Tax cuts for the wealthy have not brought economic growth

[jacee]

Taxing the 1%: Why the top tax rate could be over 80%

Because it makes no difference to economic growth

The top 1% of US earners now command a far higher share of the country's income than they did 40 years ago. This column looks at 18 OECD countries and disputes the claim that low taxes on the rich raise productivity and economic growth. It says the optimal top tax rate could be over 80% and no one but the mega rich would lose out.

...

... there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. For example, countries that made large cuts in top tax rates such as the United Kingdom or the United States have not grown significantly faster than countries that did not, such as Germany or Denmark. Hence, a substantial fraction of the response of pre-tax top incomes to top tax rates documented in Figure 1 may be due to increased rent- seeking at the top rather than increased productive effort. Naturally, cross-country comparisons are bound to be fragile, and the exact results vary with the specification years, and countries. But by and large, the bottom line is that rich countries have all grown at roughly the same rate over the past 30 years – in spite of huge variations in tax policies.

Using our model and mid-range parameter values where the response of top earners to top tax rate cuts is due in part to increased rent-seeking behaviour and in part to increased productive work, we find that the top tax rate could potentially be set as high as 83% – as opposed to 57% in the pure supply-side model.

Up until the 1970s, policymakers and public opinion probably considered – rightly or wrongly – that at the very top of the income ladder, pay increases reflected mostly greed or other socially wasteful activities rather than productive work effort. This is why they were able to set marginal tax rates as high as 80% in the US and the UK. The Reagan/Thatcher revolution has succeeded in making such top tax rate levels unthinkable since then. But after decades of increasing income concentration that has brought about mediocre growth since the 1970s and a Great Recession triggered by financial sector excesses, a rethinking of the Reagan and Thatcher revolutions is perhaps underway.

atcher revolutions is perhaps underway The United Kingdom has increased its top income tax rate from 40% to 50% in 2010 in part to curb top pay excesses. In the United States, the Occupy Wall Street movement and its famous "We are the 99%" slogan also reflects the view that the top 1% may have gained at the expense of the 99%. In the end, the future of top tax rates depends on the public's beliefs ...

Hmmm ... food for thought.

But I know what the public believes ...

Edited December 11, 2011 by jacee

[Trial-and-Error]

Taxing the 1%: Why the top tax rate could be over 80%

Because it makes no difference to economic growth

... there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. For example, countries that made large cuts in top tax rates such as the United Kingdom or the United States have not grown significantly faster than countries that did not, such as Germany or Denmark. Hence, a substantial fraction of the response of pre-tax top incomes to top tax rates documented in Figure 1 may be due to increased rent- seeking at the top rather than increased productive effort. Naturally, cross-country comparisons are bound to be fragile, and the exact results vary with the specification years, and countries. But by and large, the bottom line is that rich countries have all grown at roughly the same rate over the past 30 years – in spite of huge variations in tax policies.

Using our model and mid-range parameter values where the response of top earners to top tax rate cuts is due in part to increased rent-seeking behaviour and in part to increased productive work, we find that the top tax rate could potentially be set as high as 83% – as opposed to 57% in the pure supply-side model.

Up until the 1970s, policymakers and public opinion probably considered – rightly or wrongly – that at the very top of the income ladder, pay increases reflected mostly greed or other socially wasteful activities rather than productive work effort. This is why they were able to set marginal tax rates as high as 80% in the US and the UK. The Reagan/Thatcher revolution has succeeded in making such top tax rate levels unthinkable since then. But after decades of increasing income concentration that has brought about mediocre growth since the 1970s and a Great Recession triggered by financial sector excesses, a rethinking of the Reagan and Thatcher revolutions is perhaps underway.

Hmmm ... food for thought.

