On Taxing Wealth
By David Bonello

The most common answer to any question involving why we need to treat the wealthy so special is: Have you ever gotten a job from a poor person?

To the average or below average mind, this response makes a lot of sense. To someone with a grasp of logic, however, the response has a fallacious predicate (a logical fallacy with an unstated major premise).

First, the response (stance) implies that “only” the wealthy supply jobs (since the question concerned “the wealthy),” and secondly, the premise assumes that wealth creates jobs in the first place.

This premise is easily debunked by facts. First fact: most jobs in America come from small businesses. The owners of small businesses are not wealthy. They might be rich, but they are not wealthy. To understand real wealth, picture Bill Gates waking up one morning with Oprah’s money. They’re both rich, but Bill Gates is wealthy.

Second fact: wealth does not create jobs; demand creates jobs. This is basic economics. No demand = no jobs. High demand = many jobs. Giving money to the wealthy (in the form of tax breaks) creates ZERO demand.

Adam Smith, an economist who lived during our American Revolution, and the Father of Capitalism, stated quite clearly that the strength of any economy resides in its workforce. If the workforce is poor, the economy is weak; if the workforce has money to spend, the economy is healthy.

Here is something I’ve posted previously that illustrates this point quite succinctly:

Action                                                   Economic Activity Generated
High “Bang for the Buck”

Temporarily increase food stamps

$1.73

   Extend unemployment benefits

$1.64

   Provide general aid to state governments

$1.36

 

 

Lower “Bang for the Buck”

 

   Extend Alternative Minimum Tax patch

$0.48

   Make dividend and capital gains tax cuts
   permanent

$0.37

   Cut corporate tax rate

$0.30

   Make Bush income tax cuts permanent

$0.29

From testimony by economist, Mark M. Zandi (from Moody’s Economy dot com) before congress.

This is proof positive that money in the hands of the work force, the poor, and the middle class produces more economic activity, more demand, than tax breaks for the wealthy.

Ironically, there is a hint of truth in the original postulation that the wealthy create jobs: Last year they created 1.4 million of them overseas.

Now here is something I’ve done a bit of research on that no economist I’ve researched has touched upon: The Bush administration repeated constantly that when they first came into office, they’d inherited a recession. For the longest time I simply assumed this was BS since most of the time that’s all we get from Washington, until a friend told me, hey go “here” and check this out. He sent me a link to a website run by apolitical economists. It was there that I saw the facts, the naked facts (devoid of any political agenda) that a slight recession had started prior to Bush taking office. However, after extensive further research, I could not find anyone who could point to when or how this recession began; I kept tossing out factor after factor until through deduction (and reduction) all I had left was the only possible cause of the recession: billions of dollars had been removed from circulation.

How had this been accomplished? By cutting back welfare.

Clinton has bragged that the Welfare Reform Act in 1996 brought the deepest cuts ever to the welfare system. As the number welfare recipients shrunk the amount of money in circulation shrunk. Demand shrunk and unemployment rose. Thus the Bush administration did inherit a slight recession.

Demand creates jobs. Tax cuts do not. In fact, prior to the Welfare Reform Act when Clinton increased taxes on the wealthy, 23 million jobs were produced; more than had been created at any other time in our history. Under Clinton’s taxation, growth was about 4%; under Bush’s tax breaks, growth was about 2%.

Four is always bigger than two.

In Clinton’s final years as welfare rolls diminished, demand decreased and unemployment crept upwards.

So, ironically, when we are asked if a poor person ever gave us a job, the answer is “yes.” Jobs are created when the poor get money (via welfare, food stamps, etc).

But if you tax wealth, they’ll just move their businesses overseas!

Funny, but right after Ronald Reagan cut taxes, businesses began moving overseas.

My favorite story in this vein goes like this:

Haliburton (or KBR) electrocuted 12 soldiers in Iraq. The 12 were electrocuted while showering; the building they showered in was built and “wired” by KBR. Was the wiring faulty? The Army brought in an independent electrical contractor to review all of KBR’s installations. He reported that at all the sites he’d visited, the electrical wiring was not up to code. What happened to Haliburton? Well, a few months later the Pentagon gave them an 80 million dollar bonus and right after that, Haliburton moved its headquarters to the Cayman Islands.

