Saturday, April 16, 2011

Should we raise taxes on the very rich?

Republicans are currently holding that the taxes on the very rich should be low to enhance economic growth. Lets look at the increase in per capita GDP since World War II.

It seems clear that there are fewer recessions in recent decades, but also that per capita GDP increased more rapidly in the 1960s and 1980s than the did in the last decade. The following table shows the income tax rates on the highest incomes over time:

It surely seems that we made rapid economic progress in the past with much higher tax rates for the very rich than we did recently with low tax rates for the very rich. Indeed, I find the following quote:
(C)ountries with less unequal distribution of income have experienced faster growth than their counterparts with more inequality. This research is mostly done using cross section data on different countries. Although there are problems with the data and some studies have reached contrary results, the preponderance of evidence supports a positive relationship between more equitable distribution of income and wealth and faster growth.
Who are the people in the top income bracket? Wikipedia cites three studies identifying the highest family incomes:

  • Capitalist class (1%) Top-level executives, high-rung politicians, heirs. Ivy League education common.
  • Upper class (1%) Top-level executives, celebrities, heirs; income of $500,000+ common. Ivy league education common.
  • The super-rich (0.9%) Multi-millionaires whose incomes commonly exceed $350,000; includes celebrities and powerful executives/politicians. Ivy League education common.

How much do you think the heirs, high-rung politicians, celebrities (movie stars, pop stars and athletes) contribute to building the economy? Top level executives include the "masters of the universe" on Wall Street, the guys in banks and other financial institutions with their huge bonuses who brought us the recent financial meltdown. How much do they contribute to growth? Eight universities form the Ivy league out of the 4,352 institutions of higher education in the United States. Even adding the handful of other elite universities, how much do you think their graduates contribute to the economic health of the United States compared to the rest of us?

I think some of the excesses that brought us the last financial crisis and recession, the dot com bubble, the Enron debacle, the saving and loan crisis of the 80s and 90s, and the junk bond scandal associated with Michael Milkin and Ivan Boesky, not to mention the Wall Street crash of 1929, were fueled by greed of those who wanted to get very rich very fast. Taxing the huge income of the very rich might help moderate such greed and save the economy from its consequences.

Finally, we are creating a hereditary plutocracy with the huge, untaxed incomes our society is allowing a small minority to obtain and accumulate, and that will not be good for democracy!

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