High income taxes stimulate economic growth

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Pay no attention to Republican talking points – incomes taxes actually stimulate economic growth. A study just released by the Institute on Taxation and Economic Policy found that over the last ten years the states with the highest income tax rates economically outperformed states with no income taxes at all.

As Bloomberg News reported on the study, “The nine states with the highest personal income taxes on residents outperformed or kept pace on average with the nine that don’t tax their residents’ incomes.” While median household income has declined across the nation as a result of the Bush Great Recession, income drops have been substantially lower in states with high income tax rates.

On average, high-rate states saw a .7% drop in median household income, but states with no income tax saw a much larger 3.5% drop in household incomes. Progressive income taxes are a very important part of a balanced economy and a healthy middle class. Time to roll back the Reagan tax cuts – and make the Romney super-rich pay their fair share again. It’ll be good for the economy!

Thom Hartmann Administrator's picture
Thom Hartmann A...
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Of course they do. Any mechanism that encourages the movement of money also encourages the exchange of goods and services. That's all a healthy economy is about. The exchange of goods and services is self perpetuating. The more money that ends up in a spender's pocket greatly increases economic output compared to money that ends up in a saver's pocket. Imagine what would happen to our economy if we all decided to save 50% of our income in a coffee can under the bed. That's comparable to the super wealthy saving millions and billions in off shore accounts.

Bush_Wacker's picture
Bush_Wacker
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Quote Bush_Wacker:

Of course they do. Any mechanism that encourages the movement of money also encourages the exchange of goods and services. That's all a healthy economy is about. The exchange of goods and services is self perpetuating. The more money that ends up in a spender's pocket greatly increases economic output compared to money that ends up in a saver's pocket. Imagine what would happen to our economy if we all decided to save 50% of our income in a coffee can under the bed. That's comparable to the super wealthy saving millions and billions in off shore accounts.

The economy is not driven by spending, but by saving. Savings lead to capital goods, which enable increased production. If everything that was produced was consumed, there would be no progress.

TheFirstLeftist's picture
TheFirstLeftist
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Mar. 23, 2012 2:33 pm

Of course, any good fascist knows this, that spending makes them rich.

So, they key is to bend the spending to your will, and make sure the world is dependent on what you are selling.

Like security and war, with a little false-flag terrorist black-op and a patriot/traitor division of your population.

The children of the 50's, whose parents had lied themselves into a Donna Reed Show episode, paid about 50% of their parents wealth to fund the largest American surplus in history.

Try to understand what really happened here. All the children of the 50's who smoked weed, went to protests, voted democratic, lost everything when Bush stole the 2000 election.

All the children of the Donna Reed variety, their heads filled with lies, started making egregious profits, and were released from any taxation on their families wealth.

It's like karma, from man.

It was just to teach us people of color and long haired hippes and homosexuals a lesson, and to show the lily-livered anti-war crowd how useless they were.

It was just a game.

But the backlash will be real.

and the Pharaohs walked toward the sea
which parted, incidentally
and thinking it was safe to pass
they lifted Romney by the ass
and walked like gods between the floods
with gold and diamonds in their mouths
to hide them from each other's eyes
right here
where now calm waters rise

anonymous green
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Jan. 5, 2012 11:47 am
Quote Thom Hartmann Administrator:

Pay no attention to Republican talking points – incomes taxes actually stimulate economic growth. A study just released by the Institute on Taxation and Economic Policy found that over the last ten years the states with the highest income tax rates economically outperformed states with no income taxes at all.

As Bloomberg News reported on the study, “The nine states with the highest personal income taxes on residents outperformed or kept pace on average with the nine that don’t tax their residents’ incomes.” While median household income has declined across the nation as a result of the Bush Great Recession, income drops have been substantially lower in states with high income tax rates.

