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Thursday, July 15, 2010

Low Taxes, Deregulation, Privatization Contribute to Recession

Why Reaganomics Is Bad for America

Remember what I said yesterday about how our federal tax burden as a percentage of household inome has been decreasing since 1979? Lower taxes are good for us and for the economy, right?

Maybe not. Neighbor John Hess pointed out a David Sirota article which says lower tax rates not only don't correlate with economic growth, but may actually make recessions worse. Sirota cites Eliot Spitzer's chart and commentary on the fact that from 1951 to 1963, when marginal tax rates topped 90%, the economy grew more than twice as fast as it has during the past decade, when marginal tax rates have been below 40%. He also notes that Greece, a current tea "party" favorite example of European socialism leading to fiscal disaster, is in Dutch not for spending too much but for taxing too little.

This makes perfect sense. Though the Reagan zeitgeist created the illusion that taxes stunt economic growth, the numbers prove that higher marginal tax rates generate more resources for the job-creating, wage-generating public investments (roads, bridges, broadband, etc.) that sustain an economy. They also create economic incentives for economy-sustaining capital investment. Indeed, the easiest way wealthy business owners can avoid high-bracket tax rates is by plowing their profits back into their businesses and taking the corresponding write-off rather than simply pocketing the excess cash and paying an IRS levy [David Sirota, "Are Low Taxes Exacerbating the Recession," Salon.com, 2010.07.09].

Robert Reich agrees, noting that since the late 1970s, we've been concentrating wealth in the hands of the wealthy few by letting the rich treat more income as capital gains, cutting capital gains taxes, and boosting sales and payroll taxes that hit lower-income folks harder the higher-income folks.

Reich also sees two more pillars of Reaganomics, deregulation and privatization, promoting income inequality and making it harder for us to get out of the recession. When big business give workers less pay and benefits, fire them at will, and ship jobs overseas without penalty, the middle class has less wealth to pour into the economy and lit us back out of recession. The wealthy class that cashes in on Reaganomics has a bad tendency to gamble that money on the markets, creating speculative bubbles that burst and leave all of us struggling to clean up the recessionary mess.

It's worth noting that Reich doesn't place the blame solely on Saint Ronald. He says we Democrats have lacked the guts to tackle income inequality. Income inequality breeds political inequality: money flows to the top, and the folks at the top buy legislation that keeps them at the top. Grrr.

The Reagan legacy of historically low taxes, deregulation, and privatization have contributed to today's persistent recession, massive debt, and growing income inequality. We can make our economy (and our politics!) better for everyone if we raise taxes on the rich, strengthen services and the safety net for the lower and middle class, and, yes, share the wealth of our nation more equitably.

Related: Reader Jackie Bielke points me toward this interesting argument: if the tea "party" frets about the federal government (which is us, dedicated to the general welfare, accountable to the voters and taxpayers) consuming 20–25% of GDP, they should be just as alarmed by the top 1% of income earners (the unaccountable, unchecked, self-serving rich) eating the same amount of GDP... shouldn't they? If wealth is power, doesn't a wealthy elite that has as much money as Uncle Sam threaten the proper balance of power?


  1. Cory: your post yesterday and Jackilope's link last week really tell the story.One would think that more of the upper class would be like Warren Buffet and be concerned about this as well. The "let them eat cake" attitude has not worked out very well historically for the upper classes.It is also more likely to lead to socialist policies in a democracy,something the right consistently screams about.
    It is in the best interest of the nation that future tax policy heavily favor the middle class, as it is they that fuel the economy and create the jobs that we so badly need.

  2. If we could only trust the government to spend our money wisely...

  3. Well, we obviously can't trust the free market to spend our national wealth wisely. Since the government is us, I vote for trusting us, all of us, making rules and keeping a hand on the tiller of the economy, just as Adam Smith assumed we would.

  4. So you can't trust people to spend the wealth they create and the money they earn?

    You make it sound as if everything in this ostensibly free country belongs to the government. You make it sound as if anything people have, it is only on loan to them from their semi-benevolent government-god.

    That is a key problem in why you just don't understand the American way of life. America was founded a free country, recognizing the right of the individual to their own property and their own destiny, to make decisions about their own lives, with a limited-government constitution designed to keep government the heck out of private people's and private organization's business.

    You believe what America should be is an all-powerful state that doles out to private individuals only what it in its collective elitist wisdom deems it proper to trust them with--and not an ounce more.

