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Forget about the deficit. Forget about class struggle. Forget about intra-class equity. Forget about soaking the rich….
“Just forget about it…..”
Our current tax base inequity is killing our economy….. Not just ours, but the global economy as well. The solution to the worlds economy is our tax rate, right here in the USA….
Imagine all the wealthy in the United States. It is here. It is full of one color.
Now, let us show you how that wealth was divided just before 1980. That was the beginning of the Republican Party (you know what I mean).
Now, let us show you how wealth is divided with the closest available figures today.
Now let me show you how the US dominates the worlds wealth.
It is pretty clear to everyone that the economy is driven by demand. If there is demand, then investment flows into options to create more supply. When supply is higher than demand, cutbacks have to occur until both are closer in alignment. Right?
So the big global economic problem is…. in America there is a lack of spending!…. Unfortunately it has been going on 5 years. and a lot of this lack of spending comes from the collective behavior across this country now put towards paying down individual debt from what we once spent in our past….
The solution is to spend more. The burden on spending more must lie with those who have money to spend.
This group failed us. The trickle down theory never trickled down. Seriously? Why would it? Who except the Mother Theresa’s of us, would simply give our money away to help the poorer and downtrodden?
Our forefathers lived through this a hundred years ago. If you want to see our future, study the economy from the Civil War to the Great Depression. Business and the wealthy could not be trusted to look out for anyone’s interests. There had to be another way.
We stumbled upon it funding WWII. Tax wealth. Use that as seed investment money. Build things.
Has anyone ever thanked our forefathers for their investment into the building of a vast network of interstate highways? Imagine if we had counted upon the private sector to make this improvement to our lives?
Highways were paid for by taxing those “with money”. As seen above, in the past the middle class had money and chipped in accordingly. Today that money is no longer in middle class hands and is instead of being reinvested it is now getting siphoned off-shore where it does no good what so ever.
Until Americans return to the good habit of spending, the soft economy will continue…. To get that quick transfusion which will jump start our economy, our nation needs to put money back into the hands of the middle class, so they will again start buying things that employ people….. The middle class likes to spend. They are the gas that runs the economy’s engine.
The simplest method accomplishing this, is to increase the taxes a little bit on those who have way too much money. …
Studies show that for every penny in increased tax, there is 99 times that economic benefit as that penny circulates through the system until it again finally settles into the pockets of the rich. From there, it needs to be recycled again so we can again create the type of pie chart above showing the golden days when wealth rested in the hands of those who would run right out and spend it….
The answer is not socialistic, that is to take money away from the wealthy. Oh no. Instead, it is to temporarily borrow it, to force their investment into the economy so all again reap the benefits, not just the 1%…. Seriously, we should all get rich together, and we will, once we raise taxes on ”Those Few Who Will Not Spend…..”
Thanks Nancy. Tom Carper sponsored, and Chris Coons endorsed, a bill that shuffles money around the Agriculture Department to keep our food inspectors fully employed.
Our food will not be uninspected now because of the Republican induced sequester. Politics are one thing. People dying are another. The only protection Americans have between themselves and unscrupulous cut-throat foreign food processors, is the FDA. Eliminating them would the the death of us all. Remember the tainted pet food?
I’m glad our delegation stepped up to protect them… However this gave me pause. Where the money was being shifted from….
The Pryor/Blunt/Coons amendment adds no additional cost to the bill. Instead, it moves one-time funding for school equipment grants and deferred maintenance on buildings and facilities at the U.S. Department of Agriculture…
One time funding for school equipment grants, meaning many schools in Delaware which thought they would soon be on the receiving end of new refrigeration units to safeguard school lunches, must now remain using the old pre- 1930′s models currently in place. It also means when the sequester is done, and funds return, their will be less spent on helping Americans, because it will be shuffled to cover the depreciation currently not charged because of this amendment.
When are we going to stop pussy footing around the real issue, and tax the wealthy at the rate of their hero, Ronald Reagan’s first tax cut level, until we have paid off our deficit? The middle class should not bear the cost of the wealthy’s bad investments. The top 1% should be the first to anti up, and then, only when they have nothing left, should the middle class even be asked to sacrifice…..
America is being spoon fed raw sewage and is then arguing which medicine is better to cover up the symptoms….. Tax the wealthy and all our dreams will come true. America can be healthy again….