On average, high-rate states saw a .7% drop in median household income, but states with no income tax saw a much larger 3.5% drop in household incomes. Progressive income taxes are a very important part of a balanced economy and a healthy middle class. Time to roll back the Reagan tax cuts – and make the Romney super-rich pay their fair share again. It’ll be good for the economy!

Just because Republicans (or Democrats) use talking points, doesn't mean that they are wrong.

The problem with the analysis is that there are a lot of other variables. What is the overall level of taxation and spending? What is the regulatory environment? What is the main source of tax revenue? How is high defined? How is low defined?

The report mentions the Laffer Curve. Remember, Laffer only proposed lower rates in order to maximize tax revenue. In effect, he, like most neocons, wants the Welfare State but wants it funded through growth. True free market advocates state that all taxes (save perhaps for taxes that fund legitimate functions of gov't) impede growth.

Small "l" libertarians advocate zero income tax. We are not concerned with maximizing revenue. The supply-siders never advocate abolition of the income tax because they are just as statist as the left.

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TheFirstLeftist
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I think the left side of Laugher's Curve also suggests that at some point lower tax rates produce less tax receipts than higher tax rates.

chilidog
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Jul. 31, 2007 4:01 pm

I will concede all fine points relating to the Laugher Curve and how Libertarians differ in their opposition to high marginal income tax rates. Anyone who wants to try to figure out what was in the mind of dear Arthur or why it was so popular with those trying to sell Reagonomics has my blessing. I think it all comes down to the usual crap seized upon by the powerful to justify their pillage. Somehow, if all the pirate ships are fully figged and crews and captains loaded down with booty, their excess will flow like champagne in the public fountains. Or, maybe they will settle for the pillage without the rape.

The empirical evidence of tax policy ought to be clear to any honest observor. The theory that explains why people with money invest in what comes back into the economy rather than siphon it off into "non-productive pools of capital" is clear. The "pipe dream" that makes it look like what makes our lords and masters happy will lead to good times down on the Plantation isn't working. Can't get high off this "bankster crack."

Marginal tax rates apply to the rising tiers of the economy making us all equal at a foundational level. There is no limit on the top, but there is an increasingly steep rate of tax to keep the income after taxes more equal the higher you go. IF the goal is to get as much tax revenue as possible out of the next few quarters, amping up the heat still does not make lower taxes an effective way to fuel the growth involved. Long-term strategy would look to long-term value investments and maintenance. It would favor spending more on what prosperity (and security) requires.

At this point, revenue has been shifted from corporate to personal/homeowner funding by non-enforcement and willful tax breaks. Promised jobs and prosperity has not followed these public investments. What has been created has often been nothing but franchise strips and other less than inviting human spaces. "Developers" have operated by playing fast and loose with projected trends and who profits locally as well as with the collusion of finance. What we have gotten for this trip into Reaganomics has been a very bad deal. His economic alchemy has turned gold into lead.

drc2
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Apr. 26, 2012 12:15 pm

It won't stimulate the economy at my house. If my taxes go up, I will spend less. My contribution to economic growth will definitely be reduced. No doubt about it. This fact is undeniable.

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rigel1
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Quote rigel1:

It won't stimulate the economy at my house. If my taxes go up, I will spend less. My contribution to economic growth will definitely be reduced. No doubt about it. This fact is undeniable.

You don't understand the issues.

The government taxes you, and then spends it on someone else. Now, why does 'economic growth' fall because of that?

Economic growth falls only if you reduce work. People don't stop working because you tax them more. In fact, some of them work even more. Now, rich people will tell you they will work less if you tax them more. But they are, in general, liars. And you should know this by now.

Most recent studies show that tax rates of around 70% seem to be where the Laffer optimum ends. If you simply look at the full record of the history of tax rates and growth rates you will see that there is absolutely no consistent relation between the two, in the long run.

Dr. Econ's picture
Dr. Econ
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Jul. 31, 2007 4:01 pm

Absolutely correct, sir. The top rates were over 60% from the end of WWII until 1981. I'd take another 1950's type economy right about now.

