This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
A return to Eisenhower-era 90% top tax rates helps fix our economy in several ways:
1) It makes it take longer to end up with a fortune. In fact it makes peoplebuild and earn a fortune, instead of shooting for quick windfalls. This forces long-term thinking and planning instead of short-term scheming and scamming. If grabbing everything in sight and running doesn’t pay off anymore, you have to change your strategy.
2) It gets rid of the quick-buck-scheme business model. Making people take a longer-term approach to building rather than grabbing a fortune will help reattach businesses to communities by reinforcing interdependence between businesses and their surrounding communities. When it takes owners and executives years to build up a fortune they need solid companies that are around for a long time. This requires the surrounding public infrastructure of roads, schools, police, fire, courts, etc., to be in good shape to provide long-term support for the enterprise. You also want your company to build a solid reputation for serving its customers rather than cheapening the product, pursuing quick-buck scams, cutting customer service, etc. The current Wall Street/private equity business model oflooting companies, leaving behind an empty shell, unemployed workers anda surrounding community in devastation will no longer be a viable business strategy.
3) It will lower the executive crime rate. Today it is possible to run scams that let you pocket huge sums in a single year, and leave behind the mess you make for others to fix. A high top tax rate removes the incentive to lie, cheat and steal to grab every buck you can as fast as you can. This reduces the temptation to be dishonest. If you aren’t going to keep the whole dime, why risk doing the time? When excessive, massive paydays are possible, it opens the door to overwhelming greed and a resulting compromising of principles. Sort of the definition of the decades since Reagan, no?
4) Combined with badly-needed cuts in military spending – we spend more on military than all other countries on earth combined – taxing the wealthy ends budget deficits and starts paying off the massive Reagan/Bush debt. This reduces and ultimately eliminates the share of the budget that goes to pay interest. The United States now has to pay a huge share of its budget just to cover the interest on the borrowing that tax cuts made necessary. Paying off the debt would remove this huge drag on our economy. (Never mind that Alan Greenspan famously called for Bush’s tax cuts by saying it was dangerous to pay off our debt – now that same Alan Greenspan says we need to cut benefits to retired people because our debt is so high.)
5) It will bring in revenue to pay for improvements in infrastructure that then cause the economy to explode for the better. Investing in modern transit systems, smart grid, energy efficiency, fast internet and other improvements leads to a huge payoff of increased prosperity for all of us – especially for those at the top income levels. Infrastructure improvement and maintenance is the “seed corn” of economic growth. We have been eating that seed corn since Reagan’s tax cuts.
6) (related) It will bring in revenue for improving our schools, colleges and universities. Not only will this help our competitiveness, but it will improve each of our lives and level of happiness.
7) It will boost economic growth and rebuild a strong middle class. A consumption-based economy does better when consumers have more to spend. Perhaps not cause-and-effect, though I suspect so, but after FDR raised top tax rates the economy grew dramatically. The 90% top rate years under FDR, Truman, Eisenhower and the beginning of the Kennedy years were the years when we built the middle class. And remember, after Clinton raised top tax rates only modestly the economy grew. How’s it been doing since Bush’s tax cuts for the rich?
A look at economic growth rate charts shows a steady decline in the decades since top tax rates began to fall. Is it just a coincidence that the economy booms after tax increases that provide revenue to invest in new “seed corn,” and that the economy declines as we reduce taxes?
8) It is good for business because increased revenue will enable increasing government spending for the benefit of regular people. This recirculates money into the economy more productively than the current system of putting huge fortunes into a few hands and hoping for a resulting consumption of high-end goods. The wealthy can only spend so muc h so more disposable income in the hands of regular people is good for business. Any business owner will tell you they want customers more than they want tax cuts. (Let’s wait until th
e top one percent no longer owns most of everything before we talk about whether there is an effect on investment.)
9) It protects working people. Exploiting workers with long hours, low pay or lack of pay increases, lack of worker protections, firing union organizers and schemes that call employees “contractors” will no longer pay off as it does today. The era of extreme union-busting came in at the same time as the tax cuts.