Businesses will move overseas for cheaper labor no matter how they are taxed or not taxed. The solution to lost revenue is to close loopholes and establish a simple rule: if you make money in America, you pay taxes in America. Our trade deficit is proof positive that we need to increase tariffs in this country.

Progressive Taxation of Wealth vs Stagnating Workers’ Wages

One of the greatest economic myths in circulation today is that the government takes money from successful people and gives it to the poor and lazy.

Of course there’s a reason this myth has become fact in the minds of so many: the wealthy, the ones truly benefitting from our tax policies, want the American public to believe this myth. They repeat it again and again and again so that it soon becomes etched in our minds.

“Rich people pay Fox people to convince average people that poor people are the problem.”

I’m not easily swayed by lies. I don’t care how many times a lie is told; it’s still a lie.

America’s story has become the story of Robin Hood in Reverse: we are taking from the poor and middle class and giving to the rich. This is fact. Welfare for the wealthy has never been so blatant, so abundant, and so profitable as it is today. Privatization is profitization. Everyone needs to watch the documentary: Iraq for Sale. It’s online free: Iraq for Sale.

Here is another economic truth: when wealth is taxed heavily, the wealthy pay their workers a decent wage. (Hang in there; I’ll explain why.)

Eisenhower built the strongest middle class in the history of the planet taxing wealth upwards of 90%.

We are told that if we tax people that much, they won’t go to work. Why work if the government is going to take it all away?

Another lie.

No CEO stopped going to work because of Eisenhower’s taxation plan; in fact, they still made money. They still accumulated wealth. They just didn’t make obscene wealth while their workers starved.

Does anyone remember how workers once refused raises because it would put them into a higher tax bracket? What ever happened to tax brackets?

Our taxation system has been plundered by lobbyists hired by wealth to make the tax code favor them (the wealthy). It’s that simple.

However, when wealth was taxed upwards of 90%, companies took a lot of their profits and re-invested that into their companies; they compensated their workers very well. Why? Because it was tax deductible.

Or to look at it from a different angle, “they were using the government’s money.”

If a portion of your profits is going to pay taxes, you can look at that money as belonging to the government.

Thus, if profits are taxed at 35%, any money that goes into wages from those profits is only 35% the government’s, and 65% the company’s money.

If the money I pay my employees is only 35% the government’s but 65% mine (Mine! Mine! Mine!), there’s not much incentive for me to pay out very much money.

If, however, I was being taxed at 90%, what I pay my workers is 90% the government’s and only 10% mine. Heck, I can be really generous with the government’s money.

And this, my dear reader, is exactly how wages began to stagnate in this country. Under Ronald Reagan, taxes on wealth dropped below the 50% mark, and you can see by the graph below how wages stagnated while productivity continued growing.

Supporters of policies to cut taxes on the wealthy like to point out that after Reagan cut taxes, thousands of jobs were immediately created.

Yes, they are correct. The jobs created right after Reagan’s tax cuts were very low paying jobs. And now YOU know why they were low paying jobs; there was no incentive to pay decent wages. Without tariffs on imports, Corporate America moved higher paying jobs overseas. The overwhelming theory driving our economics in the Reagan years was Greed is Good. Today we know exactly who it was good for.

Only One Way Out of a Recession

It is quite simple: increase the government’s income and spend it in a way that will increase demand. Creating government jobs and infrastructure jobs eventually leads to private jobs because of an increase in demand. Putting money into circulation leads to demand.

Though the latest group of clowns in Washington claimed they would create jobs and boost the economy while they were running for office, apparently kicking grandma to the curb is now more important, along with gutting education, the environment, and taking health care away from women. Washington is through the looking glass right now as once again we are told that cutting spending and giving tax breaks to the wealthy will create jobs.

Just take a look at the following graph of recovery from the first great depression:

The economy began an upswing when Roosevelt taxed wealth and created infrastructure jobs around the country, but in 1937, he listened to his conservative wing and began giving tax breaks and cutting spending. You can see how much good that did.

Those who don’t learn from history are condemned to repeat it.

It’s time to tax wealth.


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