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Editorial See other Editorial Articles Title: Raising taxes on the wealthy does not slow the economy Raising taxes on the wealthy does not slow the economy by Mark Sumner For decades, you've been living in a world whose economy was defined by the ideas of Jude Wanniski. A political writer turned investment advisor (and blogger), Wanniski never ran for president or even for congress. He didn't head up the federal reserve. He never even had his own sound effects machine on CNBC or a chance to sit next to a wild-eyed blonde on Fox. Despite making a lot of economic forecasts, he wasn't actually an economist. In fact for most of his life the thing that made Wanniski somewhat famous was the fact that he had to leave his post as assistant editor of the Wall Street Journal after being caught handing out material for a Republican candidate, which was a violation of the paper's ethics agreement. Clearly, times have changed. So what did Wanniski do to become a global economic Illuminati? Well, it was Jude Wanniski who picked up a data-free supposition scrawled on a napkin by freshly-minted PhD Arthur Laffer and popularized it as the "Laffer Curve." It was Jude Wanniski who created the term "supply side economics" and outlined the ideas that others would describe using the terms "trickle down" or (before becoming converted) "voodoo economics." Wanniski designed the tax cuts of the first Reagan administration, developed the theory that it was unsafe for the government to have any cash, and tagged tax policy as the cause for poverty in developing nations. Steve Forbes and Jack Kemp, among others, learned their ideas of flat taxes and government reduction from Wanniski. This world you live in—the one where people insist that lower taxes generate more jobs and revenue, the one where both congressmen and pundits advocate "starving the beast" that is government, the one where keeping taxes on the rich low because they're "job creators" draws knowing nods, the world in which presidents are elected on the theme that government is the problem—it's Wanniski World. The Reagan Revolution ran on those ideas, so does the Tea Party, and so does a big chunk of what's become "mainstream" economics. And the problem with all that is... Wanniski was no economist. Let me hasten to add, neither am I. Please feel free to take everything below with not just a grain of salt, but whole oceans worth of the stuff. The thing is, Wanniski was wrong. Not just a little wrong, 180 degrees wrong. There's very good evidence that George H. W. Bush was right when it came to supply-side economics: it was voodoo all along. The Laffer Curve? Laughable. The idea that coddling the wealthy will make things better for everyone? Backwards. The core problem with all these ideas is that they start from a bad assumption. No matter how it may seem, the rich are not job creators. That's as true of the guy who owns a factory as it is of the playboy who lives on daddy's yacht. Giving money to those who have money doesn't open up new markets, spur new investments, or spawn new industries. Jobs come from consumers. It's consumers who create jobs by driving up demand for goods and services. Being a factory owner or a CEO is not the same as being a job creator. No businessman ever created a job because his wallet was a little thicker. It doesn't matter if it's the CEO of Exxon or the winner of the Irish sweepstakes, pouring money into the pockets of the rich does zip-diddly to create jobs, lift the economy, or improve the lot of the average citizen. It most certainly doesn't boost government revenue. Jobs are created when demand calls for it. Revenues go up when the economy grows. Cutting taxes for the wealthy stimulates neither demand nor economic growth. Henry Ford was wrong about a great number of things, and a bigot on many more, but he wasn't wrong that paying workers higher wages and not keeping all the cash for himself was the key. It doesn't just work for moving Model T's, it works for building a nation. A good tax policy is one that rewards those companies who pay out their wages to the workers and invest their profits in expansion. A bad tax policy is one that retards expansion and damages consumption by encouraging those at the top to take more for themselves. Redistribution of wealth? Sure. All tax policy consists of redistribution of wealth. It's just that current tax policy redistributes that wealth upward—and that's a recipe for disaster. How can we know that? We know because we've tried it—and not just once. There's an old rule in publishing that states for every graph added to a work, the number of readers is cut in half. By that measure, I'll have about one-twentieth of a reader by the time we get to the end of this, but join me after the jump, loyal left pinky toe of a reader, and I'll try to make it worth your while.
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#1. To: tom007 (#0)
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The Republicans refuse to acknowledge that the economy is really demand-driven, not supply-side. The Repubs keep referring to the ultra-wealthy as "Job Creators" -- OK, how many jobs have those billionaires created since they got their tax breaks from Bush and extended last year? Instead we see them cutting payrolls, throwing people out of work, stripping them of their union rights and their fringe benefits (and sometimes their pensions). It's the Second Coming of the Trickle Down Theory. If you allow the Koch Brothers to get away with not paying taxes on their billions then the money they spend on their fancy foreign cars and their vacations on the Riviera and so forth might, somehow, trickle down from the foreign purveyors of luxuries to somehow find its way down to you. You will be expected to live on the crumbs that fall from their table and you will be grateful for those crumbs! Part of the trick of balancing the budget is raising revenue. The Republicans - including Reagan, Old Bush, and Dubya - didn't mind raising taxes on the working class, but they wouldn't on the billionaires. And they left the budget more unbalanced than when they found it. Clinton did get to tax the fatcats - and he actually developed a surplus! -- Which Dubya immediately frittered away (and do you remember Dubya trying to explain why a national debt is not a bad thing? The Republicans applauded him back then.) Never fear, the Republicans - including Perry and Boener -- are willing to raise taxes ... on the Very Poor, people who until now had so little that they were below the tax threshhold. The Republicans call these destitute people "lucky ducks" and are willing to put the tax screws to them for their mite; it will probably cost the govt more to collect than the amount collected. But the malefactors of great wealth (Teddy Roosevelt's term) are like the sacred cats of ancient Egypt.
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