The theory is that it does create jobs, or at least prevent the loss of jobs.
Illustration:
Company A has $1,000
Co. normally has to pay $200 in taxes
It costs $500 to get their product to market
Salaries for Company A's employees cost $400
$200 + $500 + 400 = $1100. Where does company A make up the $100? Well, part of it comes from canning employees. If the taxes are reduced by the gov, however, fewer employees must be cut to keep the company viable. Now multiply those numbers by 1000 or a million, and you're talking not just about a lot of money, but about the salaries of a lot of people. Now, proving that it CREATES jobs is beyond my limited econ. knowledge. But it seems like it's effective damage control to a point. It even stimulates spending: when most individuals don't have to give their cash to the gov. they have a tendency to spend it. (for some reason, when humans have spare cash, they don't make major investments, they spend it -- companies invest, but either way, it's cash in use and good). They don't stick it in a sock drawer.
Which is the theory behind Bush's tax rebate. There's a lot of opposition stating that HUGE deficits will result because of it. But what are most people going to do with $100 (essentially free? After all, they thought it was already gone and even people who follow budgets will have created them not counting on the $100, it's essentially extra cash with no plan). Well, they might go pick up that game or DVD they've been wanting. They go out to dinner or buy extra ice cream, or whatever. spending increases company profits, which encourages them to grow, which means more jobs.
