According to a recent survey conducted by local real estate information provider Real Estate 114, 42.6 percent of people answered that brand is their first
If Reaganomics is viewed by conservatives as the best way to encourage economic growth, then what plan do liberals have for economic growth that would work?
I see ignorant Democrats and Progressives throwing around the word “Trickle-down Economics” without even knowing what that word means.
Before we begin, though, I would like to announce that I’m finally famous in the Capitalism topic here on Quora! That means I’m getting more recognition from everyone! EEEEEEEEE!
Standing with the Greats!
Now, “Trickle-down Economics” is a complete lie, created by opponents of Supply-side Economics.
I recently wrote an answer debunking it, covering the Kansas experiment as well:
“The shrinking middle class” is another misleading lie.
The middle class is shrinking…
… because Americans are moving up.
The main focus of this answer, however, is to discuss the negative effects of Progressive policies on the economy and the People.
- Tax the s**t out of the rich.
You often hear how the top 1% now owns 90% of the US’s wealth. While it’s true, it is irrelevant because wealth is not static, nor zero-sum. At this point, the poor are getting richer as well, thanks to the booming economy.
According to a Gallup poll in July 2019, only 2% of Americans said “Income inequality is the most important problem in America”. Because the economy is booming, Americans are living better and as a result, they don’t pay attention to income inequality very much.
Image source: FiveThirtyEight.
As a justification for higher taxes on the rich, Progressives often point to the 1950s, when we had a 91% top tax rate, as an evidence where high tax rates contributed to economic prosperity.
This can’t be anymore wrong. The unprecedented prosperity in the 50s was created by a huge decrease in federal spending and transition from a wartime to peacetime economy.
After World War II, when ten million demobilized servicemen returned to an economy that had to be converted from a garrison state to civilian needs, economists steeled themselves for a renewed depression. A sweeping Republican victory in the Congressional election of 1946, however, brought an end to the wartime government-planning regime [overregulation]. Dropping from 42 percent of GDP to 14 percent, government spending plummeted by a total of 61 percent between 1945 and 1947. One hundred fifty thousand government regulators were laid off, along with perhaps a million other civilian employees of government. The War Production Board, the War Labor Board, and the Office of Price Administration were dismantled [deregulation].
But a drop in government spending after a war does not depress creativity; it unleashes it. Judging the public sector contribution by its cost is the great error of Keynesian economics….the Great Depression, which had continued through the war disguised by price controls and necessary defense spending, at last came to an end. Economic growth surged by 10 percent over two years and the civilian labor force expanded by seven million workers….[T]he private sector…launch[ed] a ten-year boom despite self-defeating tax rates on investors as high as 91 percent. The Republican Congress compensated for the high rates by introducing joint returns, effectively cutting taxes in half for intact families. Corporate taxes dropped drastically, and the tax burden, measured by government spending, fell more dramatically than at any other time in American history. Low inflation and privatization led to a resurgence of large manufacturing corporations…
–George Gilder, Knowledge and Power: The Information Theory of Capitalism and How It Is Revolutionizing Our World
When the high tax rates are applied in our modern world, however, they have led to serious consequences.
- The rich refused to pay, using loopholes and deductions which are exploited by the best accountants they can hire.
- It slowed production of industries affected by the luxury tax on the rich.
- It raised lower revenue than expected.
A good example of this would be the 1991 luxury tax levied on industrial sectors of which the rich were frequent customers.
In November 1991, The United States Congress enacted a luxury tax and was signed by President . The goal of the tax was to generate additional revenues to reduce the federal . This tax was levied on material goods such as watches, expensive furs, boats, yachts, private jet planes, jewelry and expensive cars. Congress enacted a 10 percent luxury surcharge tax on boats over $100,000, cars over $30,000, aircraft over $250,000, and furs and jewelry over $10,000.
According to the media at the time, the tax did not bring any good news.
Rich people aren’t happy about paying this extra money. Even if they can afford it, they think it’s unfair. And in some cases, they’re refusing to pay it — simply by refusing to buy new boats and planes.
