Class Wafare? Fine, Let's Get This Party Started.

Categories: Schutze

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The Republican presidential candidates all agree on one thing -- the same mantra between all their lines. They all want us to believe that the extreme polarity of rich and poor in this country is an expression of natural law.

The super-rich just have to get super-richer. Everybody else, sadly, must accept the hammer. Thus spake Zaronmittnewtrick.

The "Laffer curve," basically the idea that the only way to raise government revenue is to cut taxes on the rich, is still high Republican dogma. But what if it's just not true?

What if we could raise taxes on the rich enough to solve much of our deficit problems without putting so much as a ding in national economic growth?

Oh, class warfare, they shall cry! Class warfare! Well, OK. At a certain point if that's how they insist on taking it, giddyap!

Eduardo Porter has a column on the front page of The New York Times business section today citing a new body of research pointing to the possibility that top marginal tax rates could be almost doubled, bringing in trillions and seriously reducing our ratio of debt to GDP without slowing down growth by the beat of a single butterfly wing.

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Catch him if you can.
Part of the picture is the extreme reduction in top marginal rates since the 1950s -- from 90 percent to less than 30 at one point -- and the dramatic lack of impact that reduction has had on growth. Just for instance: Under Clinton, Porter points out, tax rates rose, and the economy surged. Under Bush the top rates fell, and the economy tanked.

In other words we have lived through a national experiment on the Laffer curve, and the results are unmistakable. It's a joke.

During the same period, the slashing of top tax rates has had another unmistakable outcome -- the extreme polarizing of income in this country. We have talked about this before, you and I, in discussions of the work of UT Austin economist James Galbraith. Galbraith takes all of the shibboleths about income disparity -- it's globalization, it's education, it's something about iPhones -- and shoots them down one by one the hard way, with research and numbers. And then he says there's really not much mystery.

It's the tax code, stupid. All the money's flowing to the top 0.1 of a percent, because the top 10th of a percent got the Republicans to change the tax code to steer the money their way in a huge distortion. So what we need to do is steer it back.

Porter's column today discusses another aspect of Republican dogma -- behavioral change by the rich. This is the notion that if you don't let the top 10th of a percent have all the money, they won't want to be the top 10th of a percent any more. Such a burden, you know.

They will get really really discouraged and suspend their economic activity, and then we won't have rich people any more, and, as we know, rich people own the companies that employ people, so if they don't want to be rich any more we won't have any companies, and then where will we work?

Interesting concept. I have three hamburgers. You have none. But if you pass some law forcing me to give you half a hamburger, I will get depressed and not want to have any hamburgers at all. Then you won't have a hamburger. So there.

We hear it a lot in Dallas, usually pronounced as indisputable fact. Whenever I hear it, I always wonder this: Let's say it's time for all the super-rich people to get depressed and stop owning companies.

Who's going to get the word out to the Pakistani immigrants, the Haitians, the Mexicans, the Ukrainians and all the rest of the hungry ambitious newcomers to our shores, not to mention the smart kids from small towns in East Texas getting their first taste of bright lights, big city?

Someone will have to make sure all those people understand that the American dream is being suspended as political punishment for the left. Otherwise, if the ambitious immigrants and the East Texas kids don't get the memo, they might view this abandonment by the super-rich as a pretty cool opportunity. Then when the ex-rich get over their depression and decide to come back and own all companies again, there might not be any companies available.

Porter points to a another study suggesting there is less to worry about here than we might think. He says, "That's because a lot of what the rich do does not, in fact, generate economic growth. So if they reduced their effort in response to higher taxes, the economy wouldn't suffer."

I have always wondered about that. In the post-war era industrial belt where I grew up, the rich made stuff like cars. We needed cars. We would not have wanted to see a suspension of car-making.

I look at the party pics in the local daily newspaper and magazines, it seems to me our own super-rich here in Dallas are involved most of the time in balloon releases. You know, they're always gathering in massive assemblages to give one another elaborate Oscar-like awards for "Best Third Stepmom" or something.

