Fairness vs Economic Logic

Wiseacre

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Below is a snippet from an opinion by Charles Krauthammer in today's WAPO. Clearly, Obama wants to raise the tax rate on capital gains and dividends, perhaps only on amounts over a certain ceiling. The details are a bit murky, as is usually the case with anything Obama says, but the overall question remains: at a time like this when the economy is definitely faltering, should we raise the tax rate on investments, when most economists agree that such an action could be detrimental to economc growth? Even Obama himself has said so, yet he is now proposing exactly that. How can anybody look at this and think it's anything else but a purely political tactic to improve his standing with his base rather than making a serious attempt to offer something constructive?


snippet:
In a 2008 debate, Charlie Gibson asked Barack Obama about his support for raising capital gains taxes, given the historical record of government losing net revenue as a result. Obama persevered: “Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.”
A most revealing window into our president’s political core: To impose a tax that actually impoverishes our communal bank account (the U.S. Treasury) is ridiculous. It is nothing but punitive. It benefits no one — not the rich, not the poor, not the government. For Obama, however, it brings fairness, which is priceless.
Now that he’s president, Obama has actually gone and done it. He’s just proposed a $1.5 trillion tsunami of tax hikes featuring a “Buffett rule” that, although as yet deliberately still fuzzy, clearly includes raising capital gains taxes.
He also insists again upon raising marginal rates on “millionaire” couples making $250,000 or more. But roughly half the income of small businesses (i.e., those filing individual returns) would be hit by this tax increase. Therefore, if we are to believe Obama’s own logic that his proposed business tax credits would increase hiring, then surely this tax hike will reduce small-business hiring.
But what are jobs when fairness is at stake? Fairness trumps growth. Fairness trumps revenue. Fairness trumps economic logic.

Return of the real Obama - The Washington Post
 

Grampa Murked U

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[ame=http://www.youtube.com/watch?v=WpSDBu35K-8&feature=player_detailpage]Obama: Raise Taxes, Capital Gains - "For Purposes of Fairness" - YouTube[/ame]

[ame=http://www.youtube.com/watch?v=8glbYVk3WSo&feature=player_detailpage]Obama: "The LAST THING We Want to Do Is Raise Taxes During a Recession" - YouTube[/ame]


Will the real Obama please stand up.................................
 

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Below is a snippet from an opinion by Charles Krauthammer in today's WAPO. Clearly, Obama wants to raise the tax rate on capital gains and dividends, perhaps only on amounts over a certain ceiling. The details are a bit murky, as is usually the case with anything Obama says, but the overall question remains: at a time like this when the economy is definitely faltering, should we raise the tax rate on investments, when most economists agree that such an action could be detrimental to economc growth? Even Obama himself has said so, yet he is now proposing exactly that. How can anybody look at this and think it's anything else but a purely political tactic to improve his standing with his base rather than making a serious attempt to offer something constructive?


snippet:
In a 2008 debate, Charlie Gibson asked Barack Obama about his support for raising capital gains taxes, given the historical record of government losing net revenue as a result. Obama persevered: “Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.”
A most revealing window into our president’s political core: To impose a tax that actually impoverishes our communal bank account (the U.S. Treasury) is ridiculous. It is nothing but punitive. It benefits no one — not the rich, not the poor, not the government. For Obama, however, it brings fairness, which is priceless.
Now that he’s president, Obama has actually gone and done it. He’s just proposed a $1.5 trillion tsunami of tax hikes featuring a “Buffett rule” that, although as yet deliberately still fuzzy, clearly includes raising capital gains taxes.
He also insists again upon raising marginal rates on “millionaire” couples making $250,000 or more. But roughly half the income of small businesses (i.e., those filing individual returns) would be hit by this tax increase. Therefore, if we are to believe Obama’s own logic that his proposed business tax credits would increase hiring, then surely this tax hike will reduce small-business hiring.
But what are jobs when fairness is at stake? Fairness trumps growth. Fairness trumps revenue. Fairness trumps economic logic.

Return of the real Obama - The Washington Post
As usual, Krauthammer has nailed it. Obama does believe in "leveling". What he constantly refers to as "fairness" is in reality just a call for drastic income redistribution. And if you think Obama was bad in his first term? Just think about what he'll try to do if he gets a second.
 

