Taxes on the rich are actually good for the economy.

[I AM NOT THAT GUY 5,715]

The Great Tax Con

Everyone knows that higher taxes slows down an economy, while tax cuts stimulate the economy. That is just common sense. If you are taxed less, you have more of your money to spend, and all of that spending is good for the economy.

What most people don’t realize is that the result of taxation of the rich, has almost the opposite economic result as taxes on the working classes. Taxes on the rich are actually good for the economy. The reason is that while most working class people use all of their income to survive, the rich make so much money that they can’t spend it all. They sock away the rest in offshore accounts. If someone makes $5 million a year after taxes, and only spends a million on a lavish lifestyle, he will place $4 million in a Swiss bank account. If his taxes are raised one or two million, it won’t affect his lifestyle. He will just sock less money away.

I recently read a piece by Thom Hartman in which he cites research done by Larry Beinhart of the historical economical data, and the history is very clear. Historically taxes on the rich above 60%, stabilize the economy, prevents bubbles and crashes, and leads to steady and sustained wage growth for the working people.

On the other hand tax cuts for the rich resulted in temporary booms that turned into bubbles and then major economic crashes.

In World War 1 the top marginal tax rates were 73%. Under Hoover the taxes went down to 56% then 46% and finally in 1925 to 25%. What followed was called the roaring 20’s followed by the Great Depression.

Roosevelt started stimulating the economy and the government spending during WWII completed the economic recovery. Top tax rates were between 88% and 94%. From Franklin Roosevelt’s term in 1936 to Jimmy Carter’s in 1982 the top tax rates stayed between 70 to 92%. This was the longest period of sustained growth and stability the country has had. There were no bank failures or economic crashes and the middle class grew strong.

Then Reaganomics happened. In 1982 Reagan cut the top tax rates down to 50%. The economy went into “the worst recession since the Great Depression”. The tax cuts remained until another round of tax cuts in 1987 that dropped the top rates to 39.5%. There was a boom that turned into another bubble, which burst in October 1987. This was worst crash since 1929 had bank failures, the Savings and Loan Crises, and the government had to bail out the economy.

Clinton raised the top rate from Bush 1’s 31% to 37% and then to 39%. The economy did extremely well and we actually started paying off the National Debt. When Bush the second took office there were projections of half a trillion dollar surpluses indefinitely.

When Bush dropped the top rates from 39% to 35%, he also dropped capital gains and inheritance taxes. There was an immediate recession and low job growth. Bush maintained the tax cuts even though we started two wars and he financed all three with government borrowing. Housing did well but it was a bubble, and when it burst we had the worst crash since the Great Depression.

The historical evidence is very clear cut. High taxes on the rich result in economic growth and tax cuts for the rich result in recession and low growth.

While it seems paradoxical that high taxes results in economic growth, if you look a little closer you can see what is actually happening. The amount of revenue in the country relative to the GDP remains pretty constant through the years, at about 18% of the GDP. Last year tax receipts were slightly lower than the 60 year average at 17.7%, and they anticipate receipts of 15.4% this year. Even though Reagan dropped the top tax rates on the rich from 70% down to 28%, the total tax receipts stayed the same. In other words if the rich don’t pay the taxes the middle class does. When the rich get tax cuts, the working class has to pay more in hidden taxes, and cuts in services to make up for it, and because money is tight people loose jobs.

When taxes are increased on the rich, the working classes have to pay fewer taxes, they receive more government services, they get more jobs because the government is building more roads etc. They have more money to spend and therefore more jobs are created making stuff for them to buy.

The same thing is true for Corporate Taxes. Half of the major corporations don’t pay any taxes. The small business owners are equivalent to the working class people. The small businesses actually provide most of the employment and production in the country yet the major corporations get most of the tax breaks. If the major corporations were taxed more than the small businesses wouldn’t have to pay as much so they could expand and grow the economy.

Another thing that high marginal tax rates do is reduce income disparity. During the last eight years the income disparity has increased more than ever before. This is a matter of fairness. A person should be compensated according to his value to the society. The very rich hedge fund managers and stock brokers often do more harm to the economy than good. Is it fair that they be compensated thousands of times the wages of our police and firemen? With the anything goes Free Market system the amount of money made has nothing to do with the Ayn Rand myth that people can get rich if they work hard if only the damn government would just leave them alone. Working class people work their butts off, often working two jobs. These are the people that teach our kids, that make our streets safe, and that actually make things. It is very difficult for someone to get rich just by working hard.

You get really rich by using other people’s money. You make leveraged buyouts, you get bonuses for firing people and moving jobs overseas, you sell drugs, you launder money from illegal enterprises like prostitution or sex slavery. It doesn’t matter what illegal or immoral means are used to acquire wealth, if you are rich you are looked up to as a model citizen. It doesn’t have anything to do with hard work. The rich hire others to leverage that money and they become super rich without breaking a sweat.