Well, it would be nice; however, I'll not be holding my breath for a change to come. If anything, I predict things are going to become far worse. The super rich believe in their heart of hearts that they can win the squeeze they have on us. And those few rich who've come forward to say they believe they should be taxed--that they should pay be paying their fair share. What do they take us for? Fools? Well, okay, they may have a point. But where have these guys been over these past many decades? Why they've been busying themselves with their accountants looking for-------yes, that's right----------every possible tax deduction loophole. But they are worried not about paying their fair share but about the world's 7 billion population and are working on "a fix" for that. All these excess people don't bode well for the environment and how can the super rich enjoy their lives to the fullest when the environment is under seige? Stay tuned.

[Topaz]

The rich stay rich because they spend very little of their money. There more billionaires in NA then ever before and some give but most keep. Do you think a politician should become rich for being a political? There's also two different ways to become rich, one is by inheritance, which means the rich have never known what its truly like to be poor and the ones who have made on their own, which does earn some outside respect. Let's face it, governments will never do anything to hurt the rich because they are financial supporters of the government and some of the government are rich themselves.

[cybercoma]

inheritance, which means the rich have never known what its truly like to be poor and the ones who have made on their own

More and more people are earning their "fortunes" this way. Studies that look at how the top 0.1% of people earn their income can only account for occupations of some 17% of them (even then it's through extrapolation). This means that many of them don't work at all and simply live off investment income. For this reason, there is a growing apathy, if not outright hostility towards those that are falling behind and can't make it. The rich don't want to part with their fortune and liberal values have created an environment that has left them with no feeling of social responsibility. They are no longer the leaders and caretakers of society, but a class of selfish entitled heirs and heiresses that have lost all social consciousness.

[Archanfel]

More and more people are earning their "fortunes" this way. Studies that look at how the top 0.1% of people earn their income can only account for occupations of some 17% of them (even then it's through extrapolation). This means that many of them don't work at all and simply live off investment income. For this reason, there is a growing apathy, if not outright hostility towards those that are falling behind and can't make it. The rich don't want to part with their fortune and liberal values have created an environment that has left them with no feeling of social responsibility. They are no longer the leaders and caretakers of society, but a class of selfish entitled heirs and heiresses that have lost all social consciousness.

Why should they be the leaders and caretakers of society? Just because they are rich? And who said investing is not working?

[cybercoma]

Because they cannot survive in a society on the verge of collapsing and they're the only ones with the resources to do anything about it.

[MiddleClassCentrist]

Because they cannot survive in a society on the verge of collapsing

I wish more people understood how they exponentially benefit from a stable society and public infrastructure.

[Wild Bill]

There's an old saying that every general is prepared for the LAST war and not the next one! It refers back to when Hitler made the first large scale use of new weapons like divebombers and Panzers, while the Polish sent cavalry on horses to stop them.

I wonder if perhaps the same sort of thinking applies to many economists and politicians when formulating government policy. They seem to keep believing things that might no longer apply to our modern situation.

Consider, the idea of "trickle down" economics, where making things easier for the rich resulted in benefits flowing down to the average Joe, applied to a time when the rich invested in domestic manufacturing. In that and other fields they created businesses within their own country, resulting in more jobs for more of the country's citizens and keeping unemployment low, which meant a bit of competition for better workers and thus better wage scales.

Is that true anymore? Far fewer of today's rich individuals and corporations are investing in Canadian or even North American enterprise. You give them a tax break and it allows them to set up in India or China. If the money isn't invested here, what is going to "trickle down"?

Or am I missing something here?

[cybercoma]

Consider, the idea of "trickle down" economics, where making things easier for the rich resulted in benefits flowing down to the average Joe, applied to a time when the rich invested in domestic manufacturing. In that and other fields they created businesses within their own country, resulting in more jobs for more of the country's citizens and keeping unemployment low, which meant a bit of competition for better workers and thus better wage scales.

Is that true anymore? Far fewer of today's rich individuals and corporations are investing in Canadian or even North American enterprise. You give them a tax break and it allows them to set up in India or China. If the money isn't invested here, what is going to "trickle down"?

Or am I missing something here?

Bingo.