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There is no conflict between fairness and economic logic. The two go hand in hand. There is, however, a conflict between fairness and right-wing economic ILlogic. That much I can see.

The period of highest economic performance in the history of the U.S. also saw the highest top marginal income tax rates and the strongest support for labor unions in government policy. That's because investment is NOT driven by how much money the rich have lying around to invest. It's driven by how much demand is for the products and services the investment produces. And that, in turn, is driven by how much money the average Joe has in his pocket, not by how much money Mr. Moneybags has.

So fairness -- narrowing income gaps, keeping wages high, making sure most people have good opportunities to make good money by doing ordinary work -- is also good economic sense. And the opposite puts us in the kind of bind we're in now.
 

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If Mr. Moneybags, as you call him does not invest in making what ever is in demand there will be no job and I don't care how bad you want it, it will not be produced. I can not name one job the labor unions have ever created that was needed. They created a lot of crony job but they were totally unnecessary to the final success of the business. Life is not fair, if you are lazy and won't work or in a lot of cases, even show up then you are not going to have the things that people who roll out of bed early in the morning and put in a full day at their job. Get used to it.
 
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There is no conflict between fairness and economic logic. The two go hand in hand. There is, however, a conflict between fairness and right-wing economic ILlogic. That much I can see.

The period of highest economic performance in the history of the U.S. also saw the highest top marginal income tax rates and the strongest support for labor unions in government policy. That's because investment is NOT driven by how much money the rich have lying around to invest. It's driven by how much demand is for the products and services the investment produces. And that, in turn, is driven by how much money the average Joe has in his pocket, not by how much money Mr. Moneybags has.

So fairness -- narrowing income gaps, keeping wages high, making sure most people have good opportunities to make good money by doing ordinary work -- is also good economic sense. And the opposite puts us in the kind of bind we're in now.

Do you realize that the world we live in now is totally different from the 1950s when we had marginal tax rates of 91%? It's a global economy now, back then we were the only game in town. And we didn't have the massive debt, the American spirit was quite different, it was a very different world then. So, to suggest we could return to those high tax rates under present day circumstances is very unrealistic. If you raise tax rates on investments today, you will see a lot of money going elsewhere, and even less demand than what we've got now.

Same argument for returning to the Clinton era tax rates, what worked then will not work now.
 

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There is no conflict between fairness and economic logic. The two go hand in hand. There is, however, a conflict between fairness and right-wing economic ILlogic. That much I can see.

The period of highest economic performance in the history of the U.S. also saw the highest top marginal income tax rates and the strongest support for labor unions in government policy. That's because investment is NOT driven by how much money the rich have lying around to invest. It's driven by how much demand is for the products and services the investment produces. And that, in turn, is driven by how much money the average Joe has in his pocket, not by how much money Mr. Moneybags has.

So fairness -- narrowing income gaps, keeping wages high, making sure most people have good opportunities to make good money by doing ordinary work -- is also good economic sense. And the opposite puts us in the kind of bind we're in now.
Do you realize that the world we live in now is totally different from the 1950s when we had marginal tax rates of 91%? It's a global economy now, back then we were the only game in town.
International trade is 20 times today what it was then. The flow of capital is perhaps even more flexible and free than the stream of trade.

History affirms the free trading, reasonable spending, light safety net Clinton years, but not the tax-cutting, big war and spending Bush years.
 

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There is no conflict between fairness and economic logic. The two go hand in hand. There is, however, a conflict between fairness and right-wing economic ILlogic. That much I can see.


All you are doing is proving your economic illiteracy and blind ideology.

The ONLY valid definition of Fairness is one of Equal Treatment Under The Law.

The Left has twisted this into equality of situation and outcomes, leading to a degraded economy.
 

Listening

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There is no conflict between fairness and economic logic. The two go hand in hand. There is, however, a conflict between fairness and right-wing economic ILlogic. That much I can see.
I don't believe that economics has a "fairness" metric associated with it. To you second point, I look forward to your argument.

The period of highest economic performance in the history of the U.S. also saw the highest top marginal income tax rates and the strongest support for labor unions in government policy.
Is there evidence to support this proposed correlation. Timing does not mean anything.