In my opinion the top marginal tax rates are at record lows and we need to restore them to the historic averages. I think we need to increase the top marginal tax rates, not to the 39% of the Clinton years, but to what they were during the 50 years of stability and growth between 1932 and 1982. Increase them to 60% or above. We should also phase out the corporate welfare to the major industries and redirect those trillions of dollars to small business to get more jobs going. We need to balance the budget, and then when the economy is strong again we can start paying off our Huge National Debt. The only way to do that is to raise taxes.

Increased taxes are inevitable or our country will go bankrupt. The only question is who will pay those taxes, the hardworking middle class who are already straining, or the rich who can afford it? If we tax the working class we hurt the economy and unemployment goes up. If we tax the rich the economy will grow stronger, there will be less income disparity, and we will have more jobs.

Seems like a no brainer to me, but people have been brainwashed by thirty years of conservative thinks tanks, and radio talk shows paid for by the rich. They have pulled off the greatest con in history, getting the middle class to tax themselves, so their rich puppet masters get off easy.

http://www.rantrave.com/Rant/The-Great-Tax-Con-3564.aspx

[Heracles 417]

The top 10 nations with the highest GDP per capita, as in higher then the US, are high taxing countries.

Isn't that the bloody truth if I have ever heard it.

Seems like a no brainer to me, but people have been brainwashed by thirty years of conservative thinks tanks, and radio talk shows paid for by the rich. They have pulled off the greatest con in history, getting the middle class to tax themselves, so their rich puppet masters get off easy.

It never seizes to amaze me how people by Australian standards that are considered dirt poor, are more than willing to defend the mega rich. I believe this is the case because a lot of them, like Joe the plumber, actually believe that if they 'wanted t'o they could be a billionaire; but they just don't want to be. Which is the biggest bunch of horse poop I have ever heard.

The top 5% of the country hold the majority of the wealth. The rest are fighting for scraps. It's these people who hire experts and spend billions in keep the poor stupid an naive so they they remain rich.

Edited August 29, 2009 by haza

[Heracles 417]

Bill, good article, I see you get it too. Well at least on this issue.

• taxation of the rich, has almost the opposite economic result as taxes on the working classes. Taxes on the rich are actually good for the economy. The reason is that while most working class people use all of their income to survive, the rich make so much money that they can’t spend it all. They sock away the rest in offshore accounts. If someone makes $5 million a year after taxes, and only spends a million on a lavish lifestyle, he will place $4 million in a Swiss bank account. If his taxes are raised one or two million, it won’t affect his lifestyle. He will just sock less money away.
• Historically taxes on the rich above 60%, stabilize the economy, prevents bubbles and crashes, and leads to steady and sustained wage growth for the working people. On the other hand tax cuts for the rich resulted in temporary booms that turned into bubbles and then major economic crashes.
• The historical evidence is very clear cut. High taxes on the rich result in economic growth and tax cuts for the rich result in recession and low growth.
• When taxes are increased on the rich, the working classes have to pay fewer taxes, they receive more government services, they get more jobs because the government is building more roads etc. They have more money to spend and therefore more jobs are created making stuff for them to buy.
• people have been brainwashed by thirty years of conservative thinks tanks, and radio talk shows paid for by the rich. They have pulled off the greatest con in history, getting the middle class to tax themselves, so their rich puppet masters get off easy.

This is actually why other developed countries tax the mega rich so much. It is also exactly why the average person in countries like Australia is doing so well. Whereas, the equivalent, especially blue collar workers, are poor here. But nope, they're the first to defend the rich.

Edited August 29, 2009 by haza

[I AM NOT THAT GUY 5,715]

Bill, good article, I see you get it too. Well at least on this issue.

• taxation of the rich, has almost the opposite economic result as taxes on the working classes. Taxes on the rich are actually good for the economy. The reason is that while most working class people use all of their income to survive, the rich make so much money that they can’t spend it all. They sock away the rest in offshore accounts. If someone makes $5 million a year after taxes, and only spends a million on a lavish lifestyle, he will place $4 million in a Swiss bank account. If his taxes are raised one or two million, it won’t affect his lifestyle. He will just sock less money away.
• Historically taxes on the rich above 60%, stabilize the economy, prevents bubbles and crashes, and leads to steady and sustained wage growth for the working people. On the other hand tax cuts for the rich resulted in temporary booms that turned into bubbles and then major economic crashes.
• The historical evidence is very clear cut. High taxes on the rich result in economic growth and tax cuts for the rich result in recession and low growth.
• When taxes are increased on the rich, the working classes have to pay fewer taxes, they receive more government services, they get more jobs because the government is building more roads etc. They have more money to spend and therefore more jobs are created making stuff for them to buy.
• people have been brainwashed by thirty years of conservative thinks tanks, and radio talk shows paid for by the rich. They have pulled off the greatest con in history, getting the middle class to tax themselves, so their rich puppet masters get off easy.

