Respectfully submitted by Lawrence Rafferty (rafflaw)- Guest Blogger
We have heard for years now that the wealthy and corporations need their tax cuts because without them jobs will not be created and the economy could fall back into recession. I guess I first heard of this concept during the Reagan years with the so-called “trickle down” economics. The claim that economic benefits and improvements trickle down from the very wealthy to the middle class and the poor was one that helped ride Reagan into office and continues to be claimed by some as the way out of recession. Indeed, the Republicans, since the George W. Bush administration have been insistent that the tax cuts for the wealthy are the key to promote increased employment for the country.
It is time that we look deeper into the claim that lowering taxes for the wealthy and for corporations will actually increase employment and separate the truth from fiction. “Based on IRS figures, the richest 1% nearly tripled its share of America’s after-tax income from 1980 to 2006. That’s an extra trillion dollars a year. Then, in the first year after the 2008 recession, they took 93% of all the new income. Wealth is even more skewed. The richest 10% own 83% of financial wealth, which they’ve skillfully arranged to be taxed at just 15%, ostensibly because they pump that money back into job-creating ventures.” Common Dreams
If I read those numbers correctly, the richest 1% continued to increase their wealth during the first year after the start of the recession while the middle class and the poor took significant hits in employment and income. Basically, if the Right’s call to continue the Bush tax cuts and to cut corporate taxation in order to increase employment and wealth for all is to believed, would we not have already fully recovered from the recession since the tax cuts have been continued to this date and the effective corporate taxes are far below the actual corporate tax rate? Just what did the Bush tax cuts do for President Bush’s record in creating jobs?
“The current President Bush, once taking account how long he’s been in office, shows the worst track record for job creation since the government began keeping records.” Wall Street Journal The Wall Street Journal wrote those words just as President Bush was leaving office and they compared all prior President’s records at job creation during their terms. It surprised me that even the much maligned Jimmy Carter administration had a far better record in job creation than President Bush, according to that same Wall Street Journal article. With that recent record of poor job creation, why would anyone believe that reducing taxes on the wealthy would create a bonanza of new jobs?
We have also heard repeatedly that the economy won’t grow jobs because corporations are taxed too much. This refrain is one that baffles me. Especially since I and others have written in the past of the many large United States companies that have paid little or no effective Federal taxes in recent years.
“Many corporate leaders have noted that other OECD countries have lowered their corporate tax rates in recent years, but fail to mention that these countries have also closed corporate tax loopholes while the U.S. has expanded them. As a result, the U.S. collects less corporate taxes as a share of GDP than all but one of the 26 OECD countries for which data are available.” Citizens for Tax Justice
These same corporations make Billions and pay a lower effective tax rate than the poor of this country. “Corporations even pay less than low-wage American workers. On their 2011 profits of $1.97 trillion, corporations paid $181 billion in federal income taxes (9%) and $40 billion in state income taxes (2%), for a total income tax burden of 11%. The poorest 20% of American citizens pay 17.4% in federal, state, and local taxes.” Common Dreams
The numbers tell us that it is not the wealthy and big corporations that create jobs, but the middle class. According to that same Common Dreams article linked above, “A recent study found that less than 1 percent of all entrepreneurs came from very rich or very poor backgrounds. They come from the middle class. That deserves repeating. Entrepreneurs come from the middle class. Not surprisingly, then, since the middle class has been depleted by the steady accumulation of wealth at the top, the number of entrepreneurs per capita has decreased 53% since 1977, and the number of self-employed Americans has decreased 20% since 1991.”
If the numbers tells us that jobs are not being created when the tax cuts for the wealthy and for large corporations are continued or even increased as has been suggested by the Right, then why should we believe those calls for continued lower taxes on the wealthy? What do you think is the truth and what ideas do you have to increase employment? And before I forget, Go Bears!
Additional Sources: The Taxonomist
“He notes that in recent years, the top 5% of earners have received 32% of the country’s adjusted gross income, but paid 59% of federal individual income taxes. “If that’s not giving something back, what is?”, he asks.”
Adjusted gross income is that on which taxes are paid. It is after deductions. It doesn’t include unearned income called capital gains.
Let’s see the percentages when all income is considered.
Mine were:
Economic Left/Right: -6.00
Social Libertarian/Authoritarian: -5.95
OS,
I had to try it. My scores are -6.88 on the Economic side and -6.31 on the Social Libertarian side.
Interesting links Elaine. Thank you. The Economist.com article is especially pertinent here.
Pete,
Are you suggesting that the corporations and the wealthy are not creating jobs because they were worried about the Bush tax cuts being taken away? if that was true, would they not invest them now and collect the dividends or gains while they had the tax advantage? They could always sell the investiment when they learn of the change in the tax cuts. Also, the facts tell us that it didn’t work in the Bush years when there was no alleged uncertainty of the tax cuts being removed, so what gives?
You seem to think that the Common Dreams citations and the Center for Tax Justice are not trustworthy. And Pete is your source for claiming that these numbers are skewed or biased? Do you have a problem with the Wall Street Journal numbers showing Bush as the weakest job creation administration in history? Or are their numbers skewed too?