That's because investment is NOT driven by how much money the rich have lying around to invest. It's driven by how much demand is for the products and services the investment produces. And that, in turn, is driven by how much money the average Joe has in his pocket, not by how much money Mr. Moneybags has.
To try and separate the two seems a little silly.

If there is a demand for a product, then Mr. Moneybads is going to invest in a profitable scheme to satisfy that demand. Which goes along with your statement that it starts with demand.

At the same time, there are plenty of examples of what the Japanes call "latent" demand being satisfied by companies who introduce new products the public had not even thought of.

In other words, it works both ways.

But the only way that a profitable firm works is if there are people with enough money to buy products. So, it really isn't in the interest of corporations to see people become poor.

So fairness -- narrowing income gaps, keeping wages high, making sure most people have good opportunities to make good money by doing ordinary work -- is also good economic sense. And the opposite puts us in the kind of bind we're in now.
What kind of a bind are we in now ?

Narrowing an income gap ? Please provide me with a numerical example of what you mean. I have worked some of this on spreadsheets and don't see how this kind of fairness does anything for us.

Now, if you are talking about weath, that is a different story. But you are focused on wages, so I'll ask you to stay with that.
 

Dragon

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If Mr. Moneybags, as you call him does not invest in making what ever is in demand there will be no job
lf there is not demand for the products to be produced, then Mr. Moneybags will not invest and there will be no job.

The stopping point is demand, which is driven not by how much Mr. Moneybags has, but how much the average person has.
 

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There is no conflict between fairness and economic logic. The two go hand in hand. There is, however, a conflict between fairness and right-wing economic ILlogic. That much I can see.


All you are doing is proving your economic illiteracy and blind ideology.

The ONLY valid definition of Fairness is one of Equal Treatment Under The Law.

The Left has twisted this into equality of situation and outcomes, leading to a degraded economy.

Yup. Its called spreading the wealth.

Looney lefties think this is AOK. They have no problem taking someone elses money and giving it to someone who didn't earn it. All in the name of that little word fairness.

Good thing we don't still live in the old west. The nearest tree would have been the answer back then.
 

Dragon

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I don't believe that economics has a "fairness" metric associated with it.
It doesn't, but it's clear enough what Krauthammer and the OP meant by it. They were presenting a false choice between narrowing income gaps and economic performance. The reality is, narrow income gaps helps economic performance, while wide ones hurt it, so what we are faced with is a choice not of one or the other, but of both or neither.

Is there evidence to support this proposed correlation. Timing does not mean anything.
That sounds like an excuse to dismiss a priori all possible evidence presented, frankly. What would you accept as evidence of the correlation?

We operated under one broad economic regime that might be called "demand side thinking" from about 1940 until 1980. This included a steeply-graduated income tax, with top marginal rates ranging from a low of 70% to a high of 93%, strong support for unions that saw a peak of 39% of the workforce unionized around 1960, and a strong social welfare net including generous student aid and veterans' benefits.

We operated under a very different economic regime that might be called "supply side thinking" from industrialization in the late 19th century until the transition in the late 1930s, and moved back to something approximating it in the 1980s, although the match wasn't perfect. This included low taxes on the rich, government hostility to organized labor, and stingy to nonexistent social welfare. In the later period, it also included encouragement of outsourcing.

Per capita growth in real GDP during the 1940-1980 period of demand-side policies exceeded the same measure for the U.S. economy from 1900 to 1940 or from 1980 to the present by more than two to one.

If there is a demand for a product, then Mr. Moneybads is going to invest in a profitable scheme to satisfy that demand. Which goes along with your statement that it starts with demand.

At the same time, there are plenty of examples of what the Japanes call "latent" demand being satisfied by companies who introduce new products the public had not even thought of.

In other words, it works both ways.
"Demand" is a technical term of economics. Many people confuse it with "desire," specifically a desire to buy products, but desire to buy is only one component of demand, the other being ability to buy, or in short having money to spend.

Before an innovative product is introduced, people might not have a desire to buy it, having never considered the possibility before. But if they don't have money to spend, then introducing the product and sparking a desire to own it will still not generate demand, because the ability to buy will not be there. This is why new products are generally introduced during good times: radio and automobiles in the 1920s, television in the late 1940s, the personal computer in the 1980s, e-commerce in the 1990s. If television had been introduced in the 1930s, it would have been a commercial failure, because the economy was in sad shape and too few people had the money to buy TVs. It had to wait until the Depression and the war were over, even though the technology existed in the late 1920s.

