We’ve long maintained that having progressive and reasonable tax rates helps pay the bills, but are of secondary importance when it comes to the dynamics of robust economies.  

That said, not paying the bills can have disastrous consequences.  We’ve been cutting tax rates for eleven years now and look at the results:  Poor job growth, wide trade deficits, a severe recession and mounting debt.   Contrast that with the 8 years of the Clinton Presidency.  Clinton raised the tax rates, which obviously didn’t hinder a robust economy and which obviously resulted in surpluses.   At the end of those eight years the debt clock everyone gawks at today was turned off because we had surpluses not deficits.

So a reasonable question is what would our debt picture today be like if we had tax tables from previous eras.  As it turns out someone figured that out using the tax rates of 1961.  From an article at the Ourfuture blog, written by Sam Pizzigati, a journalist who has written extensively on the problems of income inequality.

Some numbers — from an Institute for Policy Studies report released this past spring — can help us better visualize just how monumental this political failure has been.

If corporations and households taking in $1 million or more in income each year were now paying taxes at the same annual rates as they did back in 1961, the IPS researchers found, the federal treasury would be collecting an additional $716 billion a year.

In other words, if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally vanish over the next decade.

Similarly stunning numbers have come, earlier this month, from MIT economist Peter Diamond and the University of California’s Emmanuel Saez, the world’s top authority on the incomes of the ultra-rich. These two scholars have shared some fascinating “what ifs” that dramatize how spectacularly the incomes of our wealthiest have soared over recent decades.

In 2007, Diamond and Saez point out, taxpayers in the nation’s top 1 percent actually paid, on average, 22.4 percent of their incomes in federal taxes. If  that actual tax burden were to about double to 43.5 percent, the top 1 percenter share of our national after-tax income would still be twice as high as the top 1 percent’s after-tax income share in 1970.

So why aren’t we taxing the rich? Why are we now suffering such fearsome “debt crisis” angst? Why are our politicos so intent on shoving the “fiscal discipline” of layoffs and cutbacks — austerity — down the throats of average Americans?

No mystery here. Our political system is failing to tax the rich because the rich have fortunes large enough to buy off the political system. Again, some numbers can help us better visualize that plutocratic big picture.

In 2008, the IRS revealed this past May, 400 Americans reported at least $110 million in income on their federal tax returns. These 400 averaged $270.5 million each, the second-highest U.S. top 400 average income on record.

In 1955, by contrast, America’s top 400 averaged — in 2008 dollars — a mere $13.3 million. In other words, the top 400 in 2008 reported incomes that, after taking inflation into account, amounted to more than 20 times the incomes of America’s top 400 a half-century ago.

But 1955’s top 400 didn’t just make far less than 2008’s top 400. The rich in 1955 paid far more of their income in taxes than today’s rich. In 2008, the new IRS data show, the top 400 paid only 18.1 percent of their total incomes in federal income tax. The top 400 in 1955 paid 51.2 percent of their total incomes in tax.

The bottom line: After taxes, and after adjusting for inflation, 2008’s top 400 had a staggering $38.5 billion more left in their pockets than 1955’s most awesomely affluent.

Multiply that near $40 billion by the annual tax savings the rest of America’s richest 1 percent have enjoyed over recent years and you have an enormous war chest for waging class war, billions upon billions of dollars available for bankrolling think tanks and candidates and right-wing media.

In the face of these billions, should the rest of us, America’s vast non-rich majority, just toss in the towel? Our counterparts a century ago certainly didn’t. They challenged their rich, on every battlefront imaginable. They eventually prevailed. They sheared their rich down to democratic size.

We can do the same.

Beezer here.  The numbers speak for themselves.  But the major media ignores them.  Why is that?  Could it be that there really are organized Oligopolies, including an important media one that censors this information?  It’s hard not to believe this is what’s happening because there is a robust discussion on the internet, of which the article re-printed here is only one of literally thousands.  If some media mogul seizes this opportunity and picks up these conversations in a big way, the balance could shift back to informed debate once again.

We’ve maintained all along that reasonable progressive tax tables are of secondary importance when it comes to building robust economies.  By inference that means cutting taxes is of secondary importance too.  The important difference between the two is that progressive taxes help pay the bills, even build surpluses when the economy is good, but tax cuts instead aggravate deficits and debt when times aren’t so good. 

There’s another important aspect that arises when thinking along these lines and it deals with savings.  To quote from economics professor Nick Rowe, co-author of the blog Worthwhile Canadian Initiative in a recent post entitled The Macroeconomics of Doing Nothing:

Suppose there is an increase in desired saving, and the monetary and fiscal authorities do nothing. What happens?

