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Posted by on Jul 30, 2013 in At TMV, Banks, Budget, Business, Economy, Finance, Miscellaneous, Politics, TMV News | 22 comments

Let’s NOT Focus On Job Creation And Expanding The Economy

Pick up a newspaper. Listen to the radio. Watch TV. Catch the latest fixed wisdom from a pol of any stripe talking about helping the middle class and improving American living standards. The rap these days is always the same. The emphasis is always the same. Proclaimed endlessly. We have to focus on job creation and expanding the economy.

Really? Why?

We’re already creating a lot of jobs. The economy is already growing. And the living standards of a growing number of Americans is still stagnant at best and increasingly on the decline.

The reasons are obvious. Most of the new jobs being created are lousy jobs, part-time jobs, jobs without benefits, jobs that don’t provide a good standard of living. And the growth in the economy for at least a decade has all gone to the top one or two percent of Americans, not gone toward improving the living standards of other Americans.

Is that what our economic ruling class wishes to perpetuate? What you wish to perpetuate?

So what’s the alternative? What would work to create better jobs, better living standards for most Americans, so that the majority gets the benefits of growth it deserves because it is the true generator of this growth?

There is, of course, no single answer to this question. But as I write often, the most direct and obvious way to at least start the economic healing is to increase the tax rates of the rich and apply ALL the additional revenue generated toward reducing the tax rates of the working middle class and poor. This would directly and immediately create more and better jobs, and generate more economic growth whose benefits would get into the hands of more Americans

This will never happen! you say, because the present politics in this country would prevent it from happening. No one can deny that. However…

There is nothing so powerful as an idea whose time has come. The time for this one to arrive is not yet. The time to enter it into the political discussion lists in every way possible has arrived.

Common sense. Common decency. Necessity. They all come together in this simple idea. So it will come. Perhaps sooner than most people expect.

Hey. All you 2016 presidential candidate wannabes. Look this way. Either party’s wannabes welcome.

(Now available from Amazon in print and ebook formats β€” Michael Silverstein’s The Devil’s Dictionary Of Wall Street.)

  • dduck

    Question, if we could somehow tax every single person with AGI of over ______ , at _____ %, how much money would that be, ball park? How, and who would distribute this extra money (first year only, cause after that, who knows how those effected will act and do) to the MC and LC. One department, many departments all coordinated with I assume means testing. Please generalize since I have done so. Thanks.

  • DaGoat

    This topic comes up again and again and I always have the same problem with it, which is framing income disparity as a taxation problem. Without correcting the reasons for income disparity making the tax scale more progressive is really just a band-aid.

    I think the basis for the disparity comes down to two main things. One is the decline of unions, and the other is the unskilled and manufacturing labor of our country competing against the unskilled and manufacturing labor of less developed nations where wages are much less. With improvements in transportation and communication our labor is competing much more directly with foreign labor than in the past.

    I don’t pretend to have the answers, and our government sure doesn’t seem to, but the underlying basis for income inequality can not be fixed by tinkering with tax rates.

  • JSpencer

    Common sense. Common decency. Necessity.

    I’d love to see those values prevail in my lifetime. The struggle against greed, disinformation, abuses of power, and the depersonalizations (and propaganda) which aid acceptance of the same has to be ramped up if we ever expect to see this country realize the potential it’s capable of.

  • JSpencer

    P.S. Thanks for continuing to write about this Michael.

  • SteveK

    Common sense. Common decency. Necessity.

    Great concept Michael, it would be so nice to see our politicians give it a try.

    If the politicians backed off a little on their partisan party love fest, we could a toss a little Kurt Vonnegut into the mix.

    I wish [politicians] who are conventionally supposed to love [their country] would say to each other, when they fight, “Please-a little less love, and a little more common decency.”

  • [T]he most direct and obvious way to at least start the economic healing is to increase the tax rates of the rich and apply ALL the additional revenue generated toward reducing the tax rates of the working middle class and poor. This would directly and immediately create more and better jobs, and generate more economic growth whose benefits would get into the hands of more Americans

    This is a non-plan.

    What is the link between lower taxes for the middle class and job creation? This needs to be explained.

    DaGoat is right: the root cause is that decent jobs for medium- to low-skilled workers have left the country. All that’s left for those folks are crap jobs. Hell, a lot of high-skilled jobs are leaving (engineering, software development, etc.).

    We need to restructure our tax code alright, but we need to structure it in the opposite way most people think: we need to eliminate corporate income taxes. Replace it with a fee-based system (like carbon taxes & export/import fees) to cover government services, but don’t just tax income.

    We need Obamacare (or another facsimile) to take away health care burdens from employers which should encourage hiring and entrepreneurism.

    We need to take another look at environmental laws. It should be easier to turn a brownfield into a business, instead of slapping the buyer with huge costs.

    There are a ton of other things we can do. But the bottom line: we need to make it easier and cheaper to do business in this country. There is no other answer.

    Shuffling deck chairs is certainly not one of them.

  • MICHAEL SILVERSTEIN, Wall Street Columnist

    Hi Barky and DaGoat,

    I’ve explained this idea at considerable length in previous posts. Here’s a short form version. And please keep in mind here that I am NOT suggesting a one-solution-fixes all scheme. This proposal is aimed to bring about certain things, with many other things needed.

    OK. Here goes. Take income taxes. The top rate, currently 39 percent gets increased. This new higher rate is applied to all earned and unearned incomes. Lower tax rates are then decreased to the extent that additional revenue is generated from higher earners and unearners taxes. This is therefore not an overall tax increase but a shifting of the tax burden.

    The working middle class sees an increase in its net income. It has more to spend. This extra spending is a stimulus for the overall economy. Lower tax rates for non-rich taxpayers also means fewer lower income earners are likely to fall into a state of economic deprivation.

    Here’s where it gets interesting. The give-the-rich-more-via-lower-taxes crowd claims this will boost investment that will work to create jobs. That isn’t working in our economy, however β€” think tank theorists notwithstanding β€” because there are other ways that rich folk (and big businesses) can use this extra net tax money. Investing in a bubble stock market, a bubble real estate market, inrastucture gaming, commodities gaming, hedge fund gaming, etc.

    So what is happening today, and which drives me crazy as a long-time business writer and Bloomberg senior editor, is that there is a vast diversion of capital from realms where it could strengthen the overall economy and create decent jobs, into crappola outlets that just produce profits without overall economic benefits.

    The tax change I propose would help move capital back into productive purposes for the very simple reason that with bigger spending middle class consumers there will be more profits to be made making better goods and services for consumers than from stupid Wall Street “innovations.”

  • dduck

    OH.

  • JSpencer

    OH

    Does a free translation come with that?

  • SteveK

    “Mumble,” said one angel, which is what they said when they had nothing to say but didn’t want to be left out of the conversation. “Mumble,” another agreed. – John Varley Demon

  • JSpencer

    Just as I suspected. πŸ˜‰

  • dduck

    JS, Nothing is free, certainly not a lunch, but I suspect you knew that. πŸ™‚

  • Michael, here’s why I don’t think your plan will help the economy*.

    The goods that would be purchased by a middle class tax cut are not made in this country. The economic benefit will be shipped out of the country.

    I’ve been trying to find the article, but I came across it the other day and it illustrated the case very well. Put simply, the majority of non-agricultural goods purchased by the poor & middle class actually come from China and other countries. Any increased spending by them would actually benefit foreign countries, not the U.S., in the form of their exports. We may as well hand a bigger check to China.

    It is true that there would be more spent on services and retail, but those are not the jobs we need to be creating. There’s not much value in those jobs. The real value is overseas.

    We need to figure out how to bring production back to our shores. That’s the key.

    * Note I put “economy” in italics. You may want to help the middle class make ends meet, and I think that’s admirable. I just don’t see the plan helping the overall economy.

  • slamfu

    “Without correcting the reasons for income disparity making the tax scale more progressive is really just a band-aid.”

    Actually, facts and history do not bear this out. They show the exact opposite. That periods of high progressive taxation actually flatten out the income disparities. Check the tax rates and income levels by quintile during the 1920’s, the same data from 1932-1980, then from 1980-1991, Clinton, then Bush administrations. Oh, and check out the changes in 2013 after this year is over. Basically, every single time we tax the rich more, things get better and more fair across the entire system, even the wealthy end up making more money, and every time we reduce their tax burden income disparity goes way up and the economy has a brief sugar rush followed by a recession/depression. In fact, I think there is a very strong case to be made for saying, even more than unions, progressive taxation is the PRIMARY tool for reducing income disparities.

  • slamfu

    “The goods that would be purchased by a middle class tax cut are not made in this country. The economic benefit will be shipped out of the country.”

    Even if our economy were 100% dependent on manufacturing, this would not be true. As it is, manufacturing makes up about 18% of our economy(we’re still #2 in the world btw, and China only recently overtook us in 2011) so at most manufacturing GDP lost would be 18% of the economy. Nor would it be true even if everything you paid money for was purely a material thing like a TV. Sure, I may go drop $200 on a nice LCD monitor that wasn’t made in this country, but does that mean all $200 of it went overseas? Not even close. That nice salesperson got paid, so did his/her boss, and I’m pretty sure they made some money to pay the bills on the store like rent, PG&E, you get the picture. The fact money is moving at all is the real driver. Also, I may stop and get a hoagie while I”m out, or take my kids to the movies.

    Point is, manufacturing isn’t everything. It’s nice, but only a piece of the pie. The vast majority of that money spent would remain in our economy.

  • dduck

    slam, Ok, so the more we tax the “rich”, the better the “economy” gets. So, 100% taxation would be really keen. πŸ™‚

  • MICHAEL SILVERSTEIN, Wall Street Columnist

    Hi All,

    Let me make this as simple as possible.

    All tax systems, ALL tax systems, have the same goal. To encourage some economic behavior or discourage some economic behavior. A tax rate of one percent on everyone? That encourages some behavior and discourages other behavior. A tax rate of 95 percent on some income? That encourages some economic behavior and discourages other behavior. The goal of taxation is always the same. Only the approaches differ.

    So…

    I think too much new wealth has gravitated to the top one and two percent without generating benefits for the economy as a whole and the other 98 percent. Do you agree? If not, my idea makes no sense.

    I also think that the middle class, especially the working middle class, has not gotten enough benefits from economic growth, and this has hurt the overall economy. Do you agree? If not, my idea makes no sense.

    If you agree with both of the above, then my idea makes sense. The fact that a whole slew of other stuff has to be done to make the economy work better is irrelevant. You want a single idea that solves everything? Get religion. I write about economics and finance.

  • LOGAN PENZA

    And I thought the purpose of a tax system was to provide funding for government functions. Silly me.

  • slamfu

    ” So, 100% taxation would be really keen.”

    It was at 90% for a really long time, and things worked out ok, so be careful what you ask for. Not that you were asking. And the nice thing is, we don’t even really have to go much higher than we are at now to get the bennies.

    Obviously I think this idea makes a lot of sense, but I don’t think the tax rate on middle class has a lot to do with middle class prosperity. It seems to be far more tied into median income. And while lower taxes for middle class would seem to translate into more money for them, it doesn’t really seem that its as important as overall income for middle class spending power. Tax rate could be zero but that wouldn’t matter if median income is below the poverty line.

  • dduck

    MS, without agreeing or disagreeing with your two points, I think you left room for the law of unintended consequences (a lot older law than our Tax Code) to come in and upset the intended “economic behavior”. And, sometimes this unintended behavior leads to entrenched systems, like the dependency on mortgage tax deduction here in the U.S. that with a push from the government plus Dodd and Frank that, let’s say, exacerbated the housing collapse where in Canada, which has no such deduction, some say has a better home real estate environment. Just saying, the road to Washington is paved with good intentions.

  • dduck

    slam, I think a little higher rate would make some people happy, so psychologically it would be nice. Back to reality, I think serious tax reform that would some how help build and rehabilitate businesses (yes manufacturing, for sure) would lead to increased economic activity that would benefit all classes. (Dream on, dd.)

  • JSpencer

    To slams point, I think taxes are a big part of it (top income earners should be taxed closer to levels which existed when the middle class was thriving) but income disparity has grown so much it will take more than that. As for the working poor? They are being fleeced, not in taxes but in hard work and low pay. The minimum wage needs to be raised – and not just a little.

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