victor Fleischer


Does a low tax rate on entrepreneurial income create jobs?  Tax scholars view this question as empirical in nature.  But for many policymakers, voters, and even some academics, the relationship between taxes and entrepreneurship is a matter of faith.  If there is a question, it is one of ideological commitment, not evidence and reason.

Consider the ease with which politicians claim that tax cuts for entrepreneurs and investors create jobs and fuel economic growth.  This claim would appear to be a falsifiable claim subject to empirical observation and testing.  But evidence in support of the claim is, in fact, hard to come by.  The evidence instead suggests that at moderate tax rates (below, say, 50 percent), tax policy has little effect on the marginal rate of entrepreneurial entry or the marginal growth rate of new firms.  Singling out entrepreneurs and their investors for tax breaks is not a policy of job creation.  It is job creationism.

This Article considers four ways of interpreting the phenomenon of job creationism:  (1) as a cynical ploy to shovel tax benefits to the rich; (2) as an exercise in hero worship; (3) as an ideological claim properly beyond the scope of scientific inquiry; or (4) as a legitimate empirical comparison of our system of entrepreneurial capitalism to other capitalist systems.