The chart shows the share of the richest 10 percent of the American population in total income – an indicator that closely tracks many other measures of economic inequality – over the past 90 years, as estimated by the economists Thomas Piketty and Emmanuel Saez.
10) It redistributes income and wealth in ways that help all of us. Currently a few people receive most of the income and own most of everything. A very high top tax rate reduces this concentration of wealth.
11) It fights the political instability that results from concentration of wealth. Great inequality in a society and the resulting loss of opportunity results in political instability that can lead to extreme ideologies, rebellion, etc. We are seeing all the signs of a resurgence of these problems today.
12) It will help rebuild our sense of democracy and belief in equality. As we have seen and are seeing, when too much is in the hands of too few, they have too much power and influence and use it to get even more.
13) It will strengthen the government that We, the People have worked hard to build, and strengthen its ability to enforce the laws and regulations that protect all of us and the resources we hold in common. It will increase its ability to provide all of us equally with the benefits of our joint efforts and our economy.
14) Finally, for good measure, increasing top tax rates will cause those affected to work harder to make up the difference. The Ayn Randians claim the very rich are the “producers” and all the rest of us are just parasites and slackers who feed off their “work.” So it will be very good for our economy to get them working harder by taxing them at 90%! You may have heard about those 25 hedge fund managers who brought in an average of $1 billion each last year – an amount that would have paid for 658,000 teachers — while the rest of the country suffered through a terrible economy. If we had a top tax rate of 90% they would “only” take home $100 million or so each – in a single year. And we could have 658,000 more teachers. So it’s a win-win.
Taxes are how we all pitch in to enjoy the benefits and protections of modern society. Those benefits and protections are what enable people to become wealthy, and we ask that they give some back so others can prosper as well.
Your analysis is based upon the assumption that increasing the marginal tax rates makes people work harder and wiser. Why this would be so is, of course, counter intuitive and never explained. It would seem much wiser to either work less or move away from taxation.
Your proof for these counter-intuitive claims is a comparison of marginal tax rates against GDP. Why not compare the payouts of tooth faries versus GDP? It makes about as much sense. Your failure is that you ASSUME that marginal tax rate has anything to actually do with what taxes one does pay. The Eisenhower tax code was filled with exemptions and loopholes. Nobody paid those high rates. A better analysis would be look at what people ACTUALLY paid versus the GDP. Doing so produces entirely different results. It produces Hauser’s law which shows that the actual amount of the GDP collected in taxes has been a constant 19.5%.
Well, how can this be? It is quite logical. Increase the marginal tax rates and people devote their efforts to avoid paying them. Ironically, the greatest amount of taxes collect as a percent of GDP occurred after Reagan cut the marginal tax rates in 1982. Why? There was simply less incentive to game the system.
So, your analysis is funadamentally incorrect. Your analysis assumes people’s behavior is exactly the same regardless of the marginal tax rate. Not only is that difficult to believe (it is actually quite silly to believe it) but there is ample evidence to show that it is not true. An example of this is a list of the top counties in the country where the rich are actually moving. I will quote:
The dominance of the list by Florida and Texas–the former has eight of the top 20 counties, the latter four– makes sense to Robert Shrum, manager of state affairs at the Tax Foundation in Washington, D.C., since neither state has an income tax. “If you’re a high-income earner, then that, from a tax perspective, is going to be a driving decider if you’re going to move to one of those two states,” Shrum says.
After accounting for property taxes, Shrum’s analysis shows that Texas has the fourth-lowest personal tax burden in the country, and Florida has the eighth lowest. Shrum also points to eight states that have targeted wealthy households with extra-high tax brackets: California, New Jersey, New York, Maryland, Hawaii, Oregon, Connecticut and Wisconsin. Six of the top 10 counties the rich are fleeing are located in those states.
What the above shows in that people change their behavior based upon marginal tax rates.