So that is not working both ways, it's still the same one way.

But the only way that a profitable firm works is if there are people with enough money to buy products. So, it really isn't in the interest of corporations to see people become poor.
That depends. It might be, if the corporation identifies its interests strictly with those of its biggest shareholders and its CEO. Widespread poverty means a reduced market for the company's products, but it can also mean reduced wages for a leaner workforce, particularly if much of the work is outsourced. So the company might end up with higher profits even on lower sales. It's a question of the size of the slice versus the size of the pie. In fact, right now we see corporate profits reaching record highs even as unemployment remains high and the economy sucks for most people, so exactly that is clearly happening.

What kind of a bind are we in now ?
One in which we don't have enough consumer demand to support a full-employment economy.

As for narrowing income gaps, here's the theory about how it works.

1. The more money a person makes, the smaller a percentage of that income is spent on consumption and the higher a percentage is saved or invested.

2. As a result, the more income accumulates at the top, and the less is distributed throughout the economy, the less consumption and the more capital accumulation will occur.

3. But accumulated capital will be invested in wealth-creation (agriculture, manufacturing, services) only to the extent that demand justifies it. All excess capital goes instead into rent-seeking, bubble blowing, economic strip-mining, and the kind of financial shell games we saw recently in the credit-default swap nightmare.

By taking action such as the government did in the 1940s-70s to keep income gaps relatively narrow, it ensures that more of the accumulated capital goes into wealth production (which creates jobs) rather than into the more wasteful investments that only shuffle money around and don't create jobs, nor create any real wealth.

When instead the government adopts policies that keep wages suppressed and encourage the accumulation of higher incomes at the top, the reverse occurs, and less of the accumulated capital is invested in real wealth creation, more in shell-games.

Fairness (meaning something closer to economic equality) benefits the economy. We don't have to choose between the two. The choice is between having both or having neither.
 

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Dragon said:
Fairness (meaning something closer to economic equality) benefits the economy. We don't have to choose between the two. The choice is between having both or having neither.
Dragon speaking sensibly.

[a]steeply-graduated income tax, with top marginal rates ranging from a low of 70% to a high of 93%
Dragon goes to crazy town.
 
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Wiseacre

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If Mr. Moneybags, as you call him does not invest in making what ever is in demand there will be no job
lf there is not demand for the products to be produced, then Mr. Moneybags will not invest and there will be no job.

The stopping point is demand, which is driven not by how much Mr. Moneybags has, but how much the average person has.

Do you understand the difference between a temporary surge in demand, like the one we got from the stimulus and QE, and a sustained permanent increase in demand? You know the numbers, we had a pickup in GDP and then when the money dried up GDP and UE got a lot worse.

Do you understand what happens when you raise the tax rate on Mr Moneybags, how he invests less money in the US economy and puts it elsewhere? Maybe even packs up and moves out to Aruba or somewhere? How can you possibly think that disincentivizing investment here in the US can be a good thing for the economy? Which is what you're doing by raising taxes on investments.
 

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If Mr. Moneybags, as you call him does not invest in making what ever is in demand there will be no job
lf there is not demand for the products to be produced, then Mr. Moneybags will not invest and there will be no job.

The stopping point is demand, which is driven not by how much Mr. Moneybags has, but how much the average person has.

Do you understand the difference between a temporary surge in demand, like the one we got from the stimulus and QE, and a sustained permanent increase in demand? You know the numbers, we had a pickup in GDP and then when the money dried up GDP and UE got a lot worse.

Do you understand what happens when you raise the tax rate on Mr Moneybags, how he invests less money in the US economy and puts it elsewhere? Maybe even packs up and moves out to Aruba or somewhere? How can you possibly think that disincentivizing investment here in the US can be a good thing for the economy? Which is what you're doing by raising taxes on investments.
Obviously fairness trumps intelligence and logic in his world.
 