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Phaedrus76
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Quote Dr. Econ:
Quote rigel1:

It won't stimulate the economy at my house. If my taxes go up, I will spend less. My contribution to economic growth will definitely be reduced. No doubt about it. This fact is undeniable.

You don't understand the issues.

The government taxes you, and then spends it on someone else. Now, why does 'economic growth' fall because of that?

Economic growth falls only if you reduce work. People don't stop working because you tax them more. In fact, some of them work even more. Now, rich people will tell you they will work less if you tax them more. But they are, in general, liars. And you should know this by now.

Most recent studies show that tax rates of around 70% seem to be where the Laffer optimum ends. If you simply look at the full record of the history of tax rates and growth rates you will see that there is absolutely no consistent relation between the two, in the long run.

Dr. Econ,

I don't think you understand the issues. Government spending misallocates where the consumer wanted spending done. If rigel wanted to spend money on X, he would have. Government spending just redirects where the money is spent. It cannot add to economic growth.

Work doesn't necessarily equate to economic growth. Digging holes and filling them in again is work. But it is not productive. Government spending of Rigel's money substitutes bureaucrat's judgment for his. If rigel had intented to save, his saving would have went towards capital formation, which in turn leads to more production. All the government does is waste his money on consumption.

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LysanderSpooner
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HighHigh taxation reduces aggrate demand and economic growth with it.

Commonsense461
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Quote Commonsense461:

HighHigh taxation reduces aggrate demand and economic growth with it.

How. Every dollar of taxes (and then some) is "spent". Spent money enters the economy in one form or another. Is every dollar of income spent? Not with the upper middle class or the upper class it's not.

Whether you and I spend money into the economy or the government does, does not change the equation. Contrary to what Mr. Leftist says above, when the super rich get to keep more of thier winnings they tend to save more of their winnings which doesn't enter the economy at all. Lower taxes as a whole reduces economic growth.

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Bush_Wacker
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But, BW, this kind of logic does not fit with what the con ideology portrays so clearly. How could it possibly be true. We all know that keeping my money in my wallet makes me richer, don't we? If I can hold it in my hands, it is mine.

Those capable of understanding systems and how they operate may laugh at the simplistic logic, but it is clear as day and night when you grip that dollar bill instead of paying the tax bill. And deluding.

When we explain that high marginal taxes on individuals and corporations provides an incentive to reinvest wealth rather than stash it away, those who cannot see the economic system's gain only bemoan the punishment meted out on success. Or, those playing the game of Monopoly may rejoice as they force others into bankruptcy and out of the game. When they are the winner and own everything, there is nobody left to go to their hotels or use their utilities. In the real world, keeping your customers in the game is the way to win.

drc2
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Apr. 26, 2012 12:15 pm

They all seem to have the same fundamental obsession with the self. Even rigel goes there with his simple statement that if "his" taxes go up "he" won't contribute to economic growth. The economy is effected by "his" income even if they take half of it for taxes. It will be spent by the government. They don't seem to grasp that money collected by the government is always spent and doesn't go into a profiteers pockets. They can argue what it is spent on to their hearts content but at least figure out that the government cannot make a profit overall.

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Bush_Wacker
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Jun. 25, 2011 7:53 am

So bw your disagreeing with Economomic theory that's stood for decades?

Commonsense461
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Quote rigel1: It won't stimulate the economy at my house. If my taxes go up, I will spend less. My contribution to economic growth will definitely be reduced. No doubt about it. This fact is undeniable.
Quote Dr. Econ: ...You don't understand the issues. The government taxes you, and then spends it on someone else. Now, why does 'economic growth' fall because of that? Economic growth falls only if you reduce work. People don't stop working because you tax them more. In fact, some of them work even more. Now, rich people will tell you they will work less if you tax them more. But they are, in general, liars. And you should know this by now.

