The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
President Obama wants us to believe that increasing taxes on the rich allows him to give more to the poor, ala Robin Hood. However, there is no historical relationship between federal spending and federal tax rates, which despite massive deficits and debt, have remained level or declined for the past fifty years.
Yes, raising the tax rate on the wealthiest Americans may address a psychological need to punish the rich for being rich. But, if this tax increase succeeds in collecting more taxes from any group, rich or poor, it will hurt poor people. All taxes remove money from the economy, which slows or reverses economic growth. Even now, with so many unemployed, the poor remain slow to understand that their jobs depend on the financial health of the rich, the spending they do and the businesses they own.
The economy runs on money. Among the government’s most important jobs are to create money and to spend it. In 1971 we went off the gold standard specifically to give the government the unlimited ability to create and spend money. When the government fails to do that job, the economy falters. Every depression in U.S. history and every recession in the past 40 years followed periods of reduced federal deficit growth, and every recovery as been associated with increased federal deficit growth.
The media and the politicians suffer from federal debt paranoia, which is responsible for more misery in America than all the crime and illness combined. Federal debt paranoia keeps us from providing universal health care, fully funded Social Security and improved education, military, infrastructure, energy and policing.
I call it “paranoia,” because, history indicates large federal deficits do not cause inflation, recession or any other negative economic effect. On the contrary, large and growing deficits stimulate the economy. We keep falling back into recessions because of federal debt paranoia.
Although President Obama wants to redistribute wealth, increasing any taxes will reduce overall economic growth, taking from the rich and from the poor.
Rodger Malcolm Mitchell
For more information, see http://www.rodgermitchell.com
13 thoughts on “-Does taxing the rich help the poor?”
How else do you redistribute wealth then? You have to somehow shift the income curve. You can’t have such a large income disparity forever.
You have asked what may seem like a simple question, but the answers are extremely complex. You want to reduce the income disparity between rich and poor.
Let’s assume your goal is not to punish the rich (or is it?), but rather to help the poor (true?).
So the question then changes to, “How do we help the poor?” Addressing that question requires us to answer another question, “Why are the poor, poor?”
If we can answer that, we’ll have taken the first step in addressing income disparity. What are your answers to “Why are the poor, poor?”
Rodger Malcolm Mitchell
It’s not a matter of punishing anyone. Extreme wealth acts like a giant black hole, pulling resources into its sphere of influence, where they get wasted almost as badly as a centrally-planned economy (“an economy of one” to paraphrase the Army). A more egalitarian distribution leads to more innovation and a healthier society. People are happier, physically healthier, more optimistic, and less stressed, while crime, drug abuse, violence, and domestic dysfunction are all much lower.
Anon, although I know of no unambiguous evidence that reducing the wealth gap would be better for the economy as a whole, morally I like the idea. I discuss this at Closing the financial gap and at A partial solution for the gap between rich and poor .
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Why are the poor poor?
Many reasons, of course, but the main one is that they were born poor. From that fact flows a host of related reasons for remaining poor.
Another reason for the poor remaining poor at this time is the increasing inequality of the past generation or so. Despite increasing productivity and prosperity, median incomes have stagnated.
Min, you probably are right about the main reason. But the poor remain poor mostly because they don’t have jobs or have poorly paying jobs.
In short, we need more paying jobs. We need to encourage businesses to hire, and to pay the lower-paid more. The current FICA tax strongly discourages businesses from hiring, and it cuts employee’s net pay. Were the FICA tax to be eliminated, businesses would hire more, and their employees, not having to pay FICA, would net more.
See: “Ten Reasons To Eliminate FICA” at https://rodgermmitchell.wordpress.com/2009/09/08/ten-reasons-to-eliminate-fica/“
Sadly, the Obama administration actually wants to increase FICA to help pay for expanded health care. Though the tax will be only on the “rich” (whoever they may be), it actually will have greater effect on the poor. This is the point the initial post makes.
Rodger Malcolm Mitchell
Hi, Rodger! 🙂
“But the poor remain poor mostly because they don’t have jobs or have poorly paying jobs.
In short, we need more paying jobs.”
Indeed, we do. I hope that Congress will take bolder steps. Instead, deficit panic seems to be gripping both the Dems and the Reps. 😦
I’m not sure whether it’s panic, ignorance or populism. Politicians know voters believe deficits are bad. It might be political suicide to say, as Vice President Cheney famously said, “Deficits don’t matter.”
Just think of the repercussions if a politician said, “Deficits are necessary to grow our economy.”
On second thought, maybe you’re right: Probably panic along with ignorance.
Rodger Malcolm Mitchell
In 2010, William Gale of the Brookings Institution wrote:
“The [Bush] tax cuts … have raised the cost of making new investments. As the economy recovers and private borrowing rises, the upward pressure on interest rates is likely to grow even stronger.”
This obsession with cost has got to stop.
And he said, “. . . . the upward pressure on interest rates is likely to grow even stronger.”
Well that proved to be a poor prediction, didn’t it.
Is the American economy suffering from a lack of money or excessive wealth inequality? I think it’s the latter. I think the economy would be fine if we could find a way to redistribute some of the 0.01%’s wealth to the poor.
State governments should raise taxes on incomes over $200k.
It’s both, but taxing the rich doesn’t cure either.
The federal government does not redistribute. Its spending creates dollars. Its taxing destroys dollars. There is no functional connection between the two.
On balance, taxing the rich does not benefit the poor. Mostly, it reduces the money supply.
States, counties and cities do redistribute, however.