AlterNet: Why the Economy Grows Like Crazy Amid High Taxes

[marmar]

Why the Economy Grows Like Crazy Amid High Taxes

By Larry Beinhart, AlterNet. Posted November 17, 2008.

The raw truth is that the economy has grown faster when taxes were higher, but how can we explain that phenomenon?




The real-world effects of tax policy are counterintuitive.

They run exactly opposite the conventional wisdom. They defy what the Heritage Foundation calls common sense and what the American Enterprise Institute calls logic.

Reality laughs at the Laffer curve, calls Ronald Reagan wrong and says George W. Bush is a loon.

High marginal tax rates correlate with economic growth.

Examples include World War II and the Truman-Eisenhower years, when it was around 90 percent, and the Clinton years, when it was high relative to the preceding and following administrations.

Tax rate increases are followed by real economic growth.

Examples include Hoover in 1932, Roosevelt in 1936 and 1940, Bush the Elder in 1991 and Clinton in 1993. .....(more)

The complete piece is at: http://www.alternet.org/workplace/106979/why_the_economy_grows_like_crazy_amid_high_taxes/

[snappyturtle]

1. K&R Thanks marmar....I love Target. We don't have one in my area.

I have to drive almost sixty miles..I keep hoping Target will build here. Of course, we have a Super Wal-Mart,Lowe's,Home Depot, J.C. Penny, Belks, Albertson's,HEB etc. The people here tell me that K-Mart was driven out by Wal_mart. It's too bad. I also like Target because it gives money back to the local schools and to other humanitarian efforts. I shop Target when the opportunity presents itself.

[unpossibles]

2. interesting article!

thanks for the link - I am spreading it in a couple of places full of "free market" types.

[unblock]

3. excellent article, with some sound arguments

a further benefit of higher taxes is a more fiscally sound government. this is of benefit to the private sector, because if the government isn't borrowing so much, it isn't driving interest rates up. it also leads to less political and currency risk, which is also essential for good private sector growth.

another point is that "higher" taxes usually really means a "more progressive" rate structure, i.e., the super-rich might be paying a lot more, but the working class might not be paying all that much more. this means that employers get more bang for the buck hiring more lower-paid workers rather than a few highly-paid workers. the government gets less in taxes this way, so the employer gets more labor dollars to actual laborers this way. this, in turn, means that more people have more disposible income with which to buy, thus spurring further growth.


finally, i have to mention the ludicrously low tax rate on dividends. this is just such an obvious incentive for companies to leverage up and suck the money out to shareholders, taking profit at the expense of leaving companies "hollowed out", to borrow a nice phrase from the article. one push and the company fails, but the shareholders already got their nice dividend....

[Hydra]

4. We all know this

I'm just tired of "Free Market" people pretending that their system's perfect business model doesn't goes something like this:

Startup
Expansion
Profit peak
Run the company into the ground
Take the money and run
Crash
Find new startup

Highly profitable to the people who know where in the cycle the company is, but hardly geared for the people they sell on "the long haul."

Long haul doesn't work in their perfect world.

[ContinentalOp]

5. I have to take issue with some of the language there.

Our side is the common sense position. How is supply side economics suddenly "conventional wisdom"? And they seem to be perpetuating this myth of higher taxes under Democrats when the issue is really whether the tax structure is progressive or not. Obviously, if you make the tax structure more progressive, the rich are paying more but the vast majority of Americans are paying less. Since we have a consumer driven economy, this helps the economy as a whole. If you let the very wealthy horde cash, it doesn't do anything for the economy. Their money just sits in the bank. This is common sense.

[FatDave]

6. "How is supply side economics suddenly conventional wisdom?"

Because they've been pushing it for almost 30 years, and they're louder than we are. Hopefully this latest discrediting will be the final discrediting.

[starroute]

7. This should be trumpeted far and wide

Liberal arguments about fairness and compassion haven't had much traction in this country lately, so we're going to get a lot further with arguments about what it takes to make the system work.

Ultimately that is still a liberal position -- because it focuses on creating a sustainable economic system and not on making it possible for a handful of people to get indecently rich -- but it's one that's a lot more likely to convince sensible business types.

How would "collective well-being -- not collective ownership" fly as a slogan?

[FatDave]

8. Glad somebody's saying it.

It's counterintuitive but true. Historical evidence trumps ideological theory.