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Good To Know

History Lesson #8: Taxing the Rich

Summary: No, the goal of the U.S. is not to help the rich get richer. 

 

 

It seems that somehow the GOP has forced Biden to reconsider raising taxes on the rich, or at least reversing Trump's tax cuts, in an effort to pay for infrastructure and everything else Biden wants.

 

But why? Isn't a study of economics in history able to give Biden the guidance he needs? Let's give Biden the tools he needs to raise the taxes on the rich before the U.S. comes crashing down around our feet.  But also, it's the GOP's job to make Biden fail.

 

Here's a report from CBS News: "Poll after poll show that people favor higher taxes to reduce the deficit. That's because, while susceptible to demagoguery, most of us aren't total idiots. The case for balancing the budget in part by raising taxes on top income-earners is compellingly simple. Better yet, it's good economics."

 

Good economics. What does that mean? According to this site the Bush era tax cuts during his war contributed greatly to our deficit. That's not hard to believe. Even if the taxes on the rich were raised, their income gains would still dramatically increase compared to the rest of us. Can Bezos stand to pay more in taxes? There's really very little doubt about that.

 

(I would love to stop supporting Amazon but that's the only place my books are currently available. But I will say that my sales have screeched to a halt the better part of this month, so I'm sure others are boycotting.)

 

And there's this: "Recent income gains for the highest-income one percent have far exceeded gains for everyone else, leading to dramatic income concentration at the top of the scale. Now, more than ever, the highest-income households are in a better position to pay taxes."

 

Don't believe CBS? Let's look at another source.  The PEW Research Center has a pretty good rap. Here's what they say about what we think about raising taxes: "By two-to-one (44% to 22%), the public says that raising taxes on incomes above $250,000 would help the economy rather than hurt it, while 24% say this would not make a difference. Moreover, an identical percentage (44%) says a tax increase on higher incomes would make the tax system more fair, while just 21% say it would make the system less fair."

 

Okay, I get it. More of us are in favor than against, which is proportional to more of us voting Democrat to Republican. What are the Republicans afraid of? That rich people will no longer have the money to help them cheat at elections? Okay, you know I'm biased, right? The Republican Party needs a new image, a new mission statement, in order to align with voters today in a more honest and direct way.

 

Now, granted, that was an old survey, but fair enough because of the references above to GW Bush.

 

Here's one from Marketplace.org in 2018, a little more recent.  "One of the most pernicious economic falsehoods you'll hear during the next seven months of political campaigning is there's a necessary tradeoff between fairness and growth. By this view, if we raise taxes on the wealthy the economy can't grow as fast," noted Robert Reich. He noted that taxes were higher on the rich in the first three decades after World War II than they've been since. He also said Clinton's taxes on the wealthy contributed more to the growth of the economy than did Bush's tax cuts after him.

 

"What we should have learned over the last half century is that growth doesn't trickle down from the top. It percolates upward from working people who are adequately educated, sufficiently rewarded, and who feel they have a fair chance to make it in America."

 

Let's look at an opposing opinion to see how much sense it makes.  "Luckily, there are some people out there who understand why higher taxes are bad for the economy and society. Steven Horowitz of Libertarianism.org is certainly one of them and he does a terrific job of explaining just why the current tax-scheme regime is hurting America. In his recent article, "The Social Harms of Taxing Private Wealth," Horowitz does a great job of defending capitalism and the current private financial system and he explains why the Democrats are so misinformed about wealth and what a wealth tax would mean for not only our nation's billionaires but also every other productive member of society."

 

Oh my goodness. We cannot take a chance on hurting billionaires? Maybe someone who has 5 billion will end up with 4 billion and that will just destroy him? I'm sorry, it's hard to take those people seriously. Please look at their link if you want to read more. I'd rank those comments right up there with QAnon lies about mass shootings being fake.

 

When did trickle down start? How about Coolidge? Coolidge both cut taxes and cut the federal budget. He knew that to cut taxes you had to cut spending. Fair enough. No brainer, really. He served during the roaring Twenties, a time of tremendous economic boom, during which a middle class was created. The war was over -- it was time to dance. The tax was reduced on the wealthiest from 77% to 7% he was the one to start Reagan's "trickle down" economics by lowering taxes on businessmen.