The numbers I cited are the numbers of the authors, and not mine. I did not skew them to make any point. I presented them as evidence of the fact that the wealthy do not create jobs.
As to your concern that the numbers cited did not include the other taxes paid by corporations, feel free to provide us with the numbers and we can discuss them further.
Mitt Romney’s Fair Share
By Joseph E. Stiglitz
http://www.project-syndicate.org/commentary/mitt-romney-s-fair-share-by-joseph-e–stiglitz
Excerpt:
Conservative politicians in the US underestimate the importance of publicly provided education, technology, and infrastructure. Economies in which government provides these public goods perform far better than those in which it does not.
But public goods must be paid for, and it is imperative that everyone pays their fair share. While there may be disagreement about what that entails, those at the top of the income distribution who pay 15% of their reported income (money accruing in tax shelters in the Cayman Islands and other tax havens may not be reported to US authorities) clearly are not paying their fair share.
There is an old adage that a fish rots from the head. If presidents and those around them do not pay their fair share of taxes, how can we expect that anyone else will? And if no one does, how can we expect to finance the public goods that we need?
Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable.
More broadly, a market economy could not work if every contract had to be enforced through legal action. But trust and cooperation can survive only if there is a belief that the system is fair. Recent research has shown that a belief that the economic system is unfair undermines both cooperation and effort. Yet, increasingly, Americans are coming to believe that their economic system is unfair; and the tax system is emblematic of that sense of injustice.
The billionaire investor Warren Buffett argues that he should pay only the taxes that he must, but that there is something fundamentally wrong with a system that taxes his income at a lower rate than his secretary is required to pay. He is right. Romney might be forgiven were he to take a similar position. Indeed, it might be a Nixon-in-China moment: a wealthy politician at the pinnacle of power advocating higher taxes for the rich could change the course of history.
But Romney has not chosen to do so. He evidently does not recognize that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie.
Those at the top include a disproportionate number of monopolists who increase their income by restricting production and engaging in anti-competitive practices; CEOs who exploit deficiencies in corporate-governance laws to grab a larger share of corporate revenues for themselves (leaving less for workers); and bankers who have engaged in predatory lending and abusive credit-card practices (often targeting poor and middle-class households). It is perhaps no accident that rent-seeking and inequality have increased as top tax rates have fallen, regulations have been eviscerated, and enforcement of existing rules has been weakened: the opportunity and returns from rent-seeking have increased.
Looking at all the taxes
Jul 19th 2012
http://www.economist.com/blogs/democracyinamerica/2012/07/taxes-and-rich-0
Excerpt:
MY COLLEAGUE suggests that America’s wealthy already pay at least their fair share of the cost for the public goods they depend on to prosper. He notes that in recent years, the top 5% of earners have received 32% of the country’s adjusted gross income, but paid 59% of federal individual income taxes. “If that’s not giving something back, what is?”, he asks.
This is a case of cherry-picking the data. Yes, the federal income-tax system is progressive through most of the income distribution—although it becomes extremely regressive at the high end, because of the low rates applied to qualified dividends and long-term capital gains (as Mitt Romney can attest).
However, federal income taxes account for just 27% of total government revenue collected in America. And the remaining three-quarters of the tax pie is quite regressive. The middle class may not pay much federal income tax. But they sure pay the payroll tax for Social Security and Medicare, which the rich can mostly skip out on since it only applies to the first $110,000 of wage income. (The Medicare levy, unlike its bigger Social Security counterpart, is not capped). The masses also pay a much greater share of their income in sales and excise taxes than the rich do, because they cannot afford to save.
The fact of the matter is that the American tax code as a whole is almost perfectly flat. The bottom 20% of earners make 3% of the income and pay 2% of the taxes; the middle 20% make 11% and pay 10%; and the top 1% make 21% and pay 22%. Steve Forbes couldn’t have drawn it up any better.
bettykath,
WooHoo!
I did it, too.
Economic Left/Right: -8.00
Social Libertarian/Authoritarian: -6.36
It’s no wonder I don’t like any of the choices.
What I learned from this article and these comments: the rich get richer, the poor have a safety net, the middle class get squeezed, politicians (I don’t care what party they are from) pass laws to help themselves and their “friends”, large companies leave the country if things get too expensive here, small companies suffer from over regulation because they don’t have the armies of lawyers the large companies do, nobody knows who the rich are (is it $250,000 like Obama says or $1,000,000 like Pelosi says), most Americans don’t know and don’t care what is going on in their own country, Regan was bad (good), Clinton was good (bad), W was bad (good), Obama needs to be re-elected to stop Romney from destroying the 99%.
Oh, I forgot, it’s an election year.
Swarthmore Mom,
Cool. We are pretty close on the spectrum.
I disagree with some of the chart placements they have for several prominent politicians. Projecting how anyone might score is fraught with error, because several of the questions cover stuff not likely to be known for certain by the test designers.
@Otteray, that visual depiction of a North-South-East-West political landscape as shown in the link you provided, http://www.politicalcompass.org/index, is very close to what I had in mind, capturing the authoritarian/libertarian concepts as well as the traditional left/right.