This is actually why other developed countries tax the mega rich so much. It is also exactly why the average person in countries like Australia is doing so well. Whereas, the equivalent, especially blue collar workers, are poor here. But nope, they're the first to defend the rich.

Thanks, Steve.

[Heracles 417]

I have said it before, I am all for people earning money. What I don't like is seeing people be paid minimum wage while the big guys earn $2 or $3 billion, yet pay little to no tax. Why not earn $1.5 billion, which is more than enough and allow the other $500 million to flow into the workers pockets, so they have a bit extra left over to spend. To stimulate the economy. For someone who is mega rich $1.5 billion or $1 billion annually is still more than they can spend. For the worker, $200 more a week could be the difference of foreclosure or not. I don't know how Americans have been conned for so many years on this. Many of these billionaires store their money here, making other countries rich.

First year I was here I joined the dots, quick-smart, and realized exactly what was going on. Especially when I used to listened to conservative talk show hosts claiming that taxing their $45 million for talking on a radio for a few hours a day is unethical; while the walmart employee working 40 hours a week, barely above minimum wage, should pay his tax ad be grateful he even has a job.

Edited August 29, 2009 by haza

[Heracles 417]

Many of these billionaires don't store their money here, making other countries rich anyway.

Is that what people call pro American? They only care about America as long as it's making money for them. Any threats of them leaving is just a threat, a bluff, as they know perfectly well that they would be taxed over 50% on any earnings over $200K anywhere else.

Edited August 29, 2009 by haza

[kayandnigel 0]

Many of these billionaires don't store their money here, making other countries rich anyway.

Is that what people call pro American? They only care about America as long as it's making money for them. Any threats of them leaving is just a threat, a bluff, as they know perfectly well that they would be taxed over 50% on any earnings over $200K anywhere else.

Well said!

[AlHayatZween 2]

interesting read....

[_Simpson_ 250]

The biggest problem with this article is that it assumes that all these problems are directly because of tax percentages.Its a real biased article that only points out facts that try to help support this no name blogger from Eugene.

I will have to disagree with Haza and say Bill this is a horrible article.

Edited August 29, 2009 by -Simpson-

[I AM NOT THAT GUY 5,715]

The biggest problem with this article is that it assumes that all these problems are directly because of tax percentages.Its a real biased article that only points out facts that try to help support this no name blogger from Eugene.

I will have to disagree with Haza and say Bill this is a horrible article.

Not good enough. Show us how and where he is wrong, and which of his conclusions are unsupported by facts.

[DEDixon 39]

Yeap, I'm all for soaking the super rich.

I'm also all for a mega property tax on McMansions. If they want a 15,000 sq ft home, they should pay something to counter the resources used to heater and cool a home of such size. The county receiving the extra property tax could use it for "green" purposes. All this and I'm not a "green" monger at all, but I realize these huge homes are total BS.

[dalegg 143]

Many of these billionaires don't store their money here, making other countries rich anyway.

Supposedly that's going to come to an end Overseas Bank Accounts More Vulnerable to IRS Scrutiny

We'll see. A lot of these guys are pretty clever.

Edited August 29, 2009 by dalegg

[I AM NOT THAT GUY 5,715]

Many of these billionaires don't store their money here, making other countries rich anyway.

Supposedly that's going to come to an end Overseas Bank Accounts More Vulnerable to IRS Scrutiny

We'll see. A lot of these guys are pretty clever.

Is that because they are rich, or are they rich, because they are clever?

[_Simpson_ 250]

The biggest problem with this article is that it assumes that all these problems are directly because of tax percentages.Its a real biased article that only points out facts that try to help support this no name blogger from Eugene.

I will have to disagree with Haza and say Bill this is a horrible article.

Not good enough. Show us how and where he is wrong, and which of his conclusions are unsupported by facts.

Well for starters how he tries to associate the bubble bursts to the tax percentage. In 87 we had a burst, which had nothing to do with tax percentages, theres been a lot of speculation to what it was but how much the rich were being taxed was not one of them. By the end of 87 we had recovered and the economy was barely affected. So from 1982 to 2000 our economy was doing pretty good until we had the dot com bust which had nothing to do with tax percentages.

The writer assumes that the billionaire will have one or two million less in his bank account if we increase taxes. I disagree I think usually the billionaire will have just as much in savings but wont invest as much. Either way it really isnt a good argument to why we should tax the rich at ungodly amounts. It does affect us at the bottom too.

Edited August 29, 2009 by -Simpson-

[dalegg 143]

Many of these billionaires don't store their money here, making other countries rich anyway.

Supposedly that's going to come to an end Overseas Bank Accounts More Vulnerable to IRS Scrutiny

We'll see. A lot of these guys are pretty clever.

Is that because they are rich, or are they rich, because they are clever?

When you are a billionaire you don't have to be clever. You can pay somebody else to be clever. A good many of them are rich in part because they are clever though of course.