Will The GOP Tax Scam Crash The Economy?
The countries of the world that have the most stable economies and that suffer from the smallest boom and bust cycles are the countries with the highest tax rates on the very, very wealthy. The reason for that is that the government is functioning essentially as a stabilizer, so capitalist economies, there's just a fundamental truth about them. This is not a knock on capitalism, it's just the way it is.
Capitalist economies go in cycles of boom and bust. There are big cycles - what's referred to as the 80-year cycle of major boom and bust - and then there are smaller cycles which are sometimes referred to as the eight to ten year cycle of recession. Every roughly eight to ten years there's a consequential recession.
And so when those depressions and recessions happen, a government that is well-funded - in other words it has a broad enough and high enough tax base that the government has resources - that government can spend money into the recession. They could build new roads, they can do new construction projects, they can build new sewer systems, they can build out high-speed Internet infrastructure.
Whatever it may be, that government can spend or for that matter they can in an extreme case like in the Republican Great Depression, what Franklin Roosevelt did was he even hired people to do basically scutwork - to plant trees, to sweep streets - literally. The WPA was hiring people to paint murals, hired poets to write poetry and do public readings. Not that that's scutwork, but it's not the kind of thing that traditionally you think of as government functions.
The reason our government was doing that was because capitalism was in one of its cyclical failures, one of its cyclical crash modes. And government at that point needs to step in and stimulate the economy by putting as much money as possible at the bottom of the economy into the pockets of working people, which is exactly what FDR did, and it's how we got out of the Great Depression, between that and World War Two which was the largest government stimulus in the history of the United States.
Wars are stimulative. It's not a good way to stimulate the economy because it's not long-term. If you build a hospital it stimulates the economy and continues for the next 50 years as a great revenue source and healing source. You build a bomb and it might cost the same as the hospital, but once you drop that bomb it's gone. The money is gone and the bomb is gone.
So anyhow these cycles of boom and bust are best handled by nations like the Scandinavian countries, the northern European countries. Germany during the Great Crash of 2008/2009, one of the biggest institutions in Germany that got hit was Deutsche Bank but it was mostly because they were loaning and they were gambling on American derivatives in the American housing market.
But my point is that those high tax rates - and we haven't seen high tax rates since the 1980s - I'm talking about over 50% on income over three million dollars a year, which is what we had in 1920. It's what we had in 1940, 1950, 1960, 1970 and 1980 and we no longer had after 1982.
Top tax rates over 50 percent stabilize the economy. They reduce the impact of recessions. And sure enough, in 1921 Warren Harding ran on a campaign of dropping the top tax rate on the richest in America from 91% down to 25%. He won the election and he dropped the top tax rate.
And what did it do? It started a bubble. It kicked off what we refer to as the roaring 20s which was pure bubble fueled by rich people. It was a speculative stock and real estate bubble and that bubble burst. It started bursting in Florida in early 1928 and by the end of 1929 that property bubble had reached all the way to New York City and it took down the stock market.
And it was all fueled by the tax cut of 1921. So we saw that happening and for the next 30 years, literally for the next 30 years - arguably the next 40 years - no Republican was stupid enough to say, "we need to do what Harding did, let's create another Great Depression" until Reagan came along.
And Reagan passed two big tax cuts in '82 and '86 - the first one dropped the top tax rate from 74% to 50%, the second one dropped it from 50% down to 25% and those two tax cuts then led to, in 1987, the biggest crash in the history of the stock market with the single exception of 1929.
Now the crash didn't last more than a few days - the really severe part of it - and the consequences of it, it was about a year long pain. But it wasn't just the crash.
The other thing that happened was that the growth of the middle class - the bottom 60 percent of Americans in terms of wages and wealth - was faster in the 40s, 50s, 60s and 70s than any time in the history of America, and the growth of the middle class was growing in wealth and income faster in the 50s 60s 70s up until the 1980s than the top 40%.
And this is no secret. Any economist can tell you this. High tax rates, high economic growth. Low tax rates, what happens? The country encounters a rough patch and what do we do? We have to stimulate the economy with debt. So now we're 20 trillion dollars in debt.
So you had the big tax cut of '21 led to the crash of '29, the big tax cuts of '81 and '86 led to the Great Crash of '87, the big cut of 2002 - George W Bush's - led to the crash of 2007. Another bubble economy. It was a real estate bubble just like the one in the roaring 20s.
And so now we get a giant cut tax cut in 2017. What's next?
I'd say another crash.
It just seems like this is what Republicans do. They suck up as much money as they can for themselves and the donors who own them - the wealthy clients, the top 1%, the top one thousandth of 1%. Republicans take as much money out of the economy as they can to give to those people, the morbidly rich, and then the morbidly rich direct their media empires to tell us that that stuff falling on our heads is actually rain. It's a golden shower!
Yes, trickle is trickling down on us. And we know that we're just peons.
So they're playing this game again, right? The Republicans they played this game in '21, it led to '29, it led to a disaster. They played this game in 1980 and it led to a disaster. And it flattened the wages of working people for literally 35 years to this day. And then they played this game when George W Bush came in and it led to a disaster 2008-2009.
They're doing it again. It is said, "the definition of insanity is doing the same thing over and over again and expecting a different result." There is going to be a reckoning.
Economically you can ask any rational economist, there will be a reckoning. But the political question is, who's going to take the blame? And there is a theory suggesting that what the Republicans are doing is they're setting up the next crash in anticipation of the Democrats having political power when the crash happens so that they can blame the whole thing on the Democrats. They can say, "see?"
Because if the crash happens right after the 2018 election or in 2019 or right after the 2020 election - and frankly I don't think it's going to take that long - if the crash happens after that and Democrats have seized power, the Republicans are going to be saying, "see, look at what the Democrats did to you!"
We'll see how that works out but I'm just giving you advance warning.