Lowering taxes makes the economy stronger. But what if the opposite were true?

[underpants]

Style magazines really shouldn't delve into this without AT LEAST first reading what has to be one of the most simplistic and blindly devotional pieces I have ever read.

Oh there is NO mention of the Great Depression or WWII here.

http://www.styleweekly.com/article.asp?idarticle=17308
Regardless of where one falls in the political spectrum, it’s a widely held belief that easing the tax burden on people and businesses is the best way to grow the economy, spur private investment, increase productivity and create jobs. In macroeconomic textbooks, the idea’s often taught without debate, asserted as a policy-making rule of thumb.

But what if the opposite were equally true? What if higher taxes had a positive effect on the economy, on private investment, on productivity and job creation?

It’s not so far-fetched. In fact, the idea that higher taxes may be good for us has been around since the birth of the country. But ever since former President Ronald Reagan made “trickle-down economics” the GOP’s fiscal mantra, tax increases have largely equated to political death, disappearing from the policy lexicon of even the most left-leaning liberals.


In the months before he left office, Warner told Style Weekly: “The thing that constantly amazes me about the opposition is: If you look at the lowest tax states in the country, they are not the states with the fastest-growing economy, they are not the states with the best schools. They are not the states that have the most jobs or the lowest unemployment rate.

Warner, naturally, wouldn’t take his argument to its natural conclusion. Essentially, his success challenges the very foundation of the fiscal, anti-tax conservative base, which rose to the forefront in the Reagan years. The underpinnings of Reaganomics and the trickle-down theory holds that tax cuts — particularly for the rich — stimulate private investment at the top, which trickles down to the lower income brackets and benefits the entire economy. It’s ingrained in the long-held economic theory that the rising tide lifts all boats: Higher taxes leads to government-deficit spending, which raises private interest rates and equates to less money for consumers to spend on retail goods and services and for businesses to spend on private investment and job creation.

While there are many variations of economic theory, in politics, the simplistic version is this: Lowering taxes translates into more money for consumers and entrepreneurs, who in turn send those dollars rippling throughout the economy.



The no-tax-is-good-for-business philosophy is so pervasive that most macroeconomic textbooks even fail to challenge the assertion, says Arthur H. Goldsmith, an economics professor at Washington and Lee University. What if government spending on public infrastructure such as roads and schools had an equally stimulating effect on the economy? In a research paper published in the spring edition of the Journal of Economic Education, Goldsmith argues precisely this point.


In other words, government spending on infrastructure, such as roads, actually helps make businesses more efficient, and therefore more profitable. So much so that “long-run growth fostered by government investment spending may exceed the detrimental effect on productivity associated with crowding out,” Goldsmith writes.

Translation: The economic benefit of government spending on things like roads appears to outweigh the economic benefits of tax cutting.

The state with the highest tax burden is Connecticut, according to the Tax Foundation in Washington, D.C., with New Jersey at No. 2, New York at No. 3 and California at No. 4. Virginia falls a bit higher than middle of the pack, at No. 12, but the least burdensome tax states are Alaska, No. 50; Mississippi, No. 49; Montana, No. 48; and West Virginia, No. 47.

---the writer actually includes this as the conclusion. Something none of the textbooks he read seemed to mention---
Goldsmith says this fear of taxes is preventing any reasonable discussion about government spending.

“To me we are wasting our energy on the wrong questions,” he says. “It strikes me as naive. We are borrowing and spending $100 million a month to support our activities in Iraq and Afghanistan. Is that spending promoting productivity and economic growth?”

The better question, Goldsmith says, is whether the state is allocating its taxes, or even raising taxes, to pay for public infrastructure that is productivity-based — things like roads, bridges and other infrastructure that make it easier for industry to operate in Virginia. If improved roads in Hampton Roads reduce travel time for a trucking company, they increase productivity, which leads to increased profits and job creation.

“I think we are having the wrong conversation in this country — should we be spending more or less?” Goldsmith asks. “We can’t have a conversation about public-private partnership … when we spend all of our time on the notion of, ‘Is any government spending good or bad?’”

[truedelphi]

1. Lowering taxes does help the economy

As the economy is now defined not as the "American" economy but the global economy.

So if as a billionaire, you don't have high taxes, you can afford to open that factory in China where the workers make 57 cents an hour.

Problem is, for those of us who are middle income or lower in status, we see the economy as local. And lowering the taxes on the wealthiest Americans only hurts the economic system of this nation, as the jobs are outsourced, the infrastructure crumbles, etc.

[Cynical1999]

2. Um, I believe you need to get your facts straight first.

"Their Fair Share

July 21, 2008; Page A12

Washington is teeing up "the rich" for a big tax hike next year, as a way to make them "pay their fair share." Well, the latest IRS data have arrived on who paid what share of income taxes in 2006, and it's going to be hard for the rich to pay any more than they already do. The data show that the 2003 Bush tax cuts caused what may be the biggest increase in tax payments by the rich in American history.

The nearby chart shows that the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%. Barack Obama says he's going to cut taxes for those at the bottom, but that's also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%. Perhaps he thinks half the country should pay all the taxes to support the other half.

Aha, we are told: The rich paid more taxes because they made a greater share of the money. That is true. The top 1% earned 22% of all reported income. But they also paid a share of taxes not far from double their share of income. In other words, the tax code is already steeply progressive.

We also know from income mobility data that a very large percentage in the top 1% are "new rich," not inheritors of fortunes. There is rapid turnover in the ranks of the highest income earners, so much so that people who started in the top 1% of income in the 1980s and 1990s suffered the largest declines in earnings of any income group over the subsequent decade, according to Treasury Department studies of actual tax returns. It's hard to stay king of the hill in America for long.

The most amazing part of this story is the leap in the number of Americans who declared adjusted gross income of more than $1 million from 2003 to 2006. The ranks of U.S. millionaires nearly doubled to 354,000 from 181,000 in a mere three years after the tax cuts."

...

Link for the rest: http://online.wsj.com/article/SB121659695380368965.html?mod=googlenews_wsj

Just because they can afford it, according to you, doesn't mean they should be forced to give it up against their will. They earned it, not you or the government.

[BobTheSubgenius]

3. Wow. A largely specious case for further empowering the rich.....

.....and from the WSJ, no less. Who'd have thunk it?

Upwardly shifting an ever-increasing share of an economy's wealth to the apex of the income pyramid, then concluding that the increased taxes they paid on their windfall is some kind of far-sighted economic miracle? If you need money, going to the people that have it seems to me to be kind of sensible, yeah?

While I readily admit that this is not only anecdotal, but also drawn from one person's experience, it still has some weight. My sister turned down Princeton and Columbia in favour of Oxford, where she received her Master's in IR. Her thesis was on the economic relationship of the North Atlantic Triangle (Canada, the UK and the US), and she's now a senior policy adviser to Science & Technology in Ottawa. Sibling pride notwithstanding, in short...she's got game.

I once asked her about supply side economics (what 'trickle down' is called to lend it some verisimilitude) and she said that in all of the lectures, seminars and debates throughout 8 years of studying economics, she never ONCE heard that term used, nor the theory behind it given any legitimacy. Obviously, neither she nor I attended every school of economics in existence, and some must propound this theory, but they are vastly in the minority. I can't imagine how colossal and growing inequity in income and especially wealth is good for a society, but I'm sure that somewhere, there is a down-the-rabbithole apologist for it.

Perhaps the WSJ should go back to its attempts to make a case that the Clintons used the Arkansas State Police as their personal Ton Ton Macoute. At least that had some entertainment value.