Got a old high school classmate who is a super right winger and an Economist by trade. He threw these 2 questions at me:

#1 The core issue here is, how is it that you think the process of capital formation occurs?


#2 and later " please tell me one nation that has taxed itself into prosperity?"

Since I'm an art school grad I tend to shy away from numbers and economics in general

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politicalview's picture
politicalview 9 years 12 weeks ago
#1

Your friends first problem is that he is right wing economist. I'm guessing that he is an MBA - a group tha tI blame for the majority