Courtesy of Wikipedia.
After all the bluster dies down, Historians will revisit this era and come to this conclusion.
In order not to tax the top 1% an additional $85 billion dollars, the 99% was made to suffer for it….
Cost = $85 billion.
Let us compare that to wealth, not income, to see how that $85 billion stacks up….
The current household wealth of the United States is listed between $64 and $65 trillion dollars…. We are going to draw the line at at the top 20% and bottom 80% of the population.
The top 20% owns 89.9% of the nation’s wealth. The bottom 80% owns 11.1%…. In dollars that stacks up as follows:
- Top 20% owns $58 Trillion in net worth.
- Bottom 80% has $ 7 Trillion of net worth.
Ok. now we have the dollar figures. Let us break down the population. Since we are dealing with government services we must assume that affects everyone, so we are going to use the 315 million population figure for our calculations.
- Top 20% of population equals 63 million people.
- Bottom 80% of population equals 252 million people.
So now let us see how that works out per person. For both income levels we are going to divide the total wealth by the total persons and get the total wealth per person…
- 58 Trillion divided by 63 million people gives a per person average of…$841,269 per citizen.
- 7 Trillion divided by 252 million people gives a per person average of … $27,777 dollars per citizen.
Ok so here is what historians will find. If we tax the existing revenue for the $85 billion difference it will only hit the top group of 20%… If we sequester or cut out of our national budget, it will only hit those in the bottom 80%…
To see what the average hit will cost, we will take the $85 billion and divide it among the number of people in that income range. Then later we will apply that to their wealth and see who has the greater and who has the less percentage…
- $85 Billion sequestered spread over 63 million 20%’ers comes to $1349 each.
- $85 Billion sequestered out of the 252 million 80%ers comes to a tiny…. $337 each…
So here is the fun part.
- That $1349 is this percent of $841,269… 0.16% of one percent.
- That $337 is this percent of $27,777…. 1.2 percent…
Each person in the bottom 80% is paying roughly 8 times more of a burden to their wealth than paid by those in the top 20%……. When our economy fails and historians look back and say, didn’t anyone crunch the numbers? Well, yes? Someone did..
And if fairness is truly an America virtue, then once we know that a 8 to 1 ratio exists, it become easy to figure out how to divide the costs equally… (8x +1x = $85B) then we should have a tax hike of $75 billion and sequester or cut of $10 billion to give every America an equal percentage bite out of their wealth….
Photo courtesy of Disney Productions
Just reading Jack Markell’s advice on sequester, loosely translated, it means “no growth for that”; “no growth for that”; “no wiggle room for that.”
The entire Sequestration is being caused by the shrunken Republican minority’s refusal to accept higher taxes on the wealthy. As proven earlier, the $85 billion for the Federal Sequester could easily be raised by taking income over $1 million dollars one more penny per dollar… None of this would have to occur.
Currently Jack Markell proposes a cut in taxes on the top marginal rate of Delawareans. Almost all are registered Republicans. Their rates are to be reduced from 6.95 to 6.75. Initially in better economic times this was deemed to cost the state $8 million the first year, and $15 million the second year it goes into effect.
With the Federal Government pinpointing $15 million of Federal Aid being cut because Tea Party Republicans won’t raise taxes, the idea of cutting taxes on the wealthy here in Delaware had better now be dead in the water.
As has been mentioned many, many, times here and elsewhere, when you have oodles of more money than you can keep track of, whether the state tax rate is 6.75, 6.85, 6.95, or even 7.95 concerns you not… only 3 out of every 10 voters are Republicans. Only 1 out of 10 of Delaware’s general population, both voting and non voting, are Republicans..
The man behind the tree, is now a republican… He is the one who needs to pay for the Republican caused sequester…. It is time we implement a Republican Donation Tax. A surcharge tax equal to the amount donated to the Republican Party, that gets slapped onto any other assessments by law.
We tax tobacco to pay for the harm tobacco causes. We tax liquor for the harm liquor causes. We tax gasoline for the harm gasoline causes…. ‘Bout time we tax Republicans for all the harm they’ve cause us….
It had been a long haul. Unemployment rates were finally at the lowest levels of the current President’s term. Manufacturing, after being down for years, had finally surged past it zenith prior to the collapse. The Stock Market was again, after 5 years, finally back in record territory.