That’s the most important practical question in macroeconomics over the last few years. And it’s also a really stupid question. And understanding why it’s a really stupid question, and changing the way that question is asked — not just in academia, but in the real world — is the most important practical task of macroeconomic theory today.

Let’s start with “saving”. In macroeconomics, “saving” is defined as “not spending part of your disposable income on newly-produced consumption goods and services”. It’s a purely negative definition. And it invites the supplementary question: “OK, so if you are not spending it on newly-produced consumption goods and services, what are you doing with your disposable income instead?”.

If everyone is saving, then overall demand for goods and services declines.  If the decline is large enough then you get a recession, or worse.   Rowe asks the question ‘what are you doing with your disposable income instead?’  There aren’t really a lot of options here other than making investments in stocks, bonds or direct purchase of productive capital like a new machine or a new employee.   In a recessionary level drop in demand for goods and services the impulse to make direct investments declines for obvious reasons, so that pretty much leaves stocks and bonds–or a new home if you’re under the impression a new home is an investment.

Rowe assumes, or at least appears to assume, that ‘savings’ includes ‘disposable income’ but the definition of savings is ‘not spending’ which is not exactly the same thing as having disposable income.  In a severe recession a lot of people will ‘not spend’ as much as before but will have exactly zero ‘disposable income.’    This doesn’t require them to have any debt either, but in the real world recessions tend to come as a surprise and in the United States credit has been suffused as an everyday means of consumption, of day to day living, so there was a lot of private debt in the economy when this last recession arrived.

Regressive, instead of progressive, tax tables are a major part of this mess. This tremendously aggravated the depth and width of the recession by increasing income inequality leading into the financial house of cards collapse.

Reduced consumption means only reduced consumption for too many Americans. There is no disposable income resulting other than the fictional identity cited by Rowe.

The wealthy now find themselves with only two stark choices: Either spend all that disposable income (God knows they’re trying, they account for 50% of discretionary spending already); or face default on their bond portfolios chock full of leverage risk.

The Republicans are setting America up for the latter eventuality and most of them don’t even know it. Politically they are signing their death warrant too, and they don’t know that either. Whoever said the rich are smart obviously was rich–and a moron.

Fascism is a form of governing where corporations have co-opted bureaucrats and effectively run the government for their benefit.  Of course there has to be some form of propaganda, some form of marketing spin, that the public swallows enough to stay passive and not rise up against the fascists.

From a blogsite (which propounds some views I definitely disagree with) called The Burning Platform:

The talking points of the super rich, which are pounded into the brains of slumbering Americans, are they pay all the taxes, create all the jobs, create all the wealth, and drive innovation. The facts say otherwise. The super rich aren’t creators, they are destroyers. The top 0.1% richest Americans didn’t get rich by creating new companies and letting their entrepreneurial talents shine. These 152,000 people, with an average income of $5.6 million per year are overwhelmingly executives at large corporations, banks, law firms, and real estate firms. These people account for 68% of the richest of the rich. Entrepreneurial creators and producers account for less than 10% of the richest Americans. The executives that make up the 68% are masters of creating debt, wealth for themselves by peddling debt to the middle class, and creating jobs in China and India by outsourcing U.S. jobs.

The average income of the 137 million people that sit at the bottom of the income pyramid has declined by 1% since 1970. The people at the top of the pyramid saw their average income rise by 385%. Was this because they worked harder? No. It was because they used their existing wealth to buy politicians and pay lobbyists to write laws, create loopholes, reduce regulations, and alter the tax code in their favor. This was not a conspiracy. It was human nature. Humans are driven by greed and fear. Lusting for power and wealth is a common human frailty. Those who are able to acquire wealth and power through their superior abilities and intellect are usually driven individuals. It is built into their DNA to seek more wealth and power. There are 310 million Americans and based on the chart below, only 1.5 million would be classified as very rich or extremely rich. Many of these people associate in the same circles. This incestuous relationship is what breeds the growing inequality in our country. The game is rigged in favor of these 1.5 million people because they run the corporations, occupy the halls of Congress, peddle the debt products to the bottom 90%, and use their mass media to control the message to the under-educated, over-medicated, gadget distracted masses.  

Beezer here.  Call it soft fascism, crony capitalism or plutocracy but we definitely find ourselves in a pickle after a decade long tax cutting and spending binge.  The public doesn’t want the wars, but we maintain them anyway.  The public wants us to trim our debt and have progressive tax rates, but we do neither.  The ownership class, particularly the top of this class, has been successful in defanging private labor and is now well on the way to accomplishing the same thing in the public sector.  Unemployment takes a back seat to a continuing and thorough program of enriching those who are already rich, insuring their bonds while failing to help the majority of Americans gain work and wage gains they’ll need to pay off those same bonds. 