[Jack Weber]

There's an old saying that every general is prepared for the LAST war and not the next one! It refers back to when Hitler made the first large scale use of new weapons like divebombers and Panzers, while the Polish sent cavalry on horses to stop them.

I wonder if perhaps the same sort of thinking applies to many economists and politicians when formulating government policy. They seem to keep believing things that might no longer apply to our modern situation.

Consider, the idea of "trickle down" economics, where making things easier for the rich resulted in benefits flowing down to the average Joe, applied to a time when the rich invested in domestic manufacturing. In that and other fields they created businesses within their own country, resulting in more jobs for more of the country's citizens and keeping unemployment low, which meant a bit of competition for better workers and thus better wage scales.

Is that true anymore? Far fewer of today's rich individuals and corporations are investing in Canadian or even North American enterprise. You give them a tax break and it allows them to set up in India or China. If the money isn't invested here, what is going to "trickle down"?

Or am I missing something here?

No,you're missing nothing...

But consider this...

The tax cut/trickle down economic theories that came into vogue over 30 years ago allowed those that moved their businesses off shore are still here.They got very rich with those tax policies.That richness has allowed then to buy access to like minded politicians,who all too ready to help their fund raising benefactors,by enacting legislation that will keep the tax policy status quo.By the way,this includes governments of all political stripes all over the Western world.

Thid has at least two identifiable bad effects on demopcracy,in general...

1.This money has infected a sytem that can be easily infected.This has seperated the general body politic from the political class AND the business class that has that money to buy the access it requires.

2.This seperation has lead to a complacency and an apathy we see in dwindling participation rates.This also helps those groups that I mentioned above because they have to speak to less people who wil actually be involved AND it's alot easier to get legislation passed that might require alot more scrutiny because fewer and fewer are paying attention.

[jacee]

We've been subjected to arguments on this forum that any attempts to tax the wealthiest will result in 'capital flight' where they take their money and go offshore instead of investing in Canadian businesses and creating jobs. This article defeats those arguments as it shows that that extremes in wealth of a few do NOTHING for the economy and simply make the rich richer at the expense of the rest of us.

Taking money OUT of the economy, out of circulation, enriches the rich and the banks while impoverishing the public coffers and the people.

Inequality has grown exponentially as a result of deregulation, 'free' market excess and corporate welfare (tax cuts and subsidies). But there is no benefit to the economy nor to the vast majority of the people: It's a scam that only makes the rich richer.

And as truth becomes widely known, the powers that be are busy criminalizing dissent (ie, truth). The US now labels OCCUPY protesters as "terrorists" and is mobilizing 20,000 soldiers to suppress dissent. Protesters can be detained without reason and incarcerated without charges indefinitely.

http://blog.alexanderhiggins.com/2011/12/06/analyst-mobilizing-army-occupy-economy-deteriorates-80971/

Wait for it ... the worst is true ... the 1% will make war on the people.

[Wild Bill]

We've been subjected to arguments on this forum that any attempts to tax the wealthiest will result in 'capital flight' where they take their money and go offshore instead of investing in Canadian businesses and creating jobs. This article defeats those arguments as it shows that that extremes in wealth of a few do NOTHING for the economy and simply make the rich richer at the expense of the rest of us.

Taking money OUT of the economy, out of circulation, enriches the rich and the banks while impoverishing the public coffers and the people.

Inequality has grown exponentially as a result of deregulation, 'free' market excess and corporate welfare (tax cuts and subsidies). But there is no benefit to the economy nor to the vast majority of the people: It's a scam that only makes the rich richer.

And as truth becomes widely known, the powers that be are busy criminalizing dissent (ie, truth). The US now labels OCCUPY protesters as "terrorists" and is mobilizing 20,000 soldiers to suppress dissent. Protesters can be detained without reason and incarcerated without charges indefinitely.

http://blog.alexanderhiggins.com/2011/12/06/analyst-mobilizing-army-occupy-economy-deteriorates-80971/

Wait for it ... the worst is true ... the 1% will make war on the people.

