How will wealth and corporate tax changes impact investment, innovation and job creation?

There is a pervasive myth that the wealthiest in our society are the “job creators” and that peoples’ ability to accumulate extreme levels of wealth is critical to investment, innovation and employment. This is essentially ‘trickle-down economics’, and it isn’t supported by the evidence.

On the contrary, studies overwhelmingly show that public spending and consumer demand, that is enabled through a more redistributive tax system (not wealth accumulation by the few), are critical to job creation and innovation.

Moreover, research shows that a net wealth tax and capital gains taxes can serve to shift investment from less productive to more productive assets, which supports economic growth and job creation.

Estimates suggest that across the world public spending supports about half of all jobs. Research by the IMF shows that every US$1 million of public spending on infrastructure in advanced economies directly creates 3-7 jobs directly, and many more indirectly. If we raise taxes on the wealthiest, which contribute to expanded public spending on infrastructure and services, this can have a powerful pro-employment and pro-productivity impact, in both the public and the private sectors.

Wealth inequality and growing poverty have a negative effect on consumer demand, which in turn depresses employment. Modelling has shown that redistributing wealth from those who save a larger proportion of their resources (highest deciles) to those who spend a larger proportion of their resources (lowest deciles) increases overall consumption, which increases employment. By contrast, cutting taxes for the wealthiest 10% does little to stimulate employment.

While we have good evidence that public spending and aggregate demand increases create jobs, the idea that we need very wealthy people to drive job creation is not supported by the evidence, and in fact the opposite is likely true—that wealth concentration is bad for productivity, innovation and employment. A large proportion of the wealth owned by New Zealanders at the top of the distribution is held in unproductive forms, like property or shares in offshore companies. Wealth taxes may shift investment into more productive assets. Research into Norway’s wealth tax found that when the wealth tax was increased, wealthy people who owned medium-sized businesses were more likely to shift their savings into their business, which resulted in a positive effect on employment—in other words the wealth tax stimulated job creation by penalising the hoarding of unproductive assets.