Tag: tax increases

Trickle-Down Returns to Enrich the Rich

As the rest of us are recovering from the outrageous Senate healthcare bill released this week, Trump and the Republican Party are having closed door meetings to shape their “reforms” to the Federal tax system. Get ready for a resurgence of rhetoric about how enriching the rich will generate a surge in economic activity that will raise all boats. There will be lots of talk about “pro-growth tax reforms”. This is the return of 1980s trickle-down economics. The basic notion is that if you put more money in the pockets of the rich and corporations they will invest in creating new businesses and jobs. Thus the money trickles down to the bottom. Trump and his Republican Party allies have already claimed that this will increase the growth rate of the economy from its recent typical of 1.5% to 2% annual growth to over 3%. The difference of this one percent has enormous implications. At 2% growth the economy doubles in 36 years. At 3% growth it doubles in only 24 years.1

Trickle-Down – The Reality 

BUT, no economist, banker, or corporate chieftain not on the payroll of Trump and the Republicans believes this will happen. Leaving aside all sorts of analysis about demographics (aging population), technology, and global competition, history and current events provides a fairly comprehensive rebuke to these trickle down cover stories for the Republican give backs to the rich and corporations. Trickle-down economics was invented in the early 1980’s to explain the wisdom of Ronald Reagan’s tax “reforms”. Much space was taken up with displays of Prof. Arthur Laffer’s demand curves that were passed off as proof from the academy that enriching the rich and corporations would unleash a new wave of economic activity. Nothing like that happened in the 1980s. Nothing like that happened in the first decade of this century after Bush II’s big tax cuts.2 And most recently in Kansas, the Republican dominated State legislature had to override the governor’s veto of tax increases after a 5 year experiment there with trickle-down drove the state nearly to bankruptcy.3

Nevertheless, get ready for another round of bull shit Republican propaganda about “pro-growth tax policies”, unleashing the over-regulated, over-taxed job creators, and a great surge in economic growth. The forces of free-market capitalism just need to be freed from the shackles of government. You will here all of this and more. The media will continue to do its job of repeating all of this. You need to be clear that the vicious Republican Party is at work for their masters among the rich and corporations. There job is making sure that the 40 year stagnation in incomes for the 80% will not change course and the flood of wealth will continue to those at the top. 

 

  1. This is the rule of thumb exercise. To calculate how many years a given percent of growth or interest will take to double the initial amount you divide 72 by the growth rate – e.g. 72/2=36. []
  2. See “Trump’s Big Tax Cut Is Unadulterated Trickle-Down Fundamentalism” by Justin Miller 4/25/2017 at The American Prospect []
  3. Read “Epic fail of Kansas’ tax-cut plan offers a lesson for us all” by Eric Zorn in the Chicago Tribune 6/20/2017 []

Job Creation – A Pliable (Fraudulent) Rhetoric in the Current Debate over Debt and Debt Ceilings

When it comes to job creation both Democrats and Republicans reflexively trot out small business as the engine of growth. These flights of breathy admiration for plucky small business owners are part of our national myth, right up there with cowboys. There probably is some truth in this myth as long as you accept the other side of the equation which includes the fact that jobs in small businesses are lower paying and less stable than those in the middle and big size companies.

But to demonstrate the extent to which today’s political environment has lost any sense of consistency, we now have the Republicans saying that any tax increases on the wealthy and corporations are “job killers”.

Since when have wealthy individuals created jobs? They don’t start new entrepreneurial ventures. They do buy extra vacation homes and fly to Vermont and Colorado and Switzerland more frequently in their private jets for skiing and apres ski fun. Much of this extravagance also occurs outside of the US. It is well known that unlike poor and middle class people, wealthy people do not spend incremental income. They save a large portion of it. Poor and middle class must spend every dollar to keep up. I defy you to find data that supports the wealthy as a source of new job creation.

As for big corporations, they are sitting on huge pools of cash and not creating jobs now. 

Companies had a record $ 1.91 trillion in cash and other liquid assets at the end of the first quarter, the report also showed, up from $ 1.86 trillion in the prior three months. Six consecutive quarters of profit growth helped fuel a 96 percent jump in the Standard & Poor’s 500 Index from its recession-low in March 2009 through March 2011.  ((http://www.businessweek.com/news/2011-06-09/household-worth-in-u-s-increases-by-943-billion-fed-says.html))

There has been consternation that though corporate profits and productivity have soared since the 2008 meltdown, corporations are not investing in the US economy. To some extent this may merely be a symptom that big corporations are not beholden to any nation state. Just because IBM has headquarters in Armonk, NY does not mean that it is primarily US-centric in its business activities and future plans. IBM’s 2010 Annual Report reported sales as follows:  Americas $42,044 billion; Europe/Middle East/Africa $31,866 billion; Asia Pacific $23,150 billion. The report further glows about the opportunities in the emerging boom economies of India and China. The US (not even reported separately, just as part of the “Americas”) is not a high growth region.

To satisfy you own curiosity about how widespread this global phenomenon is look up some recent annual reports for companies like GE, Walmart, Caterpillar, or just choose your favorite large company that has headquarters in the US.

Returning to wealthy individuals, it would not be surprising if one could look into their portfolios to discover that they reflect the same global thinking as found in the IBM example.

A final note must be made that during the 1950’s and into the 1960’s and again in the 1990’s Federal taxes on wealthy individuals and corporations were significantly higher than they are today. Yet, those periods are marked by higher than average job creation. George Bush’s huge tax give aways tot he wealthy (really a transfer of Chinese liquidity to the US wealthy through the Federal tax system) in the 2000’s coincided with the lowest job creation period in US history dating all the way back to Hervet Hoover.