More simply, the threat to take jobs off shore is not much of a threat if you're ALREADY offshore!

[blueblood]

Dp

Edited December 12, 2011 by blueblood

[blueblood]

We've been subjected to arguments on this forum that any attempts to tax the wealthiest will result in 'capital flight' where they take their money and go offshore instead of investing in Canadian businesses and creating jobs. This article defeats those arguments as it shows that that extremes in wealth of a few do NOTHING for the economy and simply make the rich richer at the expense of the rest of us.

Taking money OUT of the economy, out of circulation, enriches the rich and the banks while impoverishing the public coffers and the people.

Inequality has grown exponentially as a result of deregulation, 'free' market excess and corporate welfare (tax cuts and subsidies). But there is no benefit to the economy nor to the vast majority of the people: It's a scam that only makes the rich richer.

And as truth becomes widely known, the powers that be are busy criminalizing dissent (ie, truth). The US now labels OCCUPY protesters as "terrorists" and is mobilizing 20,000 soldiers to suppress dissent. Protesters can be detained without reason and incarcerated without charges indefinitely.

http://blog.alexanderhiggins.com/2011/12/06/analyst-mobilizing-army-occupy-economy-deteriorates-80971/

Wait for it ... the worst is true ... the 1% will make war on the people.

The capital flight took place already, north American workers are too damned expensive for the prices that consumers are willing to pay for products.

Rich people don't take their money out of circulation, that's ignorance to s t.

There are two ways out of this predicament you easterners are in, drop your wages and let the cost of products fall with the cut in demand, or be willing to pay higher prices for goods made in north America. This spoiled ass child garbage from the 1960s is really getting old and Asia is laughing at your guys collective stupidity and arrogance.

[blueblood]

There's an old saying that every general is prepared for the LAST war and not the next one! It refers back to when Hitler made the first large scale use of new weapons like divebombers and Panzers, while the Polish sent cavalry on horses to stop them.

I wonder if perhaps the same sort of thinking applies to many economists and politicians when formulating government policy. They seem to keep believing things that might no longer apply to our modern situation.

Consider, the idea of "trickle down" economics, where making things easier for the rich resulted in benefits flowing down to the average Joe, applied to a time when the rich invested in domestic manufacturing. In that and other fields they created businesses within their own country, resulting in more jobs for more of the country's citizens and keeping unemployment low, which meant a bit of competition for better workers and thus better wage scales.

Is that true anymore? Far fewer of today's rich individuals and corporations are investing in Canadian or even North American enterprise. You give them a tax break and it allows them to set up in India or China. If the money isn't invested here, what is going to "trickle down"?

Or am I missing something here?

Your missing the other end of the producer consumer relationship. Your average Joe wants his products at the lowest possible price and by doing so with as little work as possible. The problem is that we now have our friend credit and debt to do that for us. So you have average Joe wanting as much goods for as cheap as possible, and with credit/debt he has the means to do so without working. So flush with this "free money" Joe is going to be hunting for deals, deals that previously weren't possible because of the cost of production. So now we have Joe buying all sorts of cheap products from overseas on borrowed money. So how is this borrowed money stil, so cheap? Well the other countries around he world are still betting that the north American consumer will still keep buying random crap. In short average Joe is flush with "free money" and wants as much products for as cheap as possible. He wants to have his cake and eat it too. In short it hurts north American manufacturers, it only benefits companies with head offices in north America but offshore production and the financiers of all this debt. That's not capitalism, that's a house of cards based on greed and entitlement. Capitalism wouldnt let this happen because average Joe wouldnt be getting this free money in the first place.

[eyeball]

There's an old saying that every general is prepared for the LAST war and not the next one! It refers back to when Hitler made the first large scale use of new weapons like divebombers and Panzers, while the Polish sent cavalry on horses to stop them.

I wonder if perhaps the same sort of thinking applies to many economists and politicians when formulating government policy. They seem to keep believing things that might no longer apply to our modern situation.