Do they even have an industry?

At any rate, we should begin to view this gathering of economic findings on income polarity as good news. There are solutions out there. Even as we speak, the solutions are probably gathering themselves at a koi pond preparing to give each other an Oscar for something and then release the balloons.

The balloons are a good thing. They make them all so easy to find.


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118 comments
scottindallas
scottindallas

Sorry to toot my own horn, but I think I deserve a hat tip on this one.  I have been the most prolific advocate of higher tax rates--me, Scottindallas. 

Higher marginal tax rates encourage capital intensive production, two ways.  First the high top marginal tax rates encourage profitable companies to reinvest those gross profits.  The low tax advocates conflate net and gross profits, and they conflate nominal and effective tax rates.

There is another boon for capital intensive production with higher top marginal tax rates.  That is through the depreciation schedule.  This means that the higher the rate, the greater the reward on depreciation. 

I wish some would notice that Phelps, Albert can't and won't argue this point.  I made this point to over 50 MBA's from Harvard, Stanford, Kellogg (NWern), Columbia, Wharton (Penn).  They had nothing to refute my point either.  At least they stand to benefit from these pathetic sophists, what's your excuse?

Likeicare
Likeicare

I don't really see that the super-rich work all that much.  they have other people working for them to do the work. 

Albert
Albert

Wow, you mean of they tax fatcats at 60%, my salary will go up?

Let's go get 'em!

Perry Moore
Perry Moore

First they came for the billionaires, and I didn't speak out because I wasn't a billionaire,Then they came for the millionaires, and I didn't speak out because I wasn't a millionaire...

Blip
Blip

Jim: St. Paul's is not cheap. We're you a privileged young man?

Brenden
Brenden

in Jims perfect world, the rich pay for the poor. first thing first, the rich should be taxed fairly but i dont understand why if someone spends tons of money to get a great education, then becomes independently wealthy, they OWE the poor something. Just like robin hood where the corrupt DISD system goes broke and lets have the suburban schools bail them out. Its called Socialism Jim. Its the rich not paying enough taxes thats wrong with this country, not the illegals everywhere who DONT pay a cent in taxes but claim their children and get a $1,000 check for doing nothing. Also the 70% of patients at Parkland who are illegal and dont pay their medical bills and the people who work 12 hours a day and make an honest living pay for it. That has nothing to do with whats wrong with this country.......

Rumpunch
Rumpunch

The biggest myth is thinking that there is a solution. 

While actual business investment might not actually stop if the rates were to increase, one thing that will happen is the amount of effort which will go into getting any increases reversed. We have become so partisan, each side will fight to the death to get any legislation overturned and vice versa.  

The game is rigged, but the interesting part, is it is rigged from two opposite sides.  In the end the only people who will benefit are the pundits. Therefore, my plan is to watch my own ass.  And when I say "my", I am only talking in the first person, rather than grouping myself in with others in my "class".

AY
AY

"I've never had a poor person give me a job." --- no, simply giving more money to the rich in the form of tax cuts doesn't "result" in jobs.  If I own a company with three machines, and three employees, that sells ten loafs of bread per month --- do I suddenly buy a fourth machine and hire a fourth employee when I have money?  Nope, I expand only when my sales forecast tell me that it looks like I will sell more loafs per month.  So what really needs to happen, is the demand for more bread needs to rise......So what happens when you give the wealthy money?  They sit on it.....and it results in inflation.  http://thinkprogress.org/econo...

Lakewooder
Lakewooder

JimS, you gotta be kidding me. You really think the answer is higher taxes? Like that's going to solve anything. Bullshit. The government overspends - that's the f'ing problem. If we follow your hamburger analogy to its logical conclusion, the cure for obesity is - more hamburgers? That makes perfect sense.

I h8 balloons!
I h8 balloons!

Balloon releases are always a BAD IDEA, whoever is advocating or hosting these stupid events!

liesandstatistics
liesandstatistics

Do I get a side of fries with my burger? What about a coke? You can't eat a burger and fries without something to wash it down with. Also, my little one wanted a toy with it. You think it'd be possible to throw one of those into the bag? Thanks!