Technically we’re out of the Great Recession.  It doesn’t feel all that good because we still have too much unemployment and growth is painstakingly slow, stretching everyone’s patience.

So what have we done so far to fight the malaise?:

• Cut taxes.  This was done in hopes the additional money in the hands of the private economy would boost lagging demand for products and services.  It looks as though this had some positive effect.  The negative effect was it increased government deficits.
• Cut interest rates, effectively to zero.  This was done in an effort to force savers out of savings and into productive, riskier investments–and to decrease the costs of new borrowing for productive investment and the cost of government deficit financing.  The negative is that the retired who live on safe bond  portfolios see a reduction in income, and Social Security dependent elderly don’t get cost of living increases. 
• A series of Federal Reserve moves intended to shore up weakened bank balance sheets.   Other than saving the banking system directly, another hope was that this would boost lending for productive investment.
• Stimulus spending for infrastructure projects.  Although a minor part of the overall stimulus spending (tax cuts being the largest component), this was the only money spent on directly hiring people.  (Editor’s note: Advisor points out that tax cuts were not the largest portion of the original stimulus bill, spending accounted for about 65% of the bill.  Infrastructure spending was half of that spending.  Since that bill, however, the lame duck Congress following the 2010 elections added more than $700 billion in additional tax cuts over the next two years.)   

Although lacking detail this list covers the choices we’ve made so far.   So what could we do in addition that might trigger economic growth, but not put undue pressure on deficits?

• Restore progressive tax tables, at minimum to those levels under President Clinton where the top marginal rate was 39.6% on income above $250,000.  This would force large savers to divert some of their inert savings into riskier, potentially more productive assets.    Additionally,  the government could pay more bills and it’s liability to insure huge undifferentiated savings would decrease.
• Establish an infrastructure bond program aimed at specific, large projects.  We have $2.2 trillion in such projects already identified across the nation, but a national goal setting project on the scale used in the 1950s to build an interstate highway system would qualify as a large enough trigger to spur economic growth.   Think  national urban commuter rail modernization and expansion, for one example.  Or a national energy transmission system modernization, for another example.    This would employ many millions in private companies nationally, a good portion of whom would come from those now unemployed.  It would improve the economy’s efficiency, and thus its global competitiveness, for decades.  Another nice positive is the bonds would help satisfy savers’ needs for income while, at the same time, turning those savings to productive use.  To the degree the projects derive revenues once built, the government’s liability to insure AAA savings would be reduced as well. 
• Use tariffs and other methods to reduce the nation’s trade deficits.  Cap and trade would raise revenue and reduce fossil fuel use.  Expanding the production and use of natural gas would decrease oil imports–a serious portion of the current trade deficits.  Subsidizing promising sustainable energy companies would create jobs and reduce our dependence on imported oil too.   

The government has cut taxes serially.  Cutting taxes even more will offer, at best, diminished returns.  To the degree they aggravate government deficits, their effect is likely to be net negative.   The Federal Reserve has pretty much run out of tools to use.

What’s not been used are progressive tax tables and direct spending on large, national infrastructure projects that would directly employ millions of workers.   We should be doing both right now.  And we should be aggressive about it.  The fastest way to end recessions and pay off debt is to grow the economy.

A common argument for progressive taxes is that they automatically distribute money more fairly amongst the public at large.  A country that cannot force the wealthy elite to pay higher tax rates is a good metric for identifying a third world country.

But there’s another more nuanced reason for progressive tax rates.  Any country that issues its own currency accepts a liability for that issuance.   If you have purchased $10,000 in 10 year US treasuries, you have foregone current consumption in that amount for a guaranteed flow of interest payments and return of principal.  That guarantee is a liability of the US government, or taxpayers if you prefer that viewpoint. 

Thus, it is in the interest of the government to, at minimum, monitor what that liability entails.  Not only in terms of the aggregate liability, but in terms of the composition of that liability.    Has the government accepted a liability on ‘undifferentiated’ savings?  What happens if that savings ends up being lost in poor loans made by a bank that invests in morgtage backed securities?   We know the answer to that question don’t we.  Taxpayers end up footing the liability.  They make the Treasury owner whole. 

From the blog interfluidity:

“Access to claims on undifferentiated money is a form of social insurance that should be encouraged up to a certain level, so that individuals and families can cushion idiosyncratic volatility, but beyond that level should be actively discouraged, taxed or perhaps even rationed. At the moment, given the terribly lopsided income distribution we’ve allowed, there are a lot of families without sufficient money savings to secure even the short-term uncertainty they face, and a lot of people with resources to offer that are being wasted by nonproduction rather than poor lending. We should issue money claims and encourage the exchange of resources for money claims among these people;”

In other words progressively higher tax rates force large savers to invest in something other than US Government debt, even if it’s just consumption or buying sketchy mortgage backed securities.  In our current lopsided income inequality situation there’s a small percentage of very wealthy folks who own a lot of Treasuries.  And they are guaranteed by taxpayers.  It’s a subsidy for holding AAA securities like government debt and a disincentive to use that money for productive capital investment instead.