Consider, the idea of "trickle down" economics, where making things easier for the rich resulted in benefits flowing down to the average Joe, applied to a time when the rich invested in domestic manufacturing. In that and other fields they created businesses within their own country, resulting in more jobs for more of the country's citizens and keeping unemployment low, which meant a bit of competition for better workers and thus better wage scales.

Is that true anymore? Far fewer of today's rich individuals and corporations are investing in Canadian or even North American enterprise. You give them a tax break and it allows them to set up in India or China. If the money isn't invested here, what is going to "trickle down"?

Or am I missing something here?

You're just finally realizing it's missing is all.

Have you ever considered the possibility you're actually a repressed lefty?

I bet you also find yourself crying unexpectedly and having to pee more often don't you? You can get help for these but as far as finally facing reality goes, good luck with that.

[Wild Bill]

You're just finally realizing it's missing is all.

Have you ever considered the possibility you're actually a repressed lefty?

I bet you also find yourself crying unexpectedly and having to pee more often don't you? You can get help for these but as far as finally facing reality goes, good luck with that.

Eyeball, the world is not so simple as for all ideas on one side of the fence to be right and all ideas on the other to be wrong! Do you define a classic liberal like me to be rightwing and that's why you're surprised at the stand I take on some issues?

Hell, if we had the chance to kill a few beers together you'd likely find my views to be all over the map! As I've said before, I'm also a tech which makes be a bit of a "Utilitarian". As times change situations change, which means old approaches may be no longer valid.

The only reason you don't see more "leftwing" views from me is that so far I haven't found that many that can work!

[Wild Bill]

Your missing the other end of the producer consumer relationship. Your average Joe wants his products at the lowest possible price and by doing so with as little work as possible. The problem is that we now have our friend credit and debt to do that for us. So you have average Joe wanting as much goods for as cheap as possible, and with credit/debt he has the means to do so without working. So flush with this "free money" Joe is going to be hunting for deals, deals that previously weren't possible because of the cost of production. So now we have Joe buying all sorts of cheap products from overseas on borrowed money. So how is this borrowed money stil, so cheap? Well the other countries around he world are still betting that the north American consumer will still keep buying random crap. In short average Joe is flush with "free money" and wants as much products for as cheap as possible. He wants to have his cake and eat it too. In short it hurts north American manufacturers, it only benefits companies with head offices in north America but offshore production and the financiers of all this debt. That's not capitalism, that's a house of cards based on greed and entitlement. Capitalism wouldnt let this happen because average Joe wouldnt be getting this free money in the first place.

I can agree with some of that! Average Joe does tend to buy the cheapest, regardless of the source. However, a stroll through stores like Canadian Tire or Best Buy shows that when virtually everything is coming from China what other choice do you have?

Also, the competitive picture is badly skewed with China artificially pegging its currency at a value giving it an unfair advantage and America having allowed itself to get so into debt that it can't force the issue. If in the future China's currency is allowed to float like that of any other country, coupled with the escalation of wages among the Chinese workforce and a portion of what was lost from North America may return.

I'm not so much disagreeing with you as saying that the picture is not so black and white. There are a number of conflicting factors.

[blueblood]

I can agree with some of that! Average Joe does tend to buy the cheapest, regardless of the source. However, a stroll through stores like Canadian Tire or Best Buy shows that when virtually everything is coming from China what other choice do you have?

Also, the competitive picture is badly skewed with China artificially pegging its currency at a value giving it an unfair advantage and America having allowed itself to get so into debt that it can't force the issue. If in the future China's currency is allowed to float like that of any other country, coupled with the escalation of wages among the Chinese workforce and a portion of what was lost from North America may return.

I'm not so much disagreeing with you as saying that the picture is not so black and white. There are a number of conflicting factors.

