Taxing the Rich Healthy For the Economy

Why a Fair Economy is Not Incompatible with Growth but Essential to It

by Robert Reich/ April 15, 2012

One of the most pernicious falsehoods you’ll hear during the next seven months of political campaigning is there’s a necessary tradeoff between fairness and economic growth. By this view, if we raise taxes on the wealthy the economy can’t grow as fast.

Wrong. Taxes were far higher on top incomes in the three decades after World War II than they’ve been since. And the distribution of income was far more equal. Yet the American economy grew faster in those years than it’s grown since tax rates on the top were slashed in 1981.

This wasn’t a post-war aberration. Bill Clinton raised taxes on the wealthy in the 1990s, and the economy produced faster job growth and higher wages than it did after George W. Bush slashed taxes on the rich in his first term.

If you need more evidence, consider modern Germany, where taxes on the wealthy are much higher than they are here and the distribution of income is far more equal. But Germany’s average annual growth has been faster than that in the United States.

You see, higher taxes on the wealthy can finance more investments in infrastructure, education, and health care – which are vital to a productive workforce and to the economic prospects of the middle class.

Higher taxes on the wealthy also allow for lower taxes on the middle – potentially restoring enough middle-class purchasing power to keep the economy growing. As we’ve seen in recent years, when disposable income is concentrated at the top, the middle class doesn’t have enough money to boost the economy.

Finally, concentrated wealth can lead to speculative bubbles as the rich in the same limited class of assets – whether gold, dotcoms, or real estate. And when these bubbles pop the entire economy suffers.

What we should have learned over the last half century is that growth doesn’t trickle down from the top. It percolates upward from working people who are adequately educated, healthy, sufficiently rewarded, and who feel they have a fair chance to make it in America.

Fairness isn’t incompatible with growth. It’s necessary for it. 

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17 Responses to Taxing the Rich Healthy For the Economy

  1. Arlen Grossman, if my tax dollars went where I wanted them to go, I would gladly pay more. Just let me be the one to make that decision. If my tax dollars went to pay for the care of combat veterans and their families, I would gladly pay more in taxes. Should my tax dollars go to fund research for cures for diseases that would otherwise be fatal, I would be happy to pay more in taxes. Just let me be the one to decide.

  2. “Arlen Grossman, eliminating most of the deductions would allow reductions in rates across the board. Now, as I said, even though we have differing views on this issue, as long as we can agree to disagree and be civil about it, communication should not be too difficult.”

    Yes, Jeffrey, I certainly agree.

    • Arlen Grossman, here are a few questions that I have for you: 1: If we got rid of the marriage penalty in the tax code, should that lead to lower tax rates or is one not relevant to the other? 2: Even though my idea of taxing the rich is different than yours and other people who advocate raising taxes on the rich, what is a fair way to do it if we had a single flat rate with capital gains being taxed on a sliding scale?

      • Tax rates are clearly important to you, Jeffrey. But I’m afraid I don’t spend any time thinking about that subject. I’m sorry, but since I have no informed or intelligent answers, I’ll have to pass on your questions.

  3. Honestly, JeffreyI haven’t given this nearly the thought that you appear to have given it. I probably should.
    But you seem to have some good ideas, probably much better than we have now.

    • Arlen Grossman, even though we obviously disagree on economic issues, I am glad that we are able to have honest differences of opinions on things. Some issues may be areas we agree on and other areas we disagree on. Your ideas on taxing the rich and my ideas are different, however, a sliding scale on capital gains taxation would technically cause the rich to pay more taxes. You can have a flat tax that still has the poor as being non-taxable from the standpoint of federal income taxes. You and I both want fairness. We just disagree about what is fair.

      • Yes, we differ on what is fair. It seems to be a difference in values.

        • Arlen Grossman, I am well aware of what a marginal tax rate is. Now, with the deductions, you pay a lower effective rate. Having said that, I think as long as the poor are still not paying anything, a flat tax of 15% sounds fair. Just my thoughts.

          • I understand, and agree with the first part.. We disagree on the second part as I would prefer a progressive tax.

          • Arlen Grossman, eliminating most of the deductions would allow reductions in rates across the board. Now, as I said, even though we have differing views on this issue, as long as we can agree to disagree and be civil about it, communication should not be too difficult.

  4. Sometimes government can spend money better. I don’t want private firms to wage war. I would rather the government run fire and police stations, and build highways. And many other things that are part of the commons.

    • Arlen Grossman, even if you have a top marginal tax rate (I know what a marginal tax rate is) as high as 91%, can you explain to me logically why the rich will not just send their money into overseas bank accounts to avoid the taxes? What about the various deductions, which lower the effective tax rate? Would that not make the idea of a top tax rate of 91% self-defeating?

      • 91% would be too much, I agree. But it should be much higher than it is now. And if Congress would penalize Americans for sending their money overseas, maybe that would help solve the problem.

        • Arlen Grossman, a simple flat tax, if we retained the income tax, which excludes the poor and a certain percentage of the middle class would be better than our current tax code. My personal view is that we should have a simple flat tax of 15%. Capital Gains would be taxed between 15%-25%. I said tax long term capital gains at 25% and short term capital gains at 15%. Just so I am clear, why is speculation a bad thing if a greater return is generated as a result?

  5. Arlen Grossman, this is all fine and good. However, who can spend your money better-you or a government official? Even if we had a flat tax, percentage and dollar amount are not the same thing.

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