(02-06-2016 12:58 PM)Max Power Wrote: Does this look like a sustainable economy to you?
![[Image: chart-rise-of-super-rich-2.top.gif]](http://i2.cdn.turner.com/money/2011/02/16/news/economy/middle_class/chart-rise-of-super-rich-2.top.gif)
"Trickle down" is a failure. Your free market economics lead to America getting richer, but all the wealth goes to the already-wealthy, who by the way never stop trying to rig the system to grab an ever larger share of the wealth. They never stop trying to ship jobs overseas, never stop trying to cut their own taxes and cut services for the poor and middle class, never stop trying to destroy our environment by denying science in the face of all evidence to the contrary. And thanks to apologists like you, they succeed.
Where do you think this will lead? When wealth inequality gets this bad, heads ten to end up on pikes. More and more people are waking up to the reality they've been getting screwed. The capitalists in the 1930s had FDR to thank because if he didn't ram through the New Deal, we might have had a communist revolution. He effectively saved capitalism, but did they thank him? No because they're idiots.
Am I "jealous" of the Wall Street investment bankers who crashed the economy and walked away with golden parachutes? It must be nice. Then again I have a conscience and I probably couldn't live with myself.
One, the methodology behind the graph is badly flawed. It is attributed to the study of IRS income tax databases by Piketty and Saez, which incorrectly compares and contrasts incompatible data, as I have noted in several prior posts. During the Reagan years, the top individual tax rate was lowered twice, from 70% to 50% in 1982 and then from 50% to 28% in 1987. At the same time, numerous exclusions and deductions which people with higher incomes had previously used to shelter income from taxation were removed, so that on the same facts a "rich" person would report substantially higher Gross Income, Adjusted Gross Income, and Taxable Income after 1987 than before 1981. How much higher? Well let's put it this way, the tax rate decreased by 60% and the amount of tax (and the percentage of total tax collections) paid by the "rich" went up, not down, over the decade of the 1980s. You will see a major spike right after 1987 (specifically after the 1990 recession ended). Basically, let's take a person who reported $400,000 ($1,000,000 gross minus $600,000 tax shelters, which impact the calculation of GI, AGI, and Taxable Income) income for tax purposes in 1980 and paid 70% tax, or $280,000 (and I'm simplifying a bit here, omitting the first income increments taxed at lower rates, so the actual numbers would be a bit different, but not misleadingly so). After income was redefined in 1982 and 1987, that person would now be reporting $1,000,000 of income on the same facts, and paying 28%, or $280,000. The math just won't work any other way. A review of their work indicates that Piketty and Saez did not adjust for this. They knew better, they were just driven by ideology to lie if it supported their goal. By treating pre-1982 and post-1987 income as the same, Piketty and Saez are grossly misstating what actually happened.
Two, even with the Piketty and Saez misstatements, the percentage increase in the two lines does not appear to be grossly out of line. It looks like the average income went from somewhere around $12-15,000 to somewhere around $60,000, or a 4-fold or 5-fold increase, while the top 1% went from somewhere around $100,000 to somewhere between $400-500,000, again somewhere between a 4-fold and a 5-fold increase. If you back out the 1982/87 tax law change effects, you're probably looking at slower growth among the top 1% than the overall average.
Three, and this is what people don't realize, the idea that "progressive" taxation is the way to increase equality just doesn't fit the empirical data. The US has the most "progressive" individual income tax system in the developed world--and the most unequal dispersion of income and wealth. What happens is that the "rich" (and corporations) don't want to pay 40-50% tax here when they can pay only 15-30% elsewhere. So they move investment overseas to get lower costs, lower taxes, and less intrusive regulations. You complain about that yourself, so you obviously understand that it is happening. They create middle class jobs, and wealth actually does "trickle down," just not here in the US (actually, it doesn't "trickle down," at least not the way the so-called "trickle down" theory explains it, but more on that in a bit). Also note that the period of maximum upward growth for the top 1% came during the Clinton years, when the top tax rate was higher than it was in the GWB years, when the red line actually went down and then came back up to about the same place where it had started. Of course those changes were due to other factors which more than offset any impact of the tax rate in reducing inequality, but that is the point I am making.
Four, I agree that "trickle down" does not work. Where we may disagree is that "trickle down" really has little to do with supply side economics. "Trickle down" is a theory that is based solely on the demand side. Give the "rich" more money and they will spend more and that will drive growth, so the theory goes. But two problems, 1) the "rich" don't spend more, and 2) we don't want them spending more, we want them investing. Increasing investment is the supply side approach, and that produces long term growth. Not short term, you can always heat up an economy by "stimulating" consumption in the short term. Well, almost. This is where Keynes got it right and neo-Keynesians like Krugman and Reich (and Mankiw) all get it wrong. You can't stimulate demand forever. You have to keep supply and demand in some sort of equilibrium, or else Keynesian stimulus isn't very effective. We have done nothing but stimulate demand for 80 years. As a result, we have become a retail/service economy as production has moved overseas, we have increased inequality in income and wealth because the economics do not justify paying retail and service employees as much as production employees, we are the largest importer nation and the largest debtor nation in the world. As Ross Perot said, the guy who ran a steel mill in the 1920s has a grandson who delivers pizzas today, and you simply cannot pay someone as much to drive a pizza delivery car as you can pay to run a steel mill. In order to obtain more equality--in income or wealth--you have to grow the middle class, and that means growing industries that can pay middle class wages--the ones that we have driven away. Not sewing up Nikes--there's a very strong principle, called comparative advantage, which suggests that we should let China make our cheap consumer goods and we should focus on the kind of upscale producer goods that Germany does now, and both sides would recognize trade advantages from the result. So the proper formulation is that the "rich" invest their wealth in order to grow it, and the process of growing that wealth creates middle class jobs that level out the income distribution. But that won't happen for us until we no longer have the highest corporate tax rate in the world.
OK, I know, I know, our effective tax rates, for both corporations and wealthy individuals, are much lower than the statutory rates. That's primarily because they can move investment overseas and be taxed at lower rates there. If my company makes $100 million in the US and the corporate tax rate (including state taxes) is 39.2%, it pays $39.2 million in taxes. If it makes the same $100 million in Sweden, it pays $22 million in taxes. That extra $17.2 million means a lot. To cite your example, we can probably get Muffy to like playing tennis in Dubai for $17 million. But note that she doesn't have to do that. She has a long list of developed countries, most of them entirely livable (not that Dubai isn't, particularly on $17 million), where her family can move and enjoy significant tax advantages. Or as long as the law remains in its current form, she can stay right here and do it.
One final question. What Wall Street bankers crashed the economy? The economy crashed because home mortgages defaulted at an unprecedented rate. Once that happened, the economy was going to crash no matter what Wall Street did. They tried to save it, and pocket a hunk of change along the way. They knew the risks they were taking, or should have known, and they should not have been bailed out. But they didn't cause the economy to crash, they just impacted how the crash came down.
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Ron Paul says he and Bernie could work together