Most recent studies show that tax rates of around 70% seem to be where the Laffer optimum ends. If you simply look at the full record of the history of tax rates and growth rates you will see that there is absolutely no consistent relation between the two, in the long run.

Quote LysanderSpooner: Dr. Econ, I don't think you understand the issues. Government spending misallocates where the consumer wanted spending done. If rigel wanted to spend money on X, he would have. Government spending just redirects where the money is spent. It cannot add to economic growth.

You are completely off track. We were really talking about the Laffer curve - to use a shorthand - and your comments are confusing and off the mark.

He said " If my taxes go up, I will spend less.", implying that income will fall by the amount he is reducing spending. This is simply ridiculous.

As to your idea that government cannot add to economic growth, well, that is what we are discussing. The hypothesis is that taxing business' profits will provide an incentive for firms to put more money into their companies - something Thom talks about all the time and in fact did when he owned some companies and the taxes were high. This allows him to smooth his consumption over time and reap more rewards later, when he retires and his taxes are lower.

Your contrary hypothesis - which is that changing patterns of consumption reduce growth seems speculative and unimportant.

Your assumption that government consumes resources when it spends money on real things - as opposed to transfers - is of course obvious and correct. We were not debating if government spending is too high. We were debating how the optimal amount of government spending should be paid for.

Our entire discussion has really been about where the Laffer point is. To repeat, taxes only reduce growth if they reduce work, which is the main claim made by Laffer. This effect is weak, since people need and work under high tax rates because they like the stuff that money brings in. Most empirical evidence - as I say above - says about 70% is where the tip of the laffer curve is.

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Dr. Econ
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GDP = business spending + personal spending + govt spending - money that leaves the country.

Explain by what mechanism govt spending a $ is any different than a business spending a $ or a private citizen spending a $.

If a pizza parlor opens up at 1100 am, and gets three phone calls to deliver pizzas for lunch to a county courthouse, a private office, and a home does it make any difference to the pizza parlor owner?

In the trough of the what is now the 2nd worst recession in recorded history, the govt taking a dollar and putting it to use buying g&s's does not hurt private investment choices. It would, IF that extra $ made interest rates rise.

Where are interest rates in the US? I've been hearing conservative Austerians claim that all this deficit spending is going to drive up interest rates. If conservatives knew what they were talking about, Treasuries should be passing 9% by now...

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Phaedrus76
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Sep. 14, 2010 8:21 pm

That's because the federal reserve controls interest rates thdecry hthe buying and selling of bonds.

Commonsense461
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Quote Commonsense461:

That's because the federal reserve controls interest rates thdecry hthe buying and selling of bonds.

Banks are perfectly free to set whatever interest rates they choose. If they actually thought there was inflation, they would raise the rates. But they don't.

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Dr. Econ
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They aren't actually.

Commonsense461
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Jul. 2, 2012 9:48 am

Commonsense, care to tackle the pizza issue?

And interest rates are set by the market, ultimately. The Fed is doing what they do, but if demand for treasuries fell interest rates would rise. Period, fullstop, sayonara.

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Phaedrus76
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Sep. 14, 2010 8:21 pm

Yes but who is the largestpurchaser of bonds?

Commonsense461
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Jul. 2, 2012 9:48 am

The household budget is:

(1) (Income = expenses + savings), applies to businesses, individuals, states that are users of money in USA and, the Euro nations.

The national budget of USA is different:

(2) (Federal Deficits = Net Private Savings+ net imports), applies to USA and other nations that have their own currencies.

Only federal deficits grow the national economy which means more spending and less taxes. And federal govt can deficit fund to its heart's content. Japan does.

Why some states do better with higher state taxes is because for states taxation is essentially the source of money with some transfer payments from the federal govt. States can't deviate too much from balance and can't deficit fund too long.

