I cannot understand why we are still having a public conversation about "trickle down economics".
This is the philosophy where tax breaks are given to the wealthiest among us, in the hopes that they will create jobs, and eventually money will trickle down from these wealthy individuals to everyone else. This does not make sense. Our economy is driven by supply and demand, not the philanthropic interests of the wealthy.
If we turn this upside down, and support the middle class, our economy will grow. This is "trickle up" economics where money recycles throughout the economy, and everyone prospers.
Details will be discussed below the squiggle.
The basic logical rules are:
1) Tax Revenues are increased when money is "recycled".
2) The critical factor for economic development is demand, not loan rates or tax breaks.
3) Tax "Breaks" are really publicly supported expenditures.
4) Tax avoidance by transferring money overseas is EXTREMELY expensive to everyone else.
Logical Solutions are:
1) Tax all income the same.
2) Tax all US economic activity.
3) Look at the 90's for solutions - this was a time when everyone prospered.
4) Limit corporate influence in politics.
First, my basic understanding of our economy.
Rule # 1. Tax Revenues are increased when money is "recycled". Every time a dollar is spent in our economy, this is usually a taxable event, and tax revenue will rise. So it makes sense that when the Middle Class is doing well, more money is being spent on optional items, there is more money floating around in the economy, and tax revenues will rise. An example of this is when you buy groceries, that money supports the grocer and their employees, who can buy household items, which support other businesses, etc.. That dollar goes from you, to your mechanic, to the grocer, to a builder, etc… Total tax revenues are a product of the tax rate times the taxable economic activity that has occurred. If money is recycled enough, then tax rates can fall, as there is enough economic activity to support our current public expenses.
Rule #2. The critical factor for economic development is demand, not loan rates or tax breaks. Money saved helps banks have the money to loan others, which stimulates some economic activity. However, if there is not demand for items and services, then economic activity will not take place. High loan rates many hinder a growing economy, but low rates will not stimulate demand for goods and services. A small intake port will limit an engine's power, but without gasoline that engine will not run and the size of the intake port is irrelevant. Our economy's gasoline is our demand for goods and services. See #1 above. The best way to increase demand is to have a growing and thriving middle class. A wealthy class cannot create the demand needed to stimulate our economy.
Rule #3. Tax "Breaks" are really publicly supported expenditures. Every dollar that is not collected due to a tax break, will need to be collected somewhere else, or a service will need to be reduced. Improved efficiency may help offset this service reduction, but it may lead to other costs (unemployment, food stamps, etc..) In many ways, our tax revenues support the services we need from our government at all levels (City, State, Federal). Most of what the government does is service related. (Education, Transportation, Health and Safety, Defense, etc…) The majority of those who receive governmental paychecks are middle class citizens. Governmental expenditures directly support our middle class, much in the same way as true small businesses support our middle class.
Rule #4. Tax avoidance by transferring money overseas is EXTREMELY expensive to everyone else. Whenever a dollar is taken out of the system, it can no longer generate downstream revenue. This is why it is bad for the US economy when money is transferred to foreign bank accounts, and DEVASTATINGLY BAD when this is done to avoid US taxes. This is a common practice of corporations. Not only does the IRS no longer collect tax revenues on the economic activity that took place in our country, but those dollars leave the US economy and cannot generate any further tax revenue. In essence WE ARE PAYING MONEY TO INCREASE EVERYONE ELSE'S TAXES.
TRICKLE UP ECONOMICS 101
Really quite simple. If the middle class expands, we all do well. The economy has more economic activity, so tax revenues will rise. Business owners will see demand for their products, so profits will rise. Our government will be able to support the current level of services, which will support the middle class. If tax revenues rise, we can pay off our national debt, and address the issues related to Social Security and Medicare for the baby boomers. Anyway you look at it, if our government spends money, we support the middle class. If the wealthy class is given more tax breaks and continue to pay a lower tax rate than most of the rest of us, then that money ends up overseas and is taken out of our economy which hurts everyone except the wealthy class. (Yes Mr. Romney, I wish I could say that I paid 13% in taxes every year over the last decade).
SOLUTIONS:
1) Tax all income the same. If the dollar I earn from investments is worth the same as the dollar I earn from working, then it should be taxed the same. This is billions of dollars of subsidies to the wealthy class that is not needed. They have done just fine over the last decade. This is the main reason that tax rates tend to drop for the super wealthy. The other reason is that they can hire tax specialists to hide their money from taxation. I guess this gives a job to the tax specialists, but it costs the rest of us lots of money.
2) Tax all US economic activity. I am sure that the good folks over at Bain Capital are not the only ones that know how to hide money from taxes by creating oversea tax avoidance vehicles. (for Romney's Bain Capital it was the Caymen Islands). I do not have a number of the tax savings that could be gained if cooperations paid taxes on their US economic activity, but I am sure it is significant. I also do not know how to accomplish this as our tax code is extremely complicated. But I have no doubt it can be done. And I expect that smart people will figure out another loophole, and it will have to be redone and updated again and again. It may be complex, but the value is that the US will benefit from it's own economic activity as it is supposed to do.
3) Look at the 90's for solutions - This was a time when everyone prospered. When taxes were raised on the wealthy, tax revenues rose, the middle class prospered, and the budget was balanced. When we followed the "trickle down" policies of the 2000's (lower taxes for the wealthy and corporations), the middle class stagnated, and governmental services were cut. The reason we cannot get out of our current recession is that we are following the same policies that got us there. Too much power and deference to the rich and powerful corporations and financial institutions, and minimal discussion of what is good for the middle class.
4) Limit corporate influence in politics. It is no wonder that the electorate is relatively ignorant of the issues mentioned above since most of the media is controlled by corporate influences. Most of the money in politics has always been from corporations and wealthy individuals, though it is probably 10 times worse since the Citizen's United Decision. This Supreme Court Decision has allowed corporations and wealthy individuals to "donate" to non-profit political organizations who then funnel the money to their preferred candidate. Another double whammy for the middle class. DUE TO TAX DEDUCTION SUBSIDIES, WE ARE ACTUALLY PAYING IN REAL DOLLARS FOR CORPORATE AND WEALTHY INDIVIDUALS TO ADVERTISE A POLITICAL PHILOSOPHY THAT WOULD GIVE THEM MORE TAX BREAKS AND INFLUENCE. Crazy but true.
The tax issues above are not new. For those interested in the data behind the issues mentioned above, I will direct you to an excellent diary published on Daily Kos on April 17th, 2012 by Jon Perr. "10 things Republicans do not want you to know about taxes" at: http://www.dailykos.com/...