Republicans have repeated the lie that tax cuts are always good for the economy so often that all of Washington seems absolutely convinced that it's true. The conventional wisdom is so established on this that all a Republican has to say is, "Everyone knows you don't raise taxes in the middle of a recession..." Or in good times or in mediocre times or ever. All tax cuts are always good.
Republicans add another layer of absurdity to this as they say that tax cuts always lead to more revenue for the federal government because of supply-side economics. The economy expands, people make more money and the government collects more in taxes even though it takes a smaller percentage. Great theory -- how about if we cut taxes down to 1 percent? Would the government still get more revenue?
The question isn't whether tax cuts or tax increases are always the right answer. The question is at what level of taxes do we stimulate the economy, collect enough revenue to run a functioning government and let people keep as much of their income as we can. No one, not even the world's biggest liberal, wants to pay more in taxes personally. We just want to find the right balance so that everyone wins.
When you look to see what that right level is in our history, what you find is very interesting. In our glory years between 1945-1965 (these are the years that the Republicans dream of going back to), the top marginal tax rate fluctuated between 77 percent and 94 percent. I was stunned when I first learned that. People's heads would explode if you suggested those levels now. Yet, it worked for us for decades as we built the great American middle class and our manufacturing base.
The second interesting fact is what happens when we have historically low taxes. From 1925 to1931, the highest marginal tax rate was as low as it has almost ever been -- between 24-25 percent. And between 2003-2010, the highest marginal tax rate was also at one of its lowest points -- 35 percent. So, what happened when we had these really low tax rates? The Great Depression and the Great Recession.
In fact, when you look at when the economy takes off and when it slows down, it almost perfectly matches the fluctuation of our tax rates. Except the correlation is the exact opposite of conventional wisdom -- the economy crashes after tax cuts and takes off after tax increases.
Now, conservative critics will scream that correlation does not equal causation. Yes, but it's pretty good evidence. And you have no counter evidence. If you see that every time someone jumps out of a building, they come crashing down. You can argue about causation all you want, but my guess is you're not going to jump out of the building.
Yet we do. We have been religiously cutting taxes since 1980. How has that worked out for us? We've had median wages stagnating, manufacturing disappearing and now enormous unemployment. If tax cuts are so great, why did our economy get pulverized after Bush passed the two largest tax cuts in history?
Of course, the reality is that America has been sold this bill of goods by the very people who stand to benefit the most from cutting taxes to the rich -- the rich. And it has worked for them. Since 1980, the average after-tax income for the top 1% of this country has risen by 281%. The average household in the top 1% saw their wealth go up by a whopping, unbelievable $973,100. See, the tax cuts worked for somebody. The people who pushed for them. Mission accomplished!
At this point, you have to be curious as to why the economy goes up when we raise taxes, especially at rates that seem to defy common sense. I was a Reagan Republican growing up because the top tax bracket of 70 percent seemed crazy to me and he brought that down. I thought a rate that high couldn't possibly be the right balance.
But now that I am a small business owner I get it. You see if taxes are low, like 20 percent, as a partner in my small business I am motivated to take out our profits as income for myself. Let's say my share of the business led to $100,000 in profits. If taxes are 20 percent, I pay $20,000 and keep $80,000. I can live with that split.
But what happens when taxes are high? If I have to pay 60 percent, then I'm left with only $40,000 and the government takes $60,000. That sucks. I don't want to "lose" all that money. So, what do I do instead? I re-invest it in the business, so I don't have to pay taxes!
If at the end of the year, my tax bill is zero, then I pay zero. Instead, by plowing the profits back into the business I help to grow it and make it even more profitable down the road. I might even hire more people with the extra money I kept in the business because that's a lot better option than just handing it over to the government.
So, higher taxes don't lead to more investment and higher employment because I'm a liberal who likes to give away my money to the government. They lead to those good results for the exact opposite reason -- because I don't want to give away my money to the government.
Logic, you can't beat it. Unless of course you have a lot of money and you just buy off the whole system. And that's where we stand now, with the truth turned on its head. But the next time someone claims tax cuts help the economy, don't let them get away with that bald-faced lie.
Follow Cenk Uygur on Twitter: www.twitter.com/TheYoungTurks
Republicans and their allies lie because they are greedy and hate all American citizens except for the upper classes. On top of that, Congressional Republicans are the the most out of touch people in the U.S., outside of bad dog Democrats.