Of course, rich people don’t have to buy a new 90-foot Broward (they can keep the old 54-foot Bertram, for instance, or buy a house in Vail, a major Childe Hassam or a minor Gauguin — none of which are covered by the luxury tax). So the federal government doesn’t get the tax money — and, worse, Broward doesn’t sell its yacht and various boat builders get put out of work.
As a result, in its first year and a half, the yacht tax raised a pathetic $12,655,000 for the Treasury. That’s enough to run the Agriculture Department for a little over two hours. Meanwhile, the tax has contributed to the general devastation of the American boating industry — as well as the jewelers, furriers and private-plane manufacturers that were also targets of the excise tax that was part of the 1990 budget deal.
Aside from the failed consumption tax (repealed in 1993), the high marginal tax rate on income has also fell apart… in France.
One of the most cited papers supporting higher taxes on the rich is The Case for a Progressive Tax by two economists, Peter Diamond and Emmanuel Saez. In the paper, they argued that the rich should be taxed at an optimal rate of 70%. The problem here is that they are arguing for an optimal, not federal tax rate. This optimal tax rate accounts for local, state and federal marginal tax rates all in one.
Nonetheless, what academic papers fail to take into account is human reactions to the tax hikes. We always know that people like a tax increase… until it affects them.
The 75% “supertax”, imposed on all income above 1 million euros by President Francois Hollande has ended up as a huge failure. France’s economy declined and it has essentially become, in Preisdent Emmanuel Macron’s words (back when he was an economic advisor), “Cuba without the sun”.
Most memorably, the French supertax famously compelled French actor Gerard Depardieu to become a Russian citizen and relocate to Moscow for tax reasons. Notwithstanding, this trend of emigration persisted at the macro level as an2.5 million French citizens now live abroad in the U.K., Belgium and other countries sporting more competitive income tax rates.
As a result of a reduced labor supply and discouraged investment in France following the 75% top marginal income tax rate announced in September 2012, French revenues for 2013at only 16 billion euros, a 14 billion euro shortfall below the French government’s expected 30 billion in tax collections.
Compared to initial estimates from the French government using models which ignore the Laffer Curve’s “slippery slope,” tax revenues from corporate taxes, individual income tax, and value-added tax (VAT) were down by 6.4 billion, 4.9 billion, and 5 billion euros respectively.
In 2014, the French economy continued its stagnation as the economy has failed to post a single quarter of annualized GDP growth above 0.8% since Hollande took office in 2012 and implemented his 75% supertax shortly after. France’s unemployment rate still sits around 10%. The French government also target of 3.8% of GDP in 2014 and may not do so until 2017 with tax revenues projected to continue their decline.that the country will most likely fail to meet its deficit
With that, the tax rate quietly went into the history books and France returned to the marginal rate of 45% before the tax hike.
So much for “Tax the s**t out of the rich”.
Another claim you must have heard at least once in your life is that a Koch brothers’ funded study found that Medicare-for-all “would save $2 trillion over a decade”, compared to our current healthcare system.
Which is a misrepresentation of the study. Don’t believe me? Here’s whatfound:
Sanders and Ocasio-Cortez are referring to a working paper, “,” published by the Mercatus Center at George Mason University. The Mercatus Center gets some of its funding from the libertarian Koch brothers, but more about that later.
The author of the paper, , a senior research strategist at the Mercatus Center who once was the deputy director of President Bush’s National Economic Council, says the two proponents of a universal health care system are distorting the findings of his paper.
Study after study has shown that as a nation we will save substantial sums of money, and the average middle-class families will save $3,000 each and every year on their health care bills.
No, Mr. Sanders, it is NOT going to help the middle class save their money.
His ambitious excise tax on financial transactions, known as the , will not raise as much money as he expected. He estimates that it would raise about $2.4 trillion over the next decade, while studies by the Tax Policy Center found it to be much less.
We can slash the military budget in half, crippling the US Armed Forces and it still won’t be enough. In 2019, the national military budget is only $716 billion.
Reversing Trump’s tax cuts? Nope, the biggest estimate I can find is that it will reduce $1 trillion in deficit over the next 10 years. Still not enough.
Putting a 70% top marginal tax rate? It will only generate about $291 billion over the next 10 years.
It is most likely that the US will go even further in debt.