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No, it's not crazy. It worked very well. The reason those high tax rates helped spark prosperity is that they were coupled with full deductions for investment in wealth-production. So it created a big incentive for rich people to plow a lot of their accumulated capital into investments that made goods and services and created jobs. Basically, if you made millions, the choice you had was either invest a lot of your money into things that helped the economy (and pay a lower tax rate), or fork it over to Uncle Sam to play with. Needless to say, most millionaires made the former choice.

The investments still made a return, but it was spread out over a period of years and didn't go as high any one year as today's financial shell-games can do. If an investment pays you $10 million over 15 years, and the top marginal rate begins at $1.5 million, you will never pay that top rate on that return. If another investment pays you the whole $10 million in one year, you will.
 

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Do you understand the difference between a temporary surge in demand, like the one we got from the stimulus and QE, and a sustained permanent increase in demand? You know the numbers, we had a pickup in GDP and then when the money dried up GDP and UE got a lot worse.
They didn't get worse than they were before the stimulus started, they just lost the boost from the stimulus itself. Yes, of course I understand that. Obama's proposals are better than nothing, but only just. He's too conservative to do what really needs to be done.

Do you understand what happens when you raise the tax rate on Mr Moneybags, how he invests less money in the US economy and puts it elsewhere?
No, that's untrue. The reason that manufacturers (and that's really the only ones doing it) outsource labor is because they can save about 90% or more of their labor cost by doing so. Compared to that, any tax savings are trivial and don't matter. (The difference between union and nonunion wages is also trivial and doesn't matter.)

There are many reasons why a business might want to be located in the U.S. or elsewhere, and while the effect of taxes isn't nonexistent, it's not determinative, either. There is no reason to fear the consequences of raising taxes on the rich, because we've done it before and the consequences did not materialize, which shows that they are only scare stories, not realistic fears. For example, taxes were raised a few points in the Clinton years, and a boom ensued.
 
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Do you understand the difference between a temporary surge in demand, like the one we got from the stimulus and QE, and a sustained permanent increase in demand? You know the numbers, we had a pickup in GDP and then when the money dried up GDP and UE got a lot worse.
They didn't get worse than they were before the stimulus started, they just lost the boost from the stimulus itself. Yes, of course I understand that. Obama's proposals are better than nothing, but only just. He's too conservative to do what really needs to be done.


Not getting any worse is not good enough, historically when we come out of a recession we should expect a period of growth, and we didn't get that. Most conservatives on the right attribute that to Obama's economic polices which were counter productive. Obana is too conservative? Don't think so.


Do you understand what happens when you raise the tax rate on Mr Moneybags, how he invests less money in the US economy and puts it elsewhere?
No, that's untrue. The reason that manufacturers (and that's really the only ones doing it) outsource labor is because they can save about 90% or more of their labor cost by doing so. Compared to that, any tax savings are trivial and don't matter. (The difference between union and nonunion wages is also trivial and doesn't matter.)

There are many reasons why a business might want to be located in the U.S. or elsewhere, and while the effect of taxes isn't nonexistent, it's not determinative, either. There is no reason to fear the consequences of raising taxes on the rich, because we've done it before and the consequences did not materialize, which shows that they are only scare stories, not realistic fears. For example, taxes were raised a few points in the Clinton years, and a boom ensued.

When Clinton raise taxes he did it in a time of much less debt and a lot of consumer and business confidence. Remember "animal spirits", and "irrational exuberance"? Dot coms were growing left and rigt, and there was money to be made. And t is worth noting that the best period of economic growth under Clinton was AFTER the Gingrich led House lowered taxes AND they reformed the welfare system.

I woud agree that the tax rate in and of itself is not determinantive, but I think it is not inconsequential. We live in a true global economy, and there is every reason to believe that raising tax rates, espeically on investments could indeed be detrimental to economc growth and job creation.

Lib/dems can shout to the rooftops all day long about increasing demand, but redistributing the wealth in the form of higher taxes on the upper incomes is not going to fix the debt, is not going to help grow the economy, is not going to incentivize new businesses. Sure, you get a temporary bounce, and then you're back to where tou started but with more debt.
 

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Not getting any worse is not good enough, historically when we come out of a recession we should expect a period of growth, and we didn't get that.
Yes, actually we did. It wasn't sufficient to restore real prosperity, but growth was indeed restored; that's why the recession was proclaimed "over." Technically that's true.

I agree that things are not good enough.

