Are Low Taxes Exacerbating the Recession?
who ran up massive deficits say the recession comes from overspending.
Democrats who gutted the job market with free trade policies nonetheless insist
it's all George W. Bush's fault. Meanwhile, pundits who cheered both sides now
offer non-sequiturs, blaming excessive partisanship for our problems.
history (and Freakonomics) teaches,
such oversimplified memes tend to obscure the counterintuitive notions that
often hold the most profound truths. And in the case of the WRSTGD, the most
important of these is the idea that we are in economic dire straits because tax
rates are too low.
This is the
provocative argument first floated by former New York governor Eliot Spitzer in a Slate
magazine article evaluating 80 years of economic data.
the period 1951-63, when marginal rates were at their peak—91% or 92%—the
American economy boomed, growing at an average annual rate of 3.71%," he
wrote in February. "The fact that the marginal rates were what would today
be viewed as essentially confiscatory did not cause economic cataclysm—just the
opposite. And during the past seven years, during which we reduced the top
marginal rate to 35%, average growth was a more meager 1.71%."
later, with USA Today reporting that
tax rates are at a 60-year nadir, Secretary of State Hillary Clinton told a
Brookings Institution audience that "the rich are not paying their fair
share in any nation that is facing (major) employment issues...whether it is
individual, corporate, whatever the taxation forms are."
example is Greece.
While conservatives say the debt-ridden nation is a victim of welfare-state
profligacy, a Center for American Progress analysis shows that "Greece has
consistently spent less" than Europe's other social democracies—most of
which have avoided Greece's plight.
real problem facing the Greeks is not how to reduce spending but how to
increase revenue collections," the report concludes, fingering Greece's
comparatively "anemic tax collections" as its economic problem.
On the other
hand, the opposite is also true—as Clinton
noted, some high-tax, high-revenue nations are excelling.
"Brazil has the
highest tax-to-GDP rate in the Western hemisphere," she pointed out.
"And guess what? It's growing like crazy. The rich are getting richer, but
they are pulling people out of poverty."
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.
up her remarks, Clinton
said that this higher-tax/higher-revenue formula "used to work for us
until we abandoned it."
felt compelled to insist, "I'm not speaking for the (Obama)
administration," it was nonetheless a politically bold statement—so bold,
in fact, that like all of the other corroborating tax facts, it was summarily
ignored by politicians and the Washington
media. They had their cliches to promote—and unfortunately, until they let
substantive-though-uncomfortable ideas displace conventional wisdom, it's a
good bet that the WRSTGD will continue unabated.
David Sirota is the author of the
best-selling books "Hostile Takeover" and "The Uprising."
He hosts the morning show on AM760 in Colorado
and blogs at OpenLeft.com. E-mail him at email@example.com
or follow him on Twitter @davidsirota.
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