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Are low taxes exacerbating the recession?
Higher marginal tax rates mean more resources for job-creating, wage-generating public investments
By David Sirota


As the planet's economy keeps stumbling, the phrase "worst recession since the Great Depression" has become the new "global war on terror" — a term whose overuse has rendered it both meaningless and acronym-worthy. And just like that previously ubiquitous phrase, references to the WRSTGD are almost always followed by flimsy and contradictory explanations.

Republicans who ran up massive deficits say the recession comes from overspending. Democrats who gutted the job market with free-trade policies nonetheless insist it's all George W. Bush's fault. Meanwhile, pundits who cheered both sides now offer non sequiturs, blaming excessive partisanship for our problems.

But as history (and "Freakonomics") teach, such oversimplified memes tend to obscure the counterintuitive notions that often hold the most profound truths. And in the case of the WRSTGD, the most important of these is the idea that we are in economic dire straits because tax rates are too low.

This is the provocative argument first floated by former New York Gov. Eliot Spitzer in a Slate article evaluating 80 years of economic data.

"During the period 1951-63, when marginal rates were at their peak — 91 percent or 92 percent — the American economy boomed, growing at an average annual rate of 3.71 percent," he wrote in February. "The fact that the marginal rates were what would today be viewed as essentially confiscatory did not cause economic cataclysm — just the opposite. And during the past seven years, during which we reduced the top marginal rate to 35 percent, average growth was a more meager 1.71 percent."

Months later, with USA Today reporting that tax rates are at a 60-year nadir, Secretary of State Hillary Clinton told a Brookings Institution audience that "the rich are not paying their fair share in any nation that is facing [major] employment issues ... whether it is individual, corporate, whatever the taxation forms are."

A prime example is Greece. While conservatives say the debt-ridden nation is a victim of welfare-state profligacy, a Center for American Progress analysis shows that "Greece has consistently spent less" than Europe's other social democracies — most of which have avoided Greece's plight.

"The real problem facing the Greeks is not how to reduce spending but how to increase revenue collections," the report concludes, fingering Greece's comparatively "anemic tax collections" as its economic problem.

On the other hand, the opposite is also true — as Clinton noted, some high-tax, high-revenue nations are excelling.

"Brazil has the highest tax-to-GDP rate in the Western hemisphere," she pointed out. "And guess what? It's growing like crazy. The rich are getting richer, but they are pulling people out of poverty."

This makes perfect sense. Though the Reagan zeitgeist created the illusion that taxes stunt economic growth, the numbers prove that higher marginal tax rates generate more resources for the job-creating, wage-generating public investments (roads, bridges, broadband, etc.) that sustain an economy. They also create economic incentives for economy-sustaining capital investment. Indeed, the easiest way wealthy business owners can avoid high-bracket tax rates is by plowing their profits back into their businesses and taking the corresponding write-off rather than simply pocketing the excess cash and paying an IRS levy.

In summing up her remarks, Clinton said that this higher-tax/higher-revenue formula "used to work for us until we abandoned it."

Though she felt compelled to insist, "I'm not speaking for the [Obama] administration," it was nonetheless a politically bold statement — so bold, in fact, that like all of the other corroborating tax facts, it was summarily ignored by politicians and the Washington media. They had their clichés to promote — and unfortunately, until they let substantive though uncomfortable ideas displace conventional wisdom, it's a good bet that the WRSTGD will continue unabated.

David Sirota is the author of the bestselling books "Hostile Takeover" and "The Uprising." He hosts the morning show on AM760 in Colorado and blogs at OpenLeft.com. E-mail him at ds@davidsirota.com or follow him on Twitter @davidsirota.

ALPHAGRIZ1 wrote:We are taking in enough revenue the government is just spending way too much.

I dont agree with the article either.


All men are created equal, they should be taxed the same. This idea that just because somebody has more money they deserve to pay more is total horseshit

houndawg wrote:

ALPHAGRIZ1 wrote:We are taking in enough revenue the government is just spending way too much.

I dont agree with the article either.


All men are created equal, they should be taxed the same. This idea that just because somebody has more money they deserve to pay more is total horseshit

The very rich live in a different America from the rest of us, they should pay more.

native wrote:

houndawg wrote:

The very rich live in a different America from the rest of us, they should pay more.

Too much spending is the problem. Too few people with skin in the game is an even bigger problem. GW, with his "rebate," is to blame just as Obama the Dems.

houndawg wrote:

native wrote:
Too much spending is the problem. Too few people with skin in the game is an even bigger problem. GW, with his "rebate," is to blame just as Obama the Dems.

If you're going to spend a decade fighting unnecessary wars on the other side of the planet, and it appears that we will, the moneys gotta come from somewhere.

native wrote:

houndawg wrote:
If you're going to spend a decade fighting unnecessary wars on the other side of the planet, and it appears that we will, the moneys gotta come from somewhere.