Joe L
Joe L

Finally the media are starting to report what every one who has taken economics 101 knows, that sifting through massive amounts of historic data, it can be concluded that raising and lowering tax rates does not affect economic growth materially.

There is class war, it was begun by Ronald Reagan. The middle classes have just chosen to surrender or bought into specious theories like "trickle down economics" and the Laffer Curve".

It's amazing how skillfully the Republican Party has convinced people to vote against their own interests.  Astonishing that a majority of the population  voted for policies that  significantly eroded their standard of living and financial security for much of a generation.

Daniel
Daniel

Jim, why don't you go peddle your libtard white-guilt tomfoolery to Dr. Thomas A. Steele of suburban St. Louis, Missouri. Go sell your bullshit to him like you would a set of tires. Oh wait! You can't sell him a set of tires! Why? On January 9, 2012, a black man stole the wheels right off his car.

What do you say to that, Jim Shits, you pathetic propagandist scum?

Tell Dr. Thomas A. Steele of suburban St. Louis, Missouri, that he was a "white racist" for having "wheels" on his "car." Do it, Jim Shits, 5501 Gaston Ave. I said do it, Shits!

Dan "The Man" Levitan
Dan "The Man" Levitan

"I have three hamburgers. You have none. But if you pass some law forcing me to give you half a hamburger, I will get depressed and not want to have any hamburgers at all."

No, dumbass. That would be a tax rate of 16.7%. What we currently have is a top tax rate of 1.4 hamburgers out of my 3. And you are (apparently?) asking for more. I am all for closing major loopholes (which are protected by both parties) such as carried interest, but ultimately WHY should someone be paying 50%+? And you act shocked when the rich expect to be able to "buy" influence. Its their money running the goddamned show and YOU want it that way.

Jim, stick to muckracking JWP and the trinity parkway folks. That is when you are at your best. Regurgitating and opining on NYT economics articles demonstrates that you are way out of your league.

mynameisURL
mynameisURL

A lot of folks would disagree with the stipulation that taxing the rich would do anything to mitigate our debt situation. They may, in fact, even be correct about this. However, that misses the larger point here, and that is this: They too, need to feel the pain of an economy that is struggling due largely to the excesses and careless business practices of the wealthy and powerful. (i.e. captains of industry, Wall St. hedgefund mgrs., banking tycoons et. al.)

We need to make taxes punitive for those types. What incentive is there for them to toe the line, otherwise?

smithjosh
smithjosh

Talk about a gross misunderstanding of Art Laffer's work on the topic.  The Laffer curve is about revenue vs. marginal tax rates.  It has nothing to do with growth.  It's a labeling of an observation and not a predictive model.  Ignorance of this just shows you purposely set it up as a straw man or aren't competent to comment on the topic you chose to write about.  I suspect a little of both.

But that's not the point of the article.  It was really just a rant against rich people and Republicans (two groups I do not ascribe myself to, for the record) spruced up with some links to words and ideas Jim hoped the majority of the readers would glaze over.  Sorry Jim.

Parisrec
Parisrec

We tried it already. That's why we have what we have now. It didn't work.

scottindallas
scottindallas

That's the record, that's what you'd do if your taxes went up as the head of a highly profitable firm.  Consider that before the Reagan tax rates, many corporate VPs couldn't afford Cadillacs.  Then after Reagan, all corp exec pay skyrocketed, while the average worker's wages stagnated. 

See, employee benefits are tax deductible.  While high exec renumation isn't as deductible.  I thought you belived that taxing things, discourages those things.  It's not a logical leap to think that making exec pay non-deductible where employee pay is would encourage employee benes.  Why are you so stupid, dense and unaware that you don't even think to apply the maxims you thrust in our face in one instance but utterly ignore in another?

Blip
Blip

Begging your pardon for my smartphone's 'assistance' with typing.

I raise this question to better understand when in life you decided wealthy folks were such a scourge on society. (Kindly direct me if I've overlooked a personal manifesto where you've already laid this out.)

