Sunday, January 30, 2011

Jack sums it up quite nicely here

I told Jack I would post this without further comment on my part. - U 
Excerpt from earlier Envision Something Better posting: 
"We know from the economy we see before us that lowering taxes does not raise wages or create consumer demand, nor create incentive to invest in jobs by the investor class, or automatically create jobs."
You need to look at whom benefited most from the Bush era lowering of taxes. People earning on the order of $400,000 and up got the lions share of the tax reduction, people with incomes below that level got a token tax reduction at best. The structure of the tax reduction, not the fact that there was a tax reduction can explain the phenomenon you describe. Workers did not receive a significant enough increase in their income as a consequence of the tax reduction to encourage an increase in spending. What did occur, and is documented in at least one government study, is that those in the working class that received a marginally significant tax reduction used what they got to retire debt. Those that received less used what they got to back-fill an already stressed household budget. The wealthy on the other hand had no incentive to create new jobs in the U.S. Return on investment is what drives the choices made by the investor class and at least at the moment, there are investments other than those that create domestic jobs that have a higher return on investment.

A tax plan that is not graduated will neither create jobs nor will it raise the wages of the working class. At best, the working class will be left treading water and at worst, see their spending power further erode. The only sane tax plan is to return to the tax structure that existed at the start of the Reagan era under which the highest income levels were taxed overall at close to fifty percent. At the same time, the working class paid on the order of thirty percent for taxes overall. If there is to be a change in tax structure at all, then it should be a meaningful tax cut for the lower classes which would do more to increase domestic spending than any other tax structure. Increasing taxes on the working class will not have the desired result of increasing their income, at least not for any amount other than one that would keep them treading water.

As evidenced by the recent Rhode Island gubernatorial race, the concept of a graduated income tax seems to have disappeared from the American consciousness. The only tax proposals the leading candidate was willing to put forward were regressive tax structures and they weren't even analyzed as the lesser of two evils but rather the best thing for our economy since sliced bread.

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