"Taxpayers are spending nearly $7 billion a year" is a curious locution when $1.9 billion of that is a tax credit for the workers. Why not say we are "spending" even more by not taking their cars or harvesting their organs? But it's a nice parallel to the $7B in fast food profits. It's not that difficult of a problem to calculate, anyway. According to Politico, people and households making over a million per year took in a total of $726.9 billion. So let's set the marginal tax rate to 100% -- that's as high as astronomy allows. Those 235,413 high rollers can keep their first million, then we will confiscate the rest. So $726,900,000,000 minus $235,413,000,000 yields $491,487,000,000 in new tax revenue. If you split that evenly among 146,243,886 taxpayers, each will get $3,360. A nice bonus, but ten bucks a day is probably not going to dramatically change many lifestyles. You might argue for focusing the largesse on the needier households, but that would be analogous to the benefit programs that this article's author already seems so upset about. The trouble is, you'll have a hard time convincing those high wage earners to continue, you know, earning once word gets out that they won't get to keep the proceeds. (Another source claims that 90% of people at this level are "self-made with little to no inheritance.") So you have, in one stroke, destroyed a sizable chunk of the economic activity of the nation. The high rollers will shake it off, but their millions of employees and customers -- many of them receiving the benefits described in the original article -- won't be so happy about the change. You propose simply redirecting that money toward lots of really good things. The problem is that it must be earned before it can be spent. Value is created; it is not a big fixed bucket of dollars that just floats around. That's why there is so much more wealth, in total, now than there was in the past. That's why the poor today are vastly better off than the poor of the past (though they still have crushing needs, especially those outside the developed world). One more thing: those people hoarding cash are generally not stuffing it under the mattress. That cash is spent or invested -- injected back into the economy to continue working and generating more value. So eliminating the incentive to earn big bucks not only harms those who benefit from the earning activity (the wealthy and the many more regular folks associated with their economic activity), but also those who benefit from it down the line. Hey, how about that video?It's not that difficult of a problem to solve.
Your analysis is where the old economic joke "But does it work in theory?!" comes from. The largest economic expansion in American history came when marginal rates topped out at 91%, and capital gains rates were higher, too. High taxes on the wealthy stifling investment is a myth that isn't supported by history. Twice in our history has the wealth been this concentrated, and each time it has led to severe economic problems.
That's a great line, "But does it work in theory?" I see it almost as often as that other chestnut: "correlation is not causation." But the marginal tax rate changed from 25% (in 1925) to 63% (1932) to 79% (1936) during the teeth of the Great Depression, showing that high marginal tax rates can coexist with recession as well. I put very little store in these figures, even when they support my side (e.g. the second-largest recession, after WWII, while the rate was 94%). So many other factors come into play. Besides, the marginal tax rate is not the effective tax rate, since there are so many exemptions and workarounds, legal and otherwise. And expansions and recessions are measured by GDP, surely the worst indicator of economic well-being, except for all the others. I find it plausible that if "astronomically higher marginal tax rates" have any effect, it will be to discourage the creation of additional wealth. My belief is that the primary engine behind increasing prosperity is the creation of new wealth. Forget the analysis. Is it debatable that even the poor in the United States are better off today than the poor were in previous decades? Not to mention that many of them are better off than most of the wealthy were in centuries past. Much is made of the distribution of wealth, e.g., in this video. Much attention is given to that lucky Top 1%. I think we should focus on the bottom 1%. That's where the problems are. And I maintain that when the top earners, 90% of whom started from scratch, generate $700 billion dollars a year, this tends on average to benefit everyone, even if the fat cats do not make malaria eradication a hobby.The largest economic expansion in American history came when marginal rates topped out at 91%
I trust that you are not arguing that 91% marginal tax rates caused the largest economic expansion in American history. At most, you can say that high marginal tax rates do not prevent expansion.
I wasn't using high rates to say that they cause economic growth. Rather, that they're uncorrelated at best. The bottom 1% is a shitty place to be, but it's not where most of our problems lay. Lack of wealth in the middle class is what is making this recovery so poor. Creation of new wealth does very little when it all goes to a very few. Robert Reich has a new book on the topic that is interesting, and there's also this classic from the 80's that predicted this disaster: Mink Coats Don't Trickle Down
Thanks for the reading suggestions. I am of the opinion that a lot of people considered experts don't know what they are talking about. As I am not even an expert, I have to keep an open mind and look forward to opportunities to learn more and find out where I am wrong. The preview pages I was able to read on Amazon gave me the feeling that Mink Coats Don't Trickle Down is not much more rigorous than the title suggests. And the title is simple to refute. Mink coats don't have to trickle down. They can stay up there, flying in the sky, as depicted on the cover. The trapper (or farmer) and the tanner and the furrier have already been paid. As has the button maker, zipper maker and fabric maker (and farther back, a cotton or wool or nylon or viscose producer). A seamstress has long since forgotten about that coat and is now putting food on the table sewing a new coat. Checks to various distributors, warehouse operators and truckers have cleared. A photographer and copy writer and model and other ad agency personnel are happily on contract. A store clerk and manager and interior designer and janitor and landlord have all gotten their slices of the pie. The stylish one-percenter strolling out of the boutique has already made life better for dozens of regular people before any activist has a chance to splatter her with pig's blood. What happens after is immaterial ... though I expect the coat will be welcomed by dry cleaners, closet organizers, and eventually a fancy second-hand fashion store. Everyone wins but the minks. "Trickle down" is a dumb metaphor. It's a flood.