David’s comment propagates the myth of the theoretical Laffer curve, which as much as proponents of low taxes wish to believe it as fact, is simply a theory. A theory which in practice falls apart when you consider countries like Denmark which have some of the highest tax rates, upward of 63%, in the world yet has been ranked the top country for business by Forbes for the past three years, 2008, 2009 and 2010.
Also your comparison of a state’s tax rate attracting the wealthy and encouraging them to move to states like Florida and Texas is comical. Alaska and New Hampshire have far lower tax burdens than Texas and Florida yet the wealthy aren’t moving there and overall those two states have anemic population growth compared to the National average. Bruner actually starts his article with probably a more accurate statement “Surprise: America’s wealthy like warm weather and low taxes.” Emphasis should be on “warm weather” because the wealthy have ignored the lower tax rates in colder Alaska and New Hampshire.
The flawed logic of arguments like your own are endemic of the simplistic perspective of the conservative pro-business position.
David’s comment propagates the myth of the theoretical Laffer curve, which as much as proponents of low taxes wish to believe it as fact, is simply a theory. A theory which in practice falls apart when you consider countries like Denmark which have some of the highest tax rates, upward of 63%, in the world yet has been ranked the top country for business by Forbes for the past three years, 2008, 2009 and 2010.
Also your comparison of a state’s tax rate attracting the wealthy and encouraging them to move to states like Florida and Texas is comical. Alaska and New Hampshire have far lower tax burdens than Texas and Florida yet the wealthy aren’t moving there and overall those two states have anemic population growth compared to the National average. Bruner actually starts his article with probably a more accurate statement “Surprise: America’s wealthy like warm weather and low taxes.” Emphasis should be on “warm weather” because the wealthy have ignored the lower tax rates in colder Alaska and New Hampshire.
The flawed logic of arguments like your own are endemic of the simplistic perspective of the conservative pro-business position.
Anonymous’s comment contains a lot of faulty logic and inaccurate facts. First, Denmark’s corporate tax rate is a flat 25%, lower than the 39% top rate in the US, and in 2010 Denmark’s personal rate is capped at 51.5%, not “upwards of 63%”. (http://www.taxrates.cc/html/denmark-tax-rates.html). No wonder business likes Denmark. But,how many of the world’s millionaires are planning to move there any time soon? I don’t think there is a line.
As for the emphasis on warm weather, if your statement were true then ALL the rich people would live in Santa Barbara, CA, or elsewhere on the southern California coast. That is the best weather in the world (I lived there 52 years), but apparently the wealthy consider more than one factor when making major life decisions because they are choosing to go elsewhere. The State/local tax burden in New Hampshire is 7.6%, in Texas 8.4% (http://www.retirementliving.com/tax_burden_2008.pdf) How much snow would you shovel for .8% ? And Alaska? Get real.
In 1981 the top 1% paid 17.6 percent of all personal income taxes, in 1988 they paid 27.5%,(http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm) in 2008 it was 38.02%. (National Taxpayers Union) In 1981, the middle class (50th to 95th percentiles) paid 57.5% of all income taxes, in 2008 it was 38.58%. So, Reagan’s tax cuts and those since have actually resulted in more of the tax burden being born by the wealthy. What, that not good enough for you? Btw, the bottom 50% of taxpayers pay less than 3% of the total. Just who are the deadbeats here?
I submitted a comment on 10-27-10, complete with facts, pointing out statistical errors and bad logic on the part of the author and “Anonymous’s’ reply to David’s comment. I see you have chosen to not post it, but the erroneous statements are still displayed. When i hit the submit button a message was displayed saying the owners of the blog would review my submission. Apparently you should change your name to “Speak Out California – But Only If You Agree With Us”. Yes, move along truth, nothing to see here.
Jim, if you are “MU” I found it in the spam comment filter, and just published it. I think because it had a web page reference it got flagged by the blog software. We get a LOT of spam, so the filter is set pretty high. Apologies.
Sorry for the harsh words, thanks for the info on the process.