Although your point is well taken, your excessive hatred and envy of the rich and the successful blinds you to any meaningful alternatve.

houndawg wrote:

ALPHAGRIZ1 wrote:We are taking in enough revenue the government is just spending way too much.

I dont agree with the article either.


All men are created equal, they should be taxed the same. This idea that just because somebody has more money they deserve to pay more is total horseshit

The very rich live in a different America from the rest of us, they should pay more.

houndawg wrote:

native wrote:
Although your point is well taken, your excessive hatred and envy of the rich and the successful blinds you to any meaningful alternatve.

You see, neigher, I am rich and successful. The percentage of the planet's population that wouldn't trade places with me in a heartbeat is vanishingly small.

houndawg wrote:...
If there is a Hall of Fame for missing the point you're a first-ballot shoe-in.


You see, neigher, I am rich and successful. The percentage of the planet's population that wouldn't trade places with me in a heartbeat is vanishingly small.

You may call borrowing from China to bomb Afghanistan a "meaningful alternative" but I don't.

native wrote:

houndawg wrote:...
If there is a Hall of Fame for missing the point you're a first-ballot shoe-in.


You see, neigher, I am rich and successful. The percentage of the planet's population that wouldn't trade places with me in a heartbeat is vanishingly small.

You may call borrowing from China to bomb Afghanistan a "meaningful alternative" but I don't.

Bullsh!t. I acknowledged your point right away, arsehole. Borrowing from China for wars is obviously not a meaningful alternative, and is not a point that I advocated in my response to your post.

Now, cowboy up and offer a meaningful alternative somewhere between isolationaism and imperialism, or an argument for isolationism, or offer your own alternative paradigm.

But don't try to respond with a lie about something I did not post.

Chizzang wrote:
Why would NOT fabricating a war in Iraq constitute "isolationism"..?
Maybe I don't understand a key point.?

We've got troops ALL OVER THE WORLD - many in nations who have been asking us to leave since 1960 - we're as far from Isolationism as you can get with or without the meaningless portfolio building profit exercise called Iraq

ALPHAGRIZ1 wrote:All men are created equal, they should be taxed the same. This idea that just because somebody has more money they deserve to pay more is total horseshit

Pwns wrote:Yes, kalm...raising taxes on businesses and corporations when unemployment has been in double-digits for months is a great idea.

And taking the money and letting the government blow it off on war, UN crap, and unnecessary military bases overseas does a lot more good then letting the money be spent in America.

CitadelGrad wrote:What countries have been asking us to leave since 1960? Don't get me wrong, I would like to have a military presence in far fewer countries, but I don't recall us refusing to leave any country for 50 years. The Phillipines told us to leave and we quickly vacated Subic Bay and Clark AFB. Okinawa is an issue, but Japan has made it clear that they want a US military presence in their country. Ironically, Vietnam has raised the possibility of establishing a US naval base in Cam Ranh Bay, but we've yet to act on it.

Chizzang wrote:

CitadelGrad wrote:What countries have been asking us to leave since 1960? Don't get me wrong, I would like to have a military presence in far fewer countries, but I don't recall us refusing to leave any country for 50 years. The Phillipines told us to leave and we quickly vacated Subic Bay and Clark AFB. Okinawa is an issue, but Japan has made it clear that they want a US military presence in their country. Ironically, Vietnam has raised the possibility of establishing a US naval base in Cam Ranh Bay, but we've yet to act on it.

Good point: No governments want us to leave - it's easier and far less expensive than building and sustaining your own military

I am referring to the citizens - like Italy and Germany & England - when I lived in Germany and traveled about I didn't meet one (not one) citizen who wanted us there...

CitadelGrad wrote:

houndawg wrote:

The very rich live in a different America from the rest of us, they should pay more.

This should be quoted in the dictionary next to "non sequitur". You could turn easily turn it around and it would make as much sense. We live in a very different America than the rich, therefore we should pay more. The entire premise of your statement is jealousy and envy. Nothing more.

Ursus A. Horribilis wrote:

Chizzang wrote:
Good point: No governments want us to leave - it's easier and far less expensive than building and sustaining your own military

I am referring to the citizens - like Italy and Germany & England - when I lived in Germany and traveled about I didn't meet one (not one) citizen who wanted us there...

The odd thing to me is why their citizenry would keep electing governments that do that in spite of the peoples wishes.

Chizzang wrote:

Ursus A. Horribilis wrote: The odd thing to me is why their citizenry would keep electing governments that do that in spite of the peoples wishes.

as soon as this country - America - elects Ralph Nader then that comment you're making will make sense...