Most conservatives on the right attribute that to Obama's economic polices which were counter productive.
They're wrong. Obama's efforts were certainly too timid, but hardly counterproductive. Those conservatives are operating out of the supply-side theory for the most part, the idea that if you toss money at rich people they'll invest it and create jobs. History proves that idea wrong.

When Clinton raise taxes he did it in a time of much less debt and a lot of consumer and business confidence. Remember "animal spirits", and "irrational exuberance"?
Of course, but the point is that raising taxes didn't hurt the economy. The Omnibus budget Reconciliation Act, which raised the top marginal rate (among other things) was signed in his first year in office, 1993, and the economic boom he's associated with did not take off until after that. So there was no "irrational exuberance" preceding the raising of taxes; that happened afterward, which pretty well shows that the tax increase didn't hurt.

And t is worth noting that the best period of economic growth under Clinton was AFTER the Gingrich led House lowered taxes AND they reformed the welfare system.
Congress did not lower the top marginal rate, which remained at 39.6% until it was lowered after Bush took office. As for reforming the welfare system, that had only trivial economic impact, however severe its impact on the lives of poor people.

We live in a true global economy, and there is every reason to believe that raising tax rates, espeically on investments could indeed be detrimental to economc growth and job creation.
There is no hard evidence to show this, however. And I might point out that the U.S. tax burden on our richest people is one of the lowest in the world, especially among developed economies. Here's a link to a table showing how it checks out:

Highest Marginal Tax Rate, Individual Rate % statistics - countries compared - Taxation data on NationMaster

We're no. 37 on the list. The 36 countries that levy higher top marginal rates than we do include just about the entire developed world, the countries with the most prosperous economies. Those that tax the rich less than we do are mostly third-world countries.

Since the only even remotely arguable consequence of raising taxes on the rich involves competition for investment with other countries, we obviously have a long way to go before we reach a point where businesses are going to start finding us uncompetitive for that reason.
 
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They're wrong. Obama's efforts were certainly too timid, but hardly counterproductive. Those conservatives are operating out of the supply-side theory for the most part, the idea that if you toss money at rich people they'll invest it and create jobs. History proves that idea wrong.


So how much money would you have had Obama spend? How much further would you have us go into debt? Americans don't like to be in debt; goes against the grain, and you want to increase it a lot more? Another 2 trillion? 3 trilllion?
Reagan threw a lot of money at rich people 30 years ago, and kicked off the longest and best period of prosperity and high employment in our nation's history. There are no, repeat no examples where a country raised taxes and redistributed the wealth and got themselves out of a recesiion or near recession.



Of course, but the point is that raising taxes didn't hurt the economy. The Omnibus budget Reconciliation Act, which raised the top marginal rate (among other things) was signed in his first year in office, 1993, and the economic boom he's associated with did not take off until after that. So there was no "irrational exuberance" preceding the raising of taxes; that happened afterward, which pretty well shows that the tax increase didn't hurt.


No, it didn't hurt. That time, Clinton's political ass was saved by that "irrational exuberance". Which ever came first is immaterial, the country shrugged off the tax increase and went about it's business. I have strog doubts that such would happen today.

Congress did not lower the top marginal rate, which remained at 39.6% until it was lowered after Bush took office. As for reforming the welfare system, that had only trivial economic impact, however severe its impact on the lives of poor people.


Congress lowered the capital gains tax in 1997, which indeed spurred the economic growth into the 2000s. There were other cuts too, but Clinton's best years economically speaking were after that. And I wouldn't say the reformation of the welfare system was trivial, broadening the tax bas sure as hell didn't hurt. Fewer people taking money out and more people putting money in.


We're no. 37 on the list. The 36 countries that levy higher top marginal rates than we do include just about the entire developed world, the countries with the most prosperous economies. Those that tax the rich less than we do are mostly third-world countries.

Since the only even remotely arguable consequence of raising taxes on the rich involves competition for investment with other countries, we obviously have a long way to go before we reach a point where businesses are going to start finding us uncompetitive for that reason.

You're talking about where we are now, from what I hear the dems are talking about putting the top rate up near 50%. And bumping up the capital gains tax up to around 23% or so. Both would put the US up near the top, if you don't think there wouldn't be consequences, well that's fine but I think otherwise.
 

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