The economic downslide appeared to be over. Consumer confidence was high. The bad economic times were behind us.
It was time to cut the deficit that had swollen during the bad years. The nation could not keep pace with the growth of interest. Now with good times finally approaching, it was time to whittle that problem away….
Big cuts were made across the board to cut back government spending…..
But wait. We are discussing 1937!
1937? But I thought the Great Depression started in 1930 and lasted up until the war, 1941, That’s what we were always taught in school….
Ah. You didn’t let me finish…
One year later, the stock market would be at 50% of it’s value. Unemployment shot up from 14% back to 19%. Manufacturing slipped 37% down from the previous year. We were once again, indeed in the middle of the Great Depression.
It came because we tried to force austerity way too soon. The economy was only just rebounding, We were imposing the economic equivalent for a quadruple bypass surgery patient, a week after the operation, to be running in a marathon….
Exactly. Look what happened. As the government contracted suddenly, the shock wave rippled through every person who had gone through it at least once before. This time, they knew what to do. Get out of the market immediately. Stop spending immediately. Cut to depression staff levels immediately. They weren’t getting burned like the last time…..
Although it is impossible to say today is the exact parallel to the man-made continuation of the Great Depression, there are startling similarities.
What is most striking, is that we never heard about this bubble of good economic data in our history books. The result of misapplied austerity simply continued the Great Depression, so that those few good months just like we experienced, became quickly forgotten and swallowed up in the new upcoming crises.
Todays sequester and major cuts to spending, are our version of the austerity imposed upon the economy back in 1937…..
Chart Courtesy of Minyanville
Courtesy of Wikipedia
Courtesy of Wikipedia
Courtesy of Wall St. Pit
I just laid down a stinging rebuke over at Delaware Politics of the Right’s assertion that Obama caused the Sequester. The aim of their article was to blame President Obama for coming up with the sequester about to floor us on March 1st.. Nothing could be further from the truth… For in negotiations, it is not who comes up with an idea that matters, but who provides that idea with enough support, that it becomes so.
It appears that the sequester idea when it first appeared was nothing more than a leaf falling off a tree.
The sequester began in the budget crises of 2011. Here are the facts.
- For the first time in history, the Tea Party forces Republicans to put limitations upon the raising of the debt ceiling.
- On May 16 the US goes into technical default, but weaseling can extend the money until August 1.
- April 2011: Obama says debt limit must not be tied to any other deals.
- May 11th; Obama’s chief economic advisor writes that hobbling the debt limit would be “insane”.
- May 31st; 2011; Obama’s request for a clean debt limit is voted down in the House; All 236 Republicans vote no.
- Up thru August, Republicans were screaming “it’s gotta’ have catastrophic budget cuts” and Obama said “no”.
- Republicans caused Standard and Poors to collapse our rating. Republicans insisted they didn’t care and would still default.
- The White House asked: if we could “guarantee that cuts would occur in the future” would Republicans climb on board?
- They said” yes”; as long as it was solid law that the sequestration would eventually take effect, they would raise the ceiling
- Finally, when the Budget Control Act was passed, it was the Republicans who passed it. 218 voted yes for sequestration. It could not have passed without their support.
Bottom line, no matter who brought up the idea or where it came from, if Republicans had acted rational at any point along the way, we would not be on the edge of losing 700,000 jobs this March, 2013.
John Boehnor, and Delaware Politics spent much time saying that Obama is the author of sequestration….
Here is their quote…
“Republicans act as if the sequester is a natural disaster. They make no mention of the fact that they caused it and voted for it knowing that the sequester would take effect.... So why did they vote for it? None of them ever connect the dots and apologize for voting for it. The reality is that John Boehner said that he got 98% of what he wanted from the deal…..”
There you have it. If Red State proudly stands up and takes credit for engineering and forcing the sequester to tighten the vice grips upon the American economy, I certainly not going to stand in their way.
For Delaware Politics to go against Red State, and point their finger at Obama as originator of the “sequester”, can only show Delaware Politics doesn’t have the balls to be anything close to a real Conservative… They are Faux Conservatives at their best… or Ostrich Conservatives the rest of times, when they are not even close to being at their best.
Despite any words otherwise, Republicans own this sequester; good or bad.