Regarding your thought that having less regulations in certain cases can actually cost more, I concur, of course, with that too. For an economic lesson about that, consider the abandonment of the regulations that limited how much financial institutions could leverage their equity. The loosening of those regulations permitted Lehman Brothers, for example, to leverage at an astounding rate of more than 30 times its equity. This excessive leveraging was an important component that lead to the financial crisis in 2007-2009. The cost? Among other things, more than a trillion dollars in the equity held by the public.
I did the test, O.S. Economic -5.25 Social Libertarian -5.95.
Ralph, I agree with at large parts of what you say, but as far as regulations go, sometimes fewer regulations cost more. We have seen that with the runaway greed of banks and hedge fund investors. There are a lot of homeless people out there tonight because of less regulation. I read of one case a day or so ago where Well-Fargo foreclosed on a house and sold it, despite the fact that none of the owners had ever had any dealings with Wells-Fargo and the house was fully paid for.
I have a couple of horror stories of my own relationships with BofA and another credit card company that is no longer in business under the name they were using at the time. With no one accountable.
@Otteray, You say: “Ralph, using the paradigm, “that government that governs best, governs least,” I have to assume that you are in favor of the government staying out of doctor’s offices and women’s lady parts, just to name a couple of instances. And perhaps staying the hell out of injecting religion into public schools and public life.”
Yes, that’s about right, Otteray. However, I am not anti-regulation, and I do believe that government should have an important role in the licensing of physicians, appropriate safety standards, and other such reasonable measures that protect public health and safety. And I believe that regulations are necessary in other industries as well; again for the protection of public interests. The key is to have “reasonable” regulations to protect public interests, which is, admittedly, a difficult thing to achieve, especially because regulations have costs.
The left-right theory Ralph posits made me think of the Political Compass test. Has anyone here seen the test for the Political Compass? This link takes you to the home page, and from there you can go to the political compass test. Here is a challenge: take the test, have a grin and post your scores, if you dare.
http://www.politicalcompass.org/index
Here is my score:
Economic Left/Right: -6.00
Social Libertarian/Authoritarian: -5.64
OS,
My scores were -7.62 & -8.63 respectively.
Ralph, using the paradigm, “that government that governs best, governs least,” I have to assume that you are in favor of the government staying out of doctor’s offices and women’s lady parts, just to name a couple of instances. And perhaps staying the hell out of injecting religion into public schools and public life.
I conisder myself to be closer to the opposite of both the so-called left and right wing politics. The left vs. right wing paradigm is obsolete. Would you consider the opposite of Stalin to be Hitler? But that is the absurdity of thinking in terms of left vs. right. I believe that the correct way to envision what you call the political left and the right is as a circle with the left and right meeting together. Where those two meet, they favor pro-government control, pro-tyranny, anti-liberty, and anti-freedom policies. Those extreme are like two competing brands, but, in substance, are remarkably similar (sort of like Coke vs. Pepsi brands).
In today’s World, what was known as the “left” in earlier days, has supplanted the “right” as the primary political force of oppression. Although Hitler was thought of under the old paradigm as an extreme right-winger, the Hitlers of today are more properly characterized as leftists. Ahmadinihjad is an example of such a leftist. Castro is another. Chavez is still another. And the Muslim Brotherhood is a group example of the left. But, as mentioned earlier, the factors the left and right have in common (pro-government control, pro-tyranny, etc.) greatly outweigh any differences they may have.
Returning to the modern circle political paradigm, those who favor liberty and freedom, and hold the Jeffersonian view that “that government that governs best, governs least” are positioned at the opposite side of the circle, at 180 degrees. So, if the left and right appear to be “opposites,” the differences are largely illusory, as the left is really 360 degrees from the right. And as a practical matter, those who identify themselves as “liberals,” but not extreme leftists, are really positioned somewhere between where the left/right meet at one end of the circle and the opposite end at 180 degrees, but on the left-side of the circle. Similarly, those who identify themselves as “conservatives,” but not extreme right-wingers, are really positioned somewhere between where the left/right meet at one end of the circle and the opposite end at 180 degrees, but on the right-side of the circle. I find that this non-linear model is much more useful for explaining political positions on various issues.
Tony C:
sure, whatever you say. Nah.
The internet was a POS until enterprising people, in the private sector, figured out how to make money with it. Then it took off. Had government kept it, it would still be a 28k dial-up.
I just wonder how much more advanced our society would be had we rejected government involvement in the economy?
Tony, to add to what you said, and to reinforce my previous point. It makes sense to tax corporations and rich individuals at a higher rate, then give them sweet tax breaks for investing. Investment in real goods makes more sense than simply banking the extra cash. Make it more costly to hoard money than to buy stuff that real people make, and who then pay taxes on that income. Extra incentive for buying stuff made in America and tax hell out of profits made by outsourcing offshore.
I would start with rebuilding our crumbling infrastructure. I know a bit about civil engineering, and the state of our bridges scares hell out of me. If somebody appointed me in charge of Everything, my first executive order would be full employment for the construction industry reparing existing bridges and building new ones where the old ones are beyond repairing. There is no excuse for scenes like this: