If I were a small business owner, I think it stands to reason that I would create jobs (hire new employees) if and only if I believed that by doing so, and expanding my business, I could make more money in the long term. I wouldn't create new jobs out of the goodness of my heart, just because I had extra cash lying around. And if I didn't have extra cash lying around, but saw an opportunity to expand and wanted to hire more employees, I would take out a loan, or take on a partner; I would find a way to raise the necessary capital. I might be able to take advantage of a slightly more marginal opportunity if I had capital on hand instead of needing to take out a loan, since I wouldn't have to pay interest in the former case . . . but I think even this is wiped out if you consider opportunity costs: as long as I can make about as much in interest, dividends, or appreciation on my extra capital as I'd have to pay in interest on a loan, it's a total wash.
Doesn't this completely kick the stool out from under the conservative, supply-side argument that tax cuts for wealthy people / business owners are the best tool for spurring job creation and economic growth?
I think that really this requires a somewhat more nuanced analysis, taking into account the affects of incorporation, corporate tax rates, and the capital gains rate, since the immediate economic impact of improved small-business profits for the owner of an incorporated business isn't reflected in his income, but in the value of his assets (I think). I certainly don't have the expertise to analyze the situation at this level, but I'd be interested to read about it. posted by Miles 10:54 AM