Unless you read one of the big newspapers you will never hear of this… From yesterday’s sequestration hearings on Capitol Hill:
United States Army Chief of Staff Raymond T. Odierno elaborated on the impact that these indiscriminate, across the board cuts would have on military readiness in the Pacific and the United States Pacific Command.
“First, as I talked about 80% of our force having to stop training this year that includes our forces in Hawai’i, that includes our forces in at Fort Lewis that are in PACOM so they will be significantly degraded capabilities that they would have to respond to anything that goes on within Pacific Command. Additionally, the Army is responsible for providing a significant amount of communication support, intelligence support, logistical support to the PACOM Theater. Their ability to do that will also be affected by sequestrations specifically in the Fiscal Year 13 but beyond. We have tried to fence our capability in Korea to make sure they are at the highest readiness level. We will continue to do that. But the cuts in family programs, cuts in soldier programs, cuts in our civilians will also impact Korea as well. So for us it has a significant impact on our ability in the Pacific for the next several years,” said Odierno.
- 80% of our forces will have to stop training this year.
- Communication support, intelligence support, logistical support to the PACOM Theater; their ability to do that will also be affected by sequestrations specifically in the Fiscal Year 13 and beyond.
- Our capability in Korea to make sure they are at the highest readiness level. We will continue to do that to the best that our finances will allow us. But cuts in family programs, cuts in soldier programs, cuts in our civilians will also impact Korea as well…
- Just as we trim the forces in South Korea, North Korea puts us on a Defcom 4.
It is obvious with yesterday’s nuclear explosion on the northern half of the Korean Peninsula, we can’t cut the Pacific. If we try we are going to run cost overruns. This is just as silly as your boss setting financial goals that have never been proposed before and you simply know you will go over them. You accept that because it is impossible to meet them.
So how can we fix it?
We need just $86 billion extra per year. That is a lot for you and me, but for the wealthy, that is nothing. In fact Kinder Morgan just bought out Caldone for 8% of that: $5 billion. Prior to that, it just spent $21 billion on El Paso Gas. One company buying another company it didn’t need. Comcast just bought NBC for $13 billion. That’s almost half the total amount needed, thrown away on another company that would have been fine if left alone. See how easy it is?
Just a few more companies like that, and we could pay enough to keep our military in top shape. We don’t need sequestration.
Bill Gates, Warren Buffett, $86 billion is nothing to them. Each alone could cover the cost of our military.
Point is, we have the money just sitting there. Sitting out there all alone, saying “take me, take me.” All we have to do is go get it, and we can cut our deficit at the same time as we keep ourselves protected by having a first rate defense.
It is no different than a family of four on a tight budget, stopping beside a field of wild strawberries and picking their next few meals.
We can do this… $86 billion on just the top richest 400 people is only $215 million each… That is nothing, nothing to them. What farmer will miss having wild strawberries getting picked out of his hay crop? As a nation, let’s just take it; it is there, it is begging for it, and we’d be doing an awful lot of good for everyone involved….
Quotes from the bibliography…. Others may differ in how it gets called, but I call it empirical evidence.
Tax increases used to enhance public services can be the best way to spur the economy. By stimulating growth, generating jobs, and providing direct benefits to residents, improvements in state and local public services can be one of the most effective strategies to advance the quality of life of citizens.
Back in 1982, Ronald Reagan was persuaded that the deficit was such a severe impediment to growth that a tax increase to reduce it would be economically beneficial. Many in his party strenuously objected, citing research by Republican economists.It would be hard to find an economic forecast that was more wrong in every respect. Looking at real gross domestic product, it grew 4.5 percent in 1983 and 7.2 percent in 1984 – an exceptionally strong performance. The stock market had one of its best years ever in 1983 – both the Dow Jones Industrial Average and the S&P 500 Index rose 35 percent. There was no increase in the rate of inflation, which was exactly the same in 1983 and 1984 as it was in 1982. The unemployment rate fell from 10.6 percent in December 1982 to 8.1 percent by December 1983 and 7.1 percent in December 1984..