    Your comments here have been very enlightening. Not surprising, because you have already provided more than sufficient evidence in previous posts and comments for the observant person to realize this. But your candor here was exceptional.

    Please, in all seriousness and sincerity, I entreat you to take an honest, objective look at how our country was designed to work, and give some genuine consideration to the possibility that liberty might be a better way than having an all-powerful state do all your thinking and decision-making for you.

  5. Bob's eutrophic South Dakota is the best evidence for your thesis, Cory; oh, and this result, of course.

  6. Bob, my point is that (a) leaving the free market unregulated leads to obvious bad results that we are living with right now and (b) that real liberty means living by rules that we make for ourselves through wise government. I'm not advocating letting some outside entity do our thinking for us. I'm advocating (as I always have) active, vigorous thinking and participation by every American in making government work. The government is us: it is the tool we create to keep society working. Your misinterpretation, Bob, is another effort to distract readers from the main issue (the failure of Reaganomics) by portraying me as some evil force that I am not. Not one word you say about me and the false beliefs you impute to me refutes any of the facts from the original post... as usual.

  7. This is what you said:

    "Well, we obviously can't trust the free market to spend our national wealth wisely."

    In no uncertain terms, you said that the people who create businesses, create wealth and earn money cannot be trusted to utilize their own property.

    Pathetic and un-American...as usual.

  8. What part of "the free market can't regulate itself" don't you understand? And what's unAmerican about passing rules to keep greed and foolishness from driving the economy into a recession?

  9. What part of "you have no right to control another person's property" can't you get?

    No one advocates allowing individuals, groups or businesses to defraud people or commit immoral acts.

    You didn't say anything like, "The free market should not be allowed to commit immoral acts."

    You said, "Well, we obviously can't trust the free market to spend our national wealth wisely."

    You don't have a right to tell other people how to run their own businesses or spend their money as they see fit.

    I know you're a Marxist, but come on!

  10. Wrong and wrong. I have every right to tell people how to run their business and spend their money and vote in our Republic, just as you do, Bob. And people have every right not to listen.

    But the statement that society has no right to set rules for how people use their property is overly simplistic and patently false. We make rules as a society all the time that dictate how we can drive our cars, where and how high we can build barns and stores and towers, what fees and taxes we must pay for the privilege of engaging in commerce, and even whether we can engage in certain forms of commerce.

    And yes, I stick by every word I said above. We deregulated the financial sector, redistributed wealth to the rich with the Bush tax cuts, and we got zero job growth over the last decade and the biggest recession since the Depression. The less-regulated free market failed to bring the abundance you promised. I don't need to be a Marxist to acknowledge those facts.

  11. You see, this is where you are fundamentally, disastrously wrong.

    You do NOT have the right "to tell people how to run their business and spend their money and vote in our Republic. You have no right whatsoever to do those things, and neither do I, nor does any other person.

    As I stated earlier (and you conveniently ignored), no one has the right to commit immoral acts and no one has the right to endanger another person--but no one is arguing in favor of doing so.

    "We deregulated the financial sector, redistributed wealth to the rich with the Bush tax cuts..." What planet have you been living on? Planet Marx?

    The only part of the financial sector that was "deregulated" was the part of it owned and run by the government, i.e. Fannie and Freddie. When Bush and others called for greater oversight and controls of these government organizations, liberals wouldn't have it; it interfered too much with their nest-feathering and cronyism. Meanwhile, the private financial sector was forced to give loans to people, often on the basis of skin color, to people who could not afford them.

    Again I have to ask myself: how blind can a human being be?

    Apparently astonishingly blind to not only ignore these truths, but to dare make the statement in this free country "Well, we obviously can't trust the free market to spend our national wealth wisely."

  12. We the People is a fundamental counterweight to the wholesale destruction of habitat by industry.

    Rapid City is the perfect locale for capital acquisition because it is already mostly destroyed by the descendants of European rape. So, gobble it up quick, Bob, before it no longer sustains even you, the most correct.

    If socialism is the only way to protect the rest of the United States from yet another generation of robber baronistas, then so be it.

    Gather up your family and get the hell out of South Dakota, Cory; it is wasted and loathsome. Let the Ellis' and the Fischers have the son of a bitch; it's not worth saving.

  13. Job market stinks, but I can't move yet, Larry: I need to stick around and see all my maple trees grow! And who else is going to fight the good fight here?


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