Peace,
Tex Shelters
http://texshelters.wordpress.com/2010/11/29/extend-unemployment-now/
Let's think for our selves, before that is illegal!
VOTE A STRAIGHT DEMOCRAT TICKET, then we can weed out from there, and get some of US into office to fix this mess.
Thank you.
Love
Bette
The job of the government is collect taxes and protect our individual freedoms, not micro-manage human behavior, which is precisely what the income tax code atrocity is all about.
Got it?
And never forget that our founding fathers and original patriots supported John Locke's view of Hobbes' social contract: they believed government was a good thing. I do too. I vote taxes over tolls.
POLITICIANS sell big government to "protect" us from our own behavior. What happens? Big Government protects the very behavior it's supposed to prevent. How the hell do you think Al Capone got so big? The Department of Education? HEW? Medicare? Social Security?
Big government is a MONOPOLY, you liberals cannot stand Big Corporations, why do you put up with Big Government, which as you make it bigger PROTECTS Big Corporations, keeps them from open market competition and failing when they should (FNMA, GM, AIG, SEIU, ACORN) and allows them to take crazy risks because they know they're politically protected.
We consumers have no better protection than the brutalities of the free market, companies that fail us die a quick death. Unless they're protected by the new royalty, Big Government, and their protectors of today, President Mom-jeans and his Demo-rats.
Look at North Korea. Now that is some big government. You like that kind of system?
Right...
Which is fine, except he's arguing apples and oranges for building his big government nanny-state, and saying that Republicans, or people other than Big Government Democrats, cannot be allowed the freedom to spend their own money, because the outcome will be contrary to the Big Democrat "greater good" and therefore, by implication, immoral. People cannot be trusted with free choice, they must be socially engineered by Big Government.
That's what I take from his argument, from the argument of every "liberal" (what a travesty from its classic definition) and from his slamming the Republican argument of lower tax rates, leave more income in the hands of we citizens.
http://www.npr.org/templates/story/story.php?storyId=129940301
Do you really think it's a positive thing to go from 43K to 47K in 16 years? That's wage stagnation. It doesn't come anywhere close to even keeping up with inflation, much less gains in worker productivity, profits for businesses, or the massive increase in executive salaries.
And where did the tax cuts go? One would have thought that executives and ownership could have passed on at least SOME of the additional money they received through their tax cuts. But, nooooooo. They can't do that. It would be . . . well, downright un-American to "share the wealth" those workers actually made for them.
And that's the key. For years we've been hearing that lower taxes are the mother of all cures for everything. There is zero evidence to support that. Even if a person looks at the data and sees nothing but a coincidence that high taxes generally accompany periods of growth and lower inequality . . . they can't keep claiming that low taxes are necessary for growth and a reduction in inequality.
If you say that you need X to get to Y, and the data shows we get Y without X, you just lost your argument.
“Alexander Tabarrok also laid it out very clearly, back in 2003:
President Bush has neither proposed nor implemented a tax cut—ONLY A TAX SHIFT. … sooner or later taxes must increase (or inflation, a type of tax, will go up). Milton Friedman, the libertarian-leaning Nobel prize-winning economist, has long reminded us to be suspicious of any tax cut not matched by a spending cut. … they have a secret Machiavellian argument held in reserve. The Bush deficits, they believe, will force future administrations—presumably of a more liberal bent—to cut spending. … conservatives seem to believe that the public does want big government and that the only way to curb government growth it is to fool the public with lower taxes today so that the costs of government will be so high tomorrow that no one will accept the offer. How cynical. … we have two political parties: the Tax and Spenders and the No-Tax and Spendersâ€
Tax cuts nor spending cuts are the answer alone. Tax equlity and PAYGO are the answer.
If this continues, America can very well be ranked as a third world country. I believe, neither Democrats nor Republicans want this to happen. Please see the light, the truth. Go after your politicians who speak this absurd lie and get them to change their position for the better. Our votes are what that's keeping them in office. Threatening not to vote in masses will do the trick.
http://www.youtube.com/watch?v=zHTpOeGM4Vk
IT REQUIRES TARIFFS.
Go read about their Tariff system. Its on their government websites.
Fake "Free Trade" has destroyed our industrial base.
If we want moels similiar to Sweden it requires protectionist policies not "globalism", which I think is a sham.