It seems to me that in this debate, the super-wealthy's capital gains-fueled entitlement for excess has been conflated with the economic activity of the professional class — folks whose income is based on wages. 'Soaking the rich,' which by this administration's definition includes any family earning roughly $250K annually, will kill jobs. Using your analogy: if a small business, which assumes massive risk on behalf of its employees, barely manages to eke out enough hamburgers in a down economy to make payroll and satisfy the government's share, raising taxes to demand more hamburgers wrought out of the same diminished economic potential is counter-intuitive, but doable within limits. To keep the whole enterprise from tanking, some folks are laid off and no longer get hamburgers, while everyone else's hamburger gets smaller. The folks at the top, if they're conscientious enough, take the biggest hit because in good times they reap the biggest reward. After a sustained period of stagnation, the ratio of ground beef to "pink slime" tips the scale toward unhealthy levels in the hope that hanging on for a recovery will be worth stomaching a little more ammonia-saturated posturing, pandering and "hope and change" rhetoric. Employees get titles, small perks and other things to keep them aboard instead of cash. But what's next? For a small business owner, personal income and business income are inextricably linked. Why don't folks in Washington understand that?

To be clear, you won't get an argument from me about the virtues of letting billionaire's keep their capital gains tax-free. But where small businesses are concerned, it's time for lawmakers, many of whom have never had to make payroll, to understand shoveling more cash the government's way when work is scarce means doing more with less. There is a tipping point where austerity and efficiency plummet toward disaster. 

JimS
JimS

Scholarship boy.

scottindallas
scottindallas

In your world, workers don't earn enough to be anything but poor.  In such a case, the gov't is subsidizing the employer.  Surely the wealthy employers should pay their tab.  Remember, currently, the poor payroll workers have subsidized the income tax payers  $2.2 trillion dollars.  I suggest we return to the Kennedy/Carter tax rates till $4.4trillion is recovered.  (you know w/  penalties and interest/ like the poor have to pay)

Daily Reader
Daily Reader

 I know a few "illegals" who work and do pay taxes.  Their check has taxes deducted  and it's going some where. .  And there are plenty of other others, not only "illegals" who don't pay taxes and still get a $1,000 + check for doing nothing and then have more kids.  If you didn't have medical benefits, would you use Parkland or possibly risk death?

JimS
JimS

Actually, in my perfect world working men and women, whom I do not consider to be "the poor," make the wealth of the rich possible by buying goods with good wages. Brenden, you may not understand what wealth is or where it comes from. It is the fruit of shared effort, and that fruit only grows where the rewards are shared, as well. Wealth, in other words, is not created by the wealthy. It is created by all.

scottindallas
scottindallas

I've explained it above.  Read it.  You're likely confusing yourself with the wealthy.  And, you're likely confusing yourself with someone productive.  Professionals are not productive, they are a tax on the economy.  Not that professionals are not needed, but as a macro economist, you'd like to limit their share of the economy.  Capital intensive production is the source of all wealth, defines our balance of trade, and is encouraged by higher top marginal tax rates.  Remember, the tax code favors them (appropriately) through the divide between gross and net profits (a split capital lite producers can't as freely exploit) and the depreciation schedule. What don't you understand?

JimS
JimS

You "conservative" guys always want a free lunch -- free streets, free cops, free air traffic control. Take advantage of it but don't pay for it: that's your motto. That's why the country does well wiht a Clinton in office -- someone who is fiscally responsible -- and poorly with a Bush, who was a typical GOP spendthrift party-time guy. 

scottindallas
scottindallas

Sadly, there are few jobs that pay well enough to provide all that.  The middle class has been stagnant since Carter left office while the rich have boomed since Reagan cut their tax rates.  In Carter's day it was the VPs who couldn't afford Cadillacs, today, it's everyone who can't afford fries and a drink.

smithjosh
smithjosh

Much like the Democrats in office have repeatedly voted against their own interests in charging higher capital gains taxes on the huge swathe of the electorate that own capital stocks via their retirement and mutual funds.  The massive disincentive corporations have to pay dividends costs these voters, more than half of which lean Democratic, billions of dollars a year that now sit in corporate bank accounts instead of citizens'.

