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To Grow the Realonomy, Tax and Spend

Research & Commentary
February 09, 2012

by Salvatore Babones

Low taxes mean high growth, and a rising tide lifts all boats.  Don’t tax the job-creators.  Money trickles down from the rich to the poor.

We’ve been hearing arguments like these since the 1980 election, when Ronald Reagan beat Jimmy Carter on a platform of reducing taxes on the wealthy. They were wrong then, and they’re wrong now.

The truth is that taxes on investors and the wealthy are lower now than at any time since the 1920s.  They hit rock bottom in the 2000s.

Our slowest-growth decade since the 1920s?  The 2000s.

Growth was even slower in the 2000s than in the 1930s.  That’s right, slower than during the great depression.

America’s taxes on the wealthy have been at historically low levels for thirty years now, but job creation is lower than ever.  For the past five years there’s been no job creation at all.

The economy has been creating jobs at slower and slower rates since the end of the 1970s.  It may seem hard to believe, but the 1970s were actually a jobs paradise compared to today.

[pullquote]Growth was even slower in the 2000s than in the 1930s.[/pullquote]

Jobs growth was faster in the 1970s — when taxes on the wealthy were 70% — than they have been at any time since.  The 1970s were even better than the 1990s.  It’s only by today’s low standards that the 1990s seem like they were such a good time.

The solution?  Raise income taxes.  Raise them on everyone, but most of all raise them on the wealthy.

Why do high taxes on the wealthy bring more jobs for the rest of us?  It’s all a matter of what people do with their money.

The wealthy don’t live in our economy.  They live in a Plutonomy all their own.  Most of their income gets spent on two things: investment and luxury goods.

Today, in the fifth year of a recession that’s turning into a new Great Depression, luxury goods sales are at an all-time high.  That’s the Plutonomy.  The Plutonomy is not in recession.

But the wealthy also invest.  Does this investment create jobs?

It does, but it doesn’t create American jobs.

In today’s global investment markets money follows the highest returns.  With China growing at 10% to our 2%, the higher returns are in China.  That’s where the investment flows.

When you tax high incomes, you take money that would have been invested globally and give it to the government to spend, and almost all government spending is in the United States.

Taxing high incomes also puts a damper on luxury consumption.  That’s a side effect we can live with.

Should the poor and working class also pay higher income taxes?  You betcha.  Everyone shared in the Bush tax cuts, rich and poor alike.  Everyone can afford to go back to 1999 levels of taxation.

[pullquote]Tax and spend. Those three dirty words are now the key to economic recovery in America’s Realonomy.[/pullquote]

But down in the working class Realonomy of the American economy there’s not much income tax to be paid because there’s not much income.  That has to change.

Give the poor more income and in return let them pay a little more tax.  That’s a fair deal.

How do we get them that income?  Tax and spend.

Take the money people would invest in China, take the money that people would spend on that extra TV for the kids’ bedroom, and spend it on things we really need.

Tax and spend, so we can have high-quality schools with low student-teacher ratios.  Tax and spend, so we can have pleasant, attractive national parks.  Tax and spend, so we can send put people to work helping our elderly and disabled live more fulfilling lives.

That’s right.  “Tax and spend.”  Those three dirty words are now the key to economic recovery in America’s Realonomy.

Get out the bleach.  It’s time to tax and spend our way to recovery.  Sometimes the simplest solutions are the right ones.  This is one of those times.

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