Saturday, January 28, 2017

Keeping the wealth

Daily Kos contributer NBBooks takes a look at the mess that always results when the GOP gives tax cuts to the wealthy. Evidence A: The tax cut by Calvin Coolidge in 1926 was followed by a stock crash in 1929. More tax cuts by Herbert Hoover made the Great Depression worse.

Evidence B: The Reagan tax cuts in 1981, supposedly to revive American industry, resulted in America losing its leadership in steel, auto, printing equipment, construction equipment, farm equipment, and power generating equipment. The apparel and footwear industry was reduced to one tenth its former size. We started importing more consumer and industrial electronics than we exported. And there was a stock crash in 1987.

Evidence C: The Bush tax cuts of 2001 and 2003 were followed by the Great Recession in 2007. The boom from 2002-2006 wasn’t growth, but speculation.

That’s not what the GOP has been telling us. They say to get growth we have to cut taxes. But there is a strong correlation between high taxes on the rich and economic growth.

Business leaders want to keep the bulk of wealth created by a business. When taxes are high the only way to do that is use profits to invest in the business – in its factories, equipment, staff, research and development, new products, and more.

When taxes are low there is incentive for profit-taking, for pulling the money out of the business and putting it in the pockets of the shareholders. If your company has already made you rich what do you care if it goes belly-up and the jobs go to China? Business planning is reduced to what can make the most profit in the next quarter or year.

And former employees also become former customers. And business slows.

Now we have all these businessmen with lots of money that must be “put to work.” So it is invested in all the things Wall Street has to offer. All that money chasing those monetary instruments causes a bubble. Which pops.

Part of the conservative mantra is based on this idea: We made lots of money. Therefore we know how to invest money, especially better than what gov’t can do by planning. Evidence (see above) doesn’t support that claim. Neither does this: Investing in credit default swaps (a major component of the 2007 disaster) is smarter than investing in sustainable energy startups that could lessen the damage of climate change?

America has (or used to have) a social contract. Investment in infrastructure and a public commons enabled businesses to prosper, which paid all its employees good wages, the tax on which was invested in infrastructure, and the cycle continued. Society prospered.

The Reagan Revolution broke that contract. Investment in infrastructure and a public commons enabled businesses to prosper, which paid its shareholders good profits, the tax on which was diverted to the wealthy few, and the cycle crashed. Only the already rich prospered.

The nasty guy is proposing lots of infrastructure investment. This is all about giving construction companies money to build stuff. Right? Umm. From what we know of the plan the idea is to give tax credits to construction companies. Will they build with it? Or will the go into financial speculation? And if they do build stuff there are hints they want what they built to be privatized – such as turning highways into toll roads or charging for use of the library. The result is minimal national economic gain.

Can the Dems interrupt all this? Yes, from the left, by pushing single payer healthcare, taxes on Wall Street speculation, improved social safety net, and a massive worldwide push for new energy, transportation, and industrial systems that don’t use fossil fuels. That Wall Street tax will either push the Street into the nasty guy’s arms and annoying the Tea Party crowd or have the nasty guy and the Street at each others throats.

But to do this the Dems have to annoy their donors and go with what is best for the majority of Americans. Gosh, what a concept!

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