December 9, 2010

Re- Taxes: Follow the Money -- REALLY

Excellent piece by Stephen Herrington at HuffPo:

What damages economies is when money is lost from the economy. In the case of the Great Depression and now our Great Recession, the rich were, and now are, at a peak in terms of how much of the nation's per capita income went to them. Now as in 1929, the rich took money out of the economy and "invested" it in non-productive speculation apart from the real economy. Some $18 trillion in corporate cash are sitting on the sidelines waiting in vain for some market magic to offer some reason to re-enter the real economy. The notion that wealth is invested in economies and finances new homes and factories hasn't been true for over a century, not since Dow and Jones set up shop on Wall Street. The bulk of wealth now circulates in and out of stocks, bonds, currencies, commodities and hedge funds and will never see the real economies of the world again unless it is taxed back into it and spent by governments.

Higher taxes on the poor and middle classes don't damage economies except when they are levied in order to spare the rich from an increasing tax burden commensurate with their increasing share of wealth. In 1932 Hoover raised taxes on everyone but levied extra taxes on the working class. He did so in an effort to balance the budget and thus took money out of the economy in order to limit the liabilities of the rich who had appropriated too much for a healthy economy to sustain already. In 1937 FDR did the same thing and worse; he stopped government stimulus spending, removing even more money from the economy, all in order to relieve the rich from returning enough money to the economy, from their takings, to keep it working.

WWII solved the problem of government not understanding what a great world power economy is based on. Wages doubled during WWII and the economy boomed for a generation. Nobody expected that kind of result but Keynes. A world power economy is based on money in circulation and that is dependent on money in either of the hands of the wage earning public or the hands of government, both of whom spend what they take in. Eliminating the Bush tax cuts for the middle class will not harm the economy if it is not commensurate with tax relief for the rich. The only way to improve our economy is to tax the historic levels of wealth and return that wealth to the economy.
More at the link.

I'm afraid I don't have time to write all I'd like to about Obama's compromise tax package, but I will say that (1) if passed, the average family will get a few thousand in tax cuts in the near-term and will lose more than twice that in the longer term, in order to finance the much larger cuts for the rich; (2) I believe the cut in FICA taxes is a poison pill designed to kill Social Security – basically, they're looting funds for our future retirement (again) to pay more bonuses to bankers now; and (3) whatever else this episode shows, it proves that tax cuts for billionaires are so important to Republicans that they're willing to sacrifice everything and everyone else to get them – that those cuts for billionaires are so important that they outweigh everything else combined.

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