Beezer here.  Setting a national goal to modernize the country’s various infrastructures, and then issuing specific bonds to fund that effort, limits the risks of our liabilities compared to simply selling guaranteed bonds to finance undifferentiated savings, and their associated liability and subsidy.  Having progressive tax rates helps this concept, and explains as well the problems of issuing government backed debt willy nilly.   

Better that the government sell debt attached to a specific project, and then tax the income from that focused debt less than the tax levied on undifferentiated government debt.  If you’re going to issue a guarantee, or a subsidy, to the holder’s of government debt then at least make the debt build something productive.  Build America bonds fit this design.  As do municipal bonds, which offer tax breaks to fund capital investment.  Each muni is attached to either local taxpayer guarantees, or revenue derived from the municipal bond investment in public goods.  Either way, the debt issued is not for ‘undifferentiated’ savings.  And thus the risk of liability is better controlled.

Former Labor Secretary under Clinton, economics professor Robert Reich, has been explaining all along why the US is struggling economically.  In this Huffington Post article, Reich once again exposes the perps.

“Only the richest 5 percent of Americans are back in the stores because their stock portfolios have soared. The Dow Jones Industrial Average has doubled from its crisis low. Wall Street pay is up to record levels. Total compensation and benefits at the 25 major Wall St firms had been $130 billion in 2007, before the crash; now it’s close to $140 billion.

But a strong recovery can’t be built on the purchases of the richest 5 percent.

The truth is if the super-rich paid their fair share of taxes, government wouldn’t be broke. If Governor Scott Walker hadn’t handed out tax breaks to corporations and the well-off, Wisconsin wouldn’t be in a budget crisis. If Washington hadn’t extended the Bush tax cuts for the rich, eviscerated the estate tax, and created loopholes for private-equity and hedge-fund managers, the federal budget wouldn’t look nearly as bad.

And if America had higher marginal tax rates and more tax brackets at the top — for those raking in $1 million, $5 million, $15 million a year — the budget would look even better. We wouldn’t be firing teachers or slashing Medicaid or hurting the most vulnerable members of our society. We wouldn’t be in a tizzy over Social Security. We’d slow the rise in health care costs but we wouldn’t cut Medicare. We’d cut defense spending and lop off subsidies to giant agribusinesses but we wouldn’t view the government as our national nemesis.

The final truth is as income and wealth have risen to the top, so has political power. The reason all of this is proving so difficult to get across is the super-rich, such as the Koch brothers, have been using their billions to corrupt politics, hoodwink the public, and enlarge and entrench their outsized fortunes. They’re bankrolling Republicans who are mounting showdowns and threatening shutdowns, and who want the public to believe government spending is the problem.

They are behind the Republican shakedown.

These are the truths that Democrats must start telling, and soon. Otherwise the Republican shakedown may well succeed.”

Beezer.  This is classic class warfare.  The super rich use their money to entrench their wealth.  It’s socialism for the rich.  Dismantling government is part of this overall shakedown.  Small, ineffective government, cannot protect the environment nor can it assist the poor.  Tax cuts that favor the wealthy can be passed under the guise of slogans like ‘starve the beast’ or ‘government is the problem.’  Wages can be suppressed and this allows income gains due to productivity gains to flow exclusively to ownership and their executive employees.

Private industry unions have already been dismantled.  Only 7% of private employees are union members.  Unions were a major reason productivity gains raised labor income along with ownership income.  The ownership class shipped labor jobs overseas to escape having to share their wealth.  The unions were busted in the private sector, which now leaves the public unions as the only impediment keeping public assets out of private hands.  So they are under attack and the strategy hasn’t changed:  Impoverish labor, and then turn that labor against organized labor in the public sector with charges that government is ‘too big’ (code for cut public sector wages); cut taxes the wealthy pay in order to drive up deficits and then accuse union labor for the deficits, both federal and state.

It’s sad to see the US be ripped apart, to be torn down.  Rather than building the US, rather than allowing labor to share in income gains, rather than collectively putting our government to work boosting the economy, the effort is entirely negative.  The discourse is Orwellian.  Fire people to lower unemployment?  Put more people out of the health care system to make the population healthier?  Starve education funding to make our next generation more competitive?  The next thing you know, these destroyers will proclaim the sun rises in the West.