Here's the thing, china pegging it's currency actually is subsidizing American consumption off the backs of Chinese workers. If the Chinese currency were allowed to rise, the USA would be faced with a currency shock and commodities would explode. Also with a higher Chinese currency that would allow the Chinese workers to become instantly richer and they would be consuming more products. I think it's going to rise because I don't think they can keep a lid on a boiling pot. However in the short term if the Chinese currency rose, the USA dollar would tank and the party would be over for a lot of people. This is greed and entitlement of pretty much all of north American society coming back to bite us. Human kind cannot function in a system with free money, it destroys incentive to produce and in the end everyone is worse off than before, it's been tried and failed over and over again. Why academics beat this dead horse is beyond me.

The only winners with china depegging it's currency is the communist party of china. They are subsidizing production of manufactured goods made in china with a low currency and at the same time have managed to subsidize the USA consumer by buying all the USA debt and keeping borrowing rates low, plus get to enjoy timely interest rate payments when the bonds mature. If there was any kind of an ingenious racket in human history, this is it. They literally are having their cake and eating it too, it's a liscence to print money. What's even better is that the Chinese have an escape hatch in that if the USA goes belly up, it has 1 billion consumers right at home to keep the machine going!

The only way the USA has out is to crank up Interest rates and get Joe average off his credit/debt addiction so that he will have to buy products with real money, and where does that real money come from? Primary and secondary industries, and financial industries, unfortunately that process is painful and has side effects in the short term.

[jacee]

Your missing the other end of the producer consumer relationship. Your average Joe wants his products at the lowest possible price and by doing so with as little work as possible. The problem is that we now have our friend credit and debt to do that for us. So you have average Joe wanting as much goods for as cheap as possible, and with credit/debt he has the means to do so without working. So flush with this "free money" Joe is going to be hunting for deals, deals that previously weren't possible because of the cost of production. So now we have Joe buying all sorts of cheap products from overseas on borrowed money. So how is this borrowed money stil, so cheap? Well the other countries around he world are still betting that the north American consumer will still keep buying random crap. In short average Joe is flush with "free money" and wants as much products for as cheap as possible. He wants to have his cake and eat it too. In short it hurts north American manufacturers, it only benefits companies with head offices in north America but offshore production and the financiers of all this debt. That's not capitalism, that's a house of cards based on greed and entitlement. Capitalism wouldnt let this happen because average Joe wouldnt be getting this free money in the first place.

That's a pretty flimsy argument.

You don't get or keep credit without a job.

End of your story.

The contempt of the 1% for the rest of us will be their undoing.

Edited December 12, 2011 by jacee

[cybercoma]

The capital flight took place already, north American workers are too damned expensive for the prices that consumers are willing to pay for products.

Vicious circle, ain't it?

Capital leaves because people don't want to pay the prices

People lose their jobs and can't afford to pay the price

[blueblood]

That's a pretty flimsy argument.

You don't get or keep credit without a job.

End of your story.

The contempt of the 1% for the rest of us will be their undoing.

Joe average had a job, but his spending habits didn't reflect his income. Why else is the average north American buried in debt? Do people really need 2 flat screens in a house, that vacation every year, a new car, a giant house?

And your guys contempt for the 1% will keep you in the poor house, have fun!

[blueblood]

Vicious circle, ain't it?

Capital leaves because people don't want to pay the prices

People lose their jobs and can't afford to pay the price

And it wouldn't be so without the govt interfering in the market with policies encouraging consumption rather than production, and fooling around with interest rates, and not providing mandatory financial education in the ciriculum.

[Black Dog]

Joe average had a job, but his spending habits didn't reflect his income. Why else is the average north American buried in debt? Do people really need 2 flat screens in a house, that vacation every year, a new car, a giant house?

And your guys contempt for the 1% will keep you in the poor house, have fun!

Who set up the system of cheap and easy credit? Who benefits from a system where people live beyond their means? Who, in short, sells all the crap that people are told to buy?

[Black Dog]

And it wouldn't be so without the govt interfering in the market with policies encouraging consumption rather than production, and fooling around with interest rates, and not providing mandatory financial education in the ciriculum.

So it's everyone's fault but those who reap the staggering profits from the system.

Gotcha.