 

Economic historian Steve Fraser felt that the Coolidge administration perfected "crony capitalism," where you could no longer tell the difference "between the representation of a political constituency and the servicing of a corporation client."

 

This was a happiness bubble that grew too big and finally burst. But not under Coolidge. He didn't like to see what was happening to the stock market but he felt it wrong for the government to interfere. He chose not to run again, Shlaes said, because he'd had enough.

 

So that particular trickle down, if left uncorrected under Hoover, led to the crash of 1929. From what I could find, Hoover further cut taxes, believing in hands-off capitalism. He too believed people would benefit if the rich business owners had more money.  So low taxes on the rich directly led to the depression, it seems.

 

Most of us remember Ron Reagan as being the one who created trickle-down. It didn't start with him, but obviously he didn't know his history. Reagan called his program of cutting taxes to produce more jobs and reducing regulations to get the federal government out of business interests as "The New Federalism."

 

Reagan's package offered no relief when the country went into a devastating recession. High interest rates put the stopper on everything from home mortgages to factory prosperity. They finally realized they had to drop oil prices and Reagan also cut domestic programs. The federal deficit, however, continued to grow, because Reagan funneled domestic savings into the defense budget, while the taxes for the wealthy were cut dramatically to create that 'trickle-down' that would produce jobs.

 

Did you notice that today even your CDs get very little interest? I wonder why that is. Yes, no economic growth thanks to the pandemic. But maybe taxing the rich would help.

 

In 1981 there was a serious recession, with unemployment as high as 11%. Growth from tax cuts failed to materialize; he thought slashing income tax up to 25% would encourage people to reinvest in the economy. "Debt interest payments became the government's third largest bill after defense problems and entitlements such as public assistance." As Reagan assured the people to stick with him, Congress enacted a $100 billion tax increase. By 1983 the country again experienced a period of growth.

 

Hey, I'm not making this stuff up. Some of the above, by the way, you can find in "From Lincoln to Trump."

 

Here's a summary found online.

 

"As projections for the deficit worsened, it became clear that the 1981 tax cut was too big. So with Reagan's signature, Congress undid a good chunk of the 1981 tax cut by raising taxes a lot in 1982, 1983, 1984 and 1987. George H.W. Bush signed another tax increase in 1990 and Bill Clinton did the same in 1993. One lesson from that history: When tax cuts are really too big to be sustainable, they're often followed by tax increases."

 

So now it's time for that tax increase, Mr. Biden. Congress must act.

 

"The other argument that advocates of tax cuts for the rich make is that many small-business owners would be see their taxes go up and thus would be discouraged from hiring workers. The facts do not support this. "Only 3 percent of small-business owners are in the top bracket," notes Roberton Williams, a senior fellow with the Tax Policy Center, which is sponsored by the Brookings Institution and the Urban Institute. And, he adds, "They are not all what we think of as job-creating small businesses. A lot of them are hedge-fund managers and law-firm partners." So other than perhaps a few restaurateurs on Manhattan's Upper East Side, the workforce is unlikely to be affected."

 

This was another article about the Bush tax cuts expiring.  Jeepers, I sure hope they did because if not, we have Trump tax cuts on top of them. No wonder rich men can afford to build spaceships.

 

Oh wait …

 

The Bush tax cuts were two tax code changes that President George W. Bush authorized during his first term. Congress enacted tax cuts to families in 2001 and investors in 2003. They were supposed to expire at the end of 2010. Instead, Congress extended them for two more years, and many of the tax provisions remain in effect—and continue to affect the economy—to this day.

 

Son of a gun.

 

 

SOURCES:

 

From Lincoln to Trump: A political transformation

 https://www.cbsnews.com/news/why-raising-taxes-on-the-rich-is-good-economics/ 

 https://www.pewresearch.org/politics/2012/07/16/raising-taxes-on-rich-seen-as-good-for-economy-fairness/ 

 https://www.marketplace.org/2012/04/18/taxing-rich-good-economy/ 

 https://genzconservative.com/why-higher-taxes-are-bad-for-the-economy/ 

 https://www.thebalance.com/president-hoovers-economic-policies-4583019 

 https://www.brookings.edu/blog/up-front/2017/12/08/what-we-learned-from-reagans-tax-cuts/ 

 https://www.newsweek.com/would-raising-taxes-rich-hurt-economy-74041. 

 https://www.thebalance.com/president-george-bush-tax-cuts-3306331 

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