Lowering taxes creates incentives to invest by lowering the required return on investment. That's not a Republican or Democrat issue; it's just a fact.  Maybe a fact some people dislike, but still one nonetheless.  Maybe more people should take Finance 101 in addition to Economics 101?

jfpo
jfpo

How many different login names do you have? This is a very worn out bit.

scottindallas
scottindallas

Dan, no one pays 50%.  even under Ike with rates of 94% the effective rates seldom budged above 20%.  So what the hell are you complaining about. 

The analogy would be that I have three hamburgers.  The standard deduction allows me one burger a meal.  If I have a second burger, I have to give 15% of it away.  If I have a third, I have to give a quarter of that third burger.  That leaves me one burger, 85% of another and 75% of another.  That's less than 1/2 of one burger for my three. 

You're such a "dumbass" you evidently don't understand how marginal rates work.  You too should refrain from commenting on taxes or small business.  I've run a small business for 25 years.  My grandfather was president of a Fortune 100 firm, retiring in 1985.  I know how taxes work, affect businesses large and small.  You, evidently do not. 

Tired of Repug Whining
Tired of Repug Whining

Dan, if you can show me ANYBODY stupid enough to pay 1.4 hamburgers out of 3, I'll BUY you three more burgers. You can jump around like a jacked-up monkey all day long, hooting and pointing at the top tax rates -- because they're a FICTION. Complete and utter bullshit. Entire armies of lawyers and consultants exist solely to keep Wimpey from ever sharing more than a Happy Meal's worth of burger with anybody.

Lyonheart1980
Lyonheart1980

Wow, how very classist of you. I hate on rich people as much as the next person, but to think that only poor and middle class people are the only ones that get hit hard during a recession is just assinine. I bet you think the rich are this monolithic set of people that never changes over time huh?

And I notice some people that you failed to mention on your list of wealthy and powerful: politicians (of all stripes). You want to fix the problems? Stop thinking that one party is better than the other and realize they are both attrocious and are BOTH in the hands of those wealthy elites y'all hate so much.

smithjosh
smithjosh

We don't have a revenue problem.  We have a spending problem.  And the sad fact is that a huge portion of that spending goes to the politically favored and connected groups.  

Extracting more revenue from the top .1% or 1% is not going to solve any of these "pains" you mention.  And if you look at historical federal tax revenue as a percentage of GDP, it has barely ever crept above 20%.  Marginal rates have little effect.

But don't take my word for it: http://www.usgovernmentrevenue...

scottindallas
scottindallas

Laffer's curve is meaningless without being pinned to some hard figures.  Does it happen between 94% and 70?  That's far more likely than between 35% and 28%. 

Joe L
Joe L

Laffer and his theories are dismissed by almost all professional economists.  They are considered to be nonsense.

Ignorance is probably a word you shouldn't throw around.

Glenn
Glenn

Jim's position, previously stated, is: Rich people suck. So, this is yet another column offering another spin on his "philosophy" of economics.

scottindallas
scottindallas

I dare say we forgot.  During the high tax era, middle class incomes and GDP grew in lockstep.  Since the Reagan revolution, middle class incomes have stagnated while all the gains in GDP and productivity moved to the elites.

scottindallas
scottindallas

Your inconsistent.  A struggling business wouldn't be affected by high top marginal tax rates.  Shouldn't the burden be placed  on those firms don't struggle?  That's what high top marginal rates do. 

You don't get it.  Those with vast resources have a vastly easier time bearing the burden.  So, shifting the burden back to them would make the taxes on those who earn under $250K/yr.  What you're arguing for it lowering of the tax burden; lowering it onto those with the least means.  The most highly taxed people in our economy are those who earn $106K/yr.  Shouldn't it be higher? 

You really don't understand small business.  There are various versions of it.  The first difference would be capital intensive or capital light small businesses.  Capital lite businesses are professionals.  These people are a tax on the economy.  They would be limited by higher tax rates more than most other small businessmen. 

Most other small businesses would be capital intensive.  These firms are immune from income taxes.  They are immune, because they can always play with the margin between net and gross profits.  (Remember, high top marginal rates don't affect any struggling business, as they'd not meet the top marginal bracket.)  That means they get to comingle vehicles, phones, computers, their home, insurance and many other benefits that are tax deductible.  An employee doesn't enjoy these "company perks." 

However, a highly profitable small business, would indeed be encouraged to pay it's employees more, expand, advertise, conduct R&D, upgrade equipment--all deductible, all more desirable the higher the tax rate.

Lyonheart1980
Lyonheart1980

Dude, he's not saying that we shouldn't pay any taxes FFS.

If the government consistently only brings in between 18 and 21 percent through taxes (which it's done since before Kennedy), but is spending between 25 and 30 percent, the answer is obviously to spend less. That is basic math.

Let's say we all agree that the federal budget should be 20 percent of GDP. Then the discussion becomes one of what is most essential for the government to perform, based on the enumerated powers it is granted in the Constitution.

RTGolden
RTGolden

Clinton is a great analogy for progressive liberal economic policy.  He carried out big cuts in defense spending right?  Except his cuts were to active duty personnel, not to programs.  Thus he put thousands of soldiers, sailors, airmen, and marines out of work, but kept the pork rolling into the defense-industrial complex.

scottindallas
scottindallas

It's the opposite.  The dividend days were before the Reagan revolution.  Lowering capital gains results in capital lite production.  Those low taxed gains are simply squandered.  When Cap gains are high, there is an intense incentive to roll those investments back.  You've got it exactly wrong.  Again, cap gain reporting would increase under lower cap gains, but that's just people cashing out.  That is why capital intensive production has floundered in this country since Reagan.  The incentive becomes labor arbitrage, out-sourcing, off shoring.  Higher rates sends companies seeking domestic expenses to off set high gross profits. 

The low tax advocates are sophists.  They are in capital lite production, are corporate execs, lobbyists, revolving door types that move from gov't admin to private sector gov't lobbying.  They want low taxes.  Low taxes help them, High taxes encourages capital intensive production.

Daniel
Daniel

P.S. I have posted under the same name on any blog of local provenance since something like 2006.

Daniel
Daniel

I was ridiculing our resident racist -- more than a little clunkily, I suppose. While my bit may indeed be rather down at the heels, perhaps even worn out entirely, please know that these are not my actual sentiments.

scottindallas
scottindallas

You regurgitate that pablum, but our current tax take is below the rate the Paul Ryan suggests and sets as his goal.  You've exposed yourself as someone without an independent thought in your head. 

What do you suppose happened when the top tax rates were in the 70-94% range.  I agree that effective rates were as you claim.  That means that firms were reinvesting their gross profits at far higher rates than we do today.  That's why and how high top marginal rates encourage reinvestment, domestic expenditures, suppress executive pay, and encourages R&D, advertising, expansion, innovation, and employee pensions and benefits--all deductible and more desirable when balanced against high top marginal rates. 

Lyonheart1980
Lyonheart1980

You mean those economists that keep saying we need to spend, spend, spend?

If you are listening to those people you are a buffoon.

RTGolden
RTGolden

I don't think he commented on the validity of the Laffer curve at all.  He merely pointed out that Jim's attempt to link the Laffer curve to growth shows an ignorance of what the curve was supposed to indicate.

scottindallas
scottindallas

So what?  A soldier is rather easy to train.  And, at least they had jobs to go to.  A skilled worker is harder to train. 

jfpo
jfpo

Ahh, my sarcasm meter obviously needs recalibrating.

scottindallas
scottindallas

The underlying precept of the Laffer curve IS that lower rates will spur enough growth that revenues will actually increase.  So, in fact, growth is a presumption of the laffer curve.  YOU ALL FAIL.

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