To confuse results from states to the national govt is not correct. Empirically GDP has been five times govt_spending from 1969 to 2009 as shown in

http://pshakkottai.wordpress.com/2011/10/16/us-gdp-vs-govt-spending-2/

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pshakkottai
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Jul. 11, 2011 11:27 am
Quote Commonsense461:

They aren't actually.

I see. You like to play games. Banks could certainly charge more than they are charging currently if they thought there was inflation.

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Dr. Econ
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Reply toTheFirstLeftist:

The problem with the analysis is that there are a lot of other variables. What is the overall level of taxation and spending? What is the regulatory environment? What is the main source of tax revenue? How is high defined? How is low defined? (MMT says that the variables are not too many)

The report mentions the Laffer Curve. Remember, Laffer only proposed lower rates in order to maximize tax revenue. In effect, he, like most neocons, wants the Welfare State but wants it funded through growth. True free market advocates state that all taxes (save perhaps for taxes that fund legitimate functions of gov't) impede growth. (MMT says no tax maximization is needed.)

Small "l" libertarians advocate zero income tax. We are not concerned with maximizing revenue. The supply-siders never advocate abolition of the income tax because they are just as statist as the left. (MMT says that taxes merely adjust income inequality. Only deficits matter.)

What do the equations of balance say?

Economics is algebra. It is the same for liberals, conservatives, communists or whatever. It is not a philosophy.

(taxes = spending - "debt") is NOT correct anymore. It was before 1971.
http://my.firedoglake.com/pshakkottai/2012/04/20/misunderstood-deficits/
Deficit spending is the only way to grow the economy. Not only in difficult times but ALWAYS.

(Federal Deficits = Net Private Savings+ net imports), applies to USA and other nations that have their own currencies.
If all deficits are added, the above equation leads to

(cumulative total govt_deficit) = (total national private wealth) = 60 Trillion, approx. This is proved in

http://pshakkottai.wordpress.com/2012/02/27/national-debt-and-national-wealth-compared/
http://pshakkottai.wordpress.com/2012/03/30/another-proof-of-mmt-4/

In short, (govt debt) is (peoples' anti-debt) and (govt surplus) is (peoples anti-surplus)!

(Govt_debt / GDP) is exactly the same as (peoples' wealth/ GDP) and can be any number not limited to 100%.

A monopoly game to understand Monetary Sovereignty is
http://neweconomicperspectives.org/2012/05/playing-monopolis-monopoly-an-inquiry-into-why-we-are-making-ourselves-so-miserable.html
It is worth reading. It should be required reading for all economists, journalists, congress, senate, presidents and all citizens!

Why is there such a furor over deficits?

"Reducing the federal debt demands that federal spending be decreased and/or taxes be increased. The vast majority of federal spending benefits the not-rich more than the rich: Social Security, Medicare, Medicaid, aid to education, food stamps, disability care – all have far more meaning for the middle and lower classes. So cuts in federal spending, which reduce the federal deficit, widen the gap.

Many taxes also hurt the less affluent: FICA, income taxes on Social Security benefits, tolls, sales taxes, all reduce the deficit and widen the gap."

says Mitchell in

http://rodgermmitchell.wordpress.com/2012/06/25/how-you-can-help-close-the-gap/

The gap is the income gap between the rich and poor. "The gap can be widened either by increasing the dollar holdings of the rich, and/or by decreasing the dollar holdings of the not-rich. Either approach will accomplish the same end."

He continues with

"What can be done? Trying to educate the politicians and the media is hopeless. They already know. But, in essence, they have put their hands over their ears, and are yelling, “I CAN’T HEAR YOU..”

I believe we must educate the public, directly."

In essence, mean-spiritedness is behind the deficit reduction hysteria! We can call it the will to vice. See "will to vice

Power Is One Thing, Cruelty Another. Willing Them, Human All The Way. Something Civilization Cannot Ignore Anymore."

at http://patriceayme.wordpress.com/2012/01/23/will-to-vice/

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