In 2003, the Finnish government wanted to boost employment in the northern part of the country. So it abolished some equivalents of our NI(National Insurance) for firms in northern regions. This saved the average firm there around 4% of its wage bill. Did this create jobs? The beauty of this plan was that it gave us a natural experiment. Because the tax cut only applied to firms in part of the country, it‘s possible to compare these to firms elsewhere in the country, to see if the lower “tax on jobs” created employment.the average firm that got the tax break created less than one-tenth of a job as a result. This experiment has been replicated elsewhere. Sweden has also tried regional variations in the equivalent of NI contributions, and has also found no great employment effects.
On August 20, 1993, Laffer told his clients, “Clinton’s tax bill will do about as much damage to the U.S. economy as could feasibly be done in the current political environment.” He said that interest rates would rise and the stock market would fall.Once again, it would be hard to find a forecast that was more completely wrong. The unemployment rate fell from 7.1 percent in January 1993 to 5.4 percent by December 1994. Real GDP growth rose from 2.9 percent in 1993 to 4.1 percent in 1994. Stock prices rose and interest rates fell. More importantly, the 1993 tax increase and accompanying spending controls, which were opposed by every Republican in Congress, laid the foundation for the phenomenal growth of the late 1990s that actually produced budget surpluses before Republican tax cuts in the 2000s dissipated them.
When marginal rates were relatively high, unemployment is low. When marginal rates are relatively low, unemployment is high. If the theory of high tax cuts worked to produce jobs it would be fine with me, but the evidence doesn’t support the theory.
A study from the Congressional Research Service — the non-partisan research office for Congress — shows that “there is little evidence over the past 65 years that tax cuts for the highest earners are associated with savings, investment or productivity growth.” In fact, the study found that higher tax rates for the wealthy are statistically associated with higher levels of growth.
There is one part of the economy, however, that is changed by tax cuts for the rich: inequality. The study says that the biggest change in the distribution of U.S. income has been with the top 0.1 percent of earners – not the one percent. The share of total income going to the top 0.1 percent hovered around 4 percent during the 1950s, 1960s and 1970s, then rose to 12 percent by the mid-2000s. During this period, the average tax rate paid by the 0.1 percent fell from more than 40 percent to below 25 percent. The study said that “as top tax rates are reduced, the share of income accruing to the top of the income distribution increases” and that “these relationships are statistically significant.”
Last September, the Congressional Research Service published a report countering Republican claims that lowering top tax rates would lead, or had led, to higher economic growth. “Changes over the past 65 years in the top marginal rate and the top capital gains tax rate do not appear correlated with economic growth,” the report concluded. Republican Minority Leader Mitch McConnell responded by having the report suppressed, but its findings were incontrovertible.
The weaker argument goes like this: The modern American economy is driven by consumer demand; the consumer sector, which includes services, is where new jobs emerge, and where growth is spurred. During economic downturns, purchases of consumer durables, including automobiles and new houses (which economists technically label investment), have been most likely to ignite a recovery. The lower a person’s income, the more likely he or she will use additional income to consume goods and services; the higher the income, the more likely it will be saved. In Keynesian terms, middle and lower income taxpayers have a much high marginal propensity to consume. Therefore, it makes much more sense to give them rather than the wealthy a tax break. The stronger argument shows that with incomes soaring in the upper brackets, it is a good idea to raise tax rates on the wealthy.
In 1890, consumer purchases accounted for about 36 percent of GDP; in 1925, 40 percent. (Similarly in China today, consumption accounts for only about a third of GDP and investment for half.) But in the United States today, consumer purchases account for about 70 percent of GDP, and investment for only 15 or 20 percent. And the growth of consumption at the expense of investment hasn’t entailed any decline in output, including that of capital goods. As a result, the consumer sector no longer has to sacrifice its output and income in order to fund a capital goods sector that is growing more rapidly than it is. And instead of the economy once being driven by the demand for capital goods, it is driven by the demand for consumer goods and services. The danger to the older economy was conspicuous consumption by capitalists and growing wage demands from workers, which threatened the funds available for investment in capital goods. The looming danger in the new economy is the failure of capitalists to consume or invest, and the failure of workers crippled by debt or unemployment or falling wages, to consume.
Government economic policy has to be, or at least should be, very different in this economy. It should not consist of giving tax breaks to the middle class and the wealthy, but of redistributing income downward–whether through tax policy, social programs, or labor regulations. If it doesn’t do that, or worse still, if it acts as if it were 1925 and encourages a growing gap between the rich and everyone else, it will threaten consumer demand. During the Coolidge and Hoover administrations, the top one percent increased their share of total income by 19 percent. And that happened, too, in George W. Bush’s administration. Such policies not only slow a recovery, but spur a slowdown by putting money in the wrong hands.
Regressive policies can also lead to financial crises. When firms suffer from global overcapacity or merely from domestic overproduction – when a glut arises of automobiles, ships, textiles semiconductors or fiber optic cable — as happened in the late 1920s and again in the earlier part of the last decade, the wealthy, joined by corporate treasurers and bankers, have tended to pour their money into speculation rather than productive investment. The financial sector has become a casino for the rich, where they have gambled away funds that could have fueled the economy. So redistributing income through tax policy isn’t just fair; it is one way to began restructuring the economy to prevent future slowdowns and crashes.
Reagan took office with a 7.5 percent unemployment rate. By September 1982 it had climbed to more than 10 percent and didn’t drop below 7 percent till halfway through his second term. From 1979 through 2004 the real after-tax income of the poorest fifth of the country rose by a paltry 9 percent, while that of the richest fifth rose by 69 percent. Over roughly the same period CEO pay rose by about 500 percent.Which brings us to the con. A string of millionaire candidates for public office has duped a good chunk of the electorate into thinking the way to create jobs and otherwise solve the problems of the middle class is to cut the taxes of the wealthy. That’s absurd. If the massive tax cuts of the Reagan era didn’t do the average worker much good, trimming another percent or two now sure won’t. What it will do is leave more money in the pockets of the comfortably affluent.
The empirical evidence is that cuts in government services in order to avoid tax increases will result in a reduction in incomes and therefore jobs. Claims to the contrary are based on research that is deliberately shoddy.
North Carolinians Would Pay Cost of Corporate Tax Cuts but Receive Few Benefits… The Fiscal Research Division of the General Assembly estimates that a recent proposal to cut the state corporate income tax rate from its current 6.9 percent to 4.75 percent would cost the state $307 million in the next fiscal year, with the annual cost rising to $410 million after five years. Businesses care more about having a well‐educated, highly productive workforce, access to markets and suppliers, sound infrastructure, and high quality of life for their employees than they do about taxes. corporate profits are currently at record highs, and corporations are still not hiring new workers. Cutting the state corporate income tax rate will simply raise corporate profits even higher with no promise or evidence that these profitable corporations will create jobs. In fact, rising dividend payouts and high executive bonuses suggest that much of the after‐tax savings resulting from a corporate tax cut will flow straight to out‐of‐state investors and corporate managers headquartered in other states.
Opponents say these new taxes will be passed on to consumers. They are wrong. Economists have clearly demonstrated that taxes come out of corporate profits. If a corporation raises its prices in order to pass on a tax, the law of supply and demand dictates customers will purchase less. Fewer purchases mean less profit, the same result as if the corporation had simply paid the tax. A higher price also creates a new market for another savvy business to start up and offer the same product or service at the initial lower price. The corporation would be forced to return to the lower price in order to compete. Taxes are a cost of doing business. Costs come out of profits. They do not impact the price, or the value, of a good or service. People will only pay what they will pay, no more. A business’ cost is of no concern to a consumer when they are deciding how to spend money.
Since 1945, the increases in the Federal deficit went up 4.2% under Democratic administrations; and 36.4% under Republican presidents (source CBO). That is not as relevant as the fact that the deficit increase was coincidental with GOP presidents who reduced taxes – most notably Reagan (deficit up11.2% & 5.9% in his two terms); George H. W. Bush (6.5%); and especially George W. Bush (up 9% and10.7%). While it may be argued, this is not necessarily related to “job creation”, it is related to increases in GDP (debt/GDP ratio) or relative robustness of the economy. These presidents cut taxes, increased debt, but the economy did not grow accordingly.
In short, the premise and the promise that giving substantial tax breaks to the very wealthy will stimulate the economy, and “create new jobs”, simply has no basis in fact or reality. What it has done, factually, is to increase the deficits whenever it has been tried.
At an House Finance, Ways and Means Committee meeting during the last big tax debate, one legislator asked the Economic Development Cabinet spokesperson why North Carolina is out-competing Tennessee in recruiting new businesses even though they have higher taxes overall and a personal income tax to boot. One of the reasons stated was North Carolina’s excellent educational system and a university system that is one of the best in the nation. Tennessee on the other hand ranks 49th in education spending per capita and 48th in high school graduation rates. The simple fact is, education of the local work force is more important to recruiting new business than having low taxes.
While the benefits of tax cuts and incentives are debatable, their costs are clearer: Tax cuts and incentives cause state and local governments collectively to lose billions of dollars annually in tax revenues. Because of the lost tax revenues, tax incentives force state and local governments to cut back on the quantity or quality of public services. These reductions can damage the economy because businesses often need these public services to thrive. Indeed, there is evidence that state and local tax cuts, accompanied by reductions in public services, cause job loss and economic decline.
Opponents of raising the taxes that high-income households face often point to findings that high-income taxpayers respond to tax-rate increases by reporting less income to the Internal Revenue Service (IRS) as evidence that high marginal tax rates impose significant costs on the economy. However, an important study by tax economists Joel Slemrod and Alan Auerbach found that such reductions in reported income largely reflect timing and other tax avoidance strategies that taxpayers adopt to minimize their taxable income, not changes in real work, savings, and investment behavior.
A marginal rate increase may encourage some business owners to work less because the after-tax return to work declines, but some will choose to work more, to maintain a level of after-tax income similar to what they had before the tax increase. The evidence suggests that these two opposing responses largely cancel each other out.
History shows that higher taxes are compatible with economic growth and job creation: job creation and GDP growth were significantly stronger following the Clinton tax increases than following the Bush tax cuts. Further, the Congressional Budget office (CBO) concludes that letting the Bush-era tax cuts expire on schedule would strengthen long-term economic growth, on balance, if policymakers used the revenue saved to reduce deficits. In other words, any negative impact on economic growth from increasing taxes on high-income people would be more than offset by the positive effects of using the resulting revenue gain to reduce the budget deficit. Tax increases can also be used to fund, or to forestall cuts in, productive public investments in areas that support growth such as public education, basic research, and infrastructure.
President Bill Clinton faced vociferous opposition to his 1993 budget plan, which raised the top tax rates from 31 percent to 39.6 percent. Republicans called it the “Kevorkian Plan.” So, what happened? Unparalleled economic growth. The nation’s unemployment dropped from 6.9 percent to 4 percent. The deficit shrank, and in 1998, the federal government boasted a surplus for the first time since 1969.
The vast majority of households that move to a different county or state indicate employment, family, and housing-related matters are the main reason behind their move. The limited available research on the impact of taxes on cross-state migration suggests that taxes do not play a very important role. At most, 0.7 percent of those affected by the “millionaire tax” had left New Jersey for tax reasons since 2004. While their departure cost New Jersey $38 million in annual revenue, the money collected from the remaining 99.3 percent has added nearly a billion dollars a year to New Jersey’s coffers. The net economic gain from instituting the tax has been an average of $857 million a year.
Canada’s largest corporations—are making 50% more profit and paying 20% less tax than they did a decade ago. However, in terms of job creation, they did not keep up with the average growth of employment in the economy as a whole. From 2005 to 2010, the number of employed Canadians rose 6% while the number of jobs created by the companies in the study grew by only 5%. In essence, the largest beneficiaries of corporate tax cuts are dragging down Canadian employment growth. If those 198 companies paid the same tax rate as they had in 2000, federal and provincial governments would have collected an additional $12 billion/year in revenue.
Business fixed capital spending has declined notably as a share of GDP and as a share of corporate cash flow since the early 1980s—despite repeated tax cuts that have reduced the combined federal-provincial corporate tax rate from 50% to just 29.5% in 2010. According to the study, the Conservatives’ proposed 3-point reduction in corporate tax rates would cost the public purse $6 billion per year, yet only stimulate about $600 million of new business investment annually.
If the federal government spent $6 billion on public infrastructure instead of corporate tax cuts, the total increase in investment would be more than ten times as great as the increase in private investment from tax cuts alone. This includes the new public investment itself ($6 billion), as well as an additional $520 million in private business investment that would be stimulated through the positive spin-off effects of the resulting economic growth.
What we are seeing today is lower taxes leading to owners extracting money rather than reinvesting it. The cash sits on the sidelines in bank accounts, or in their wallets. So let’s raise taxes, and “force” this idle cash back into businesses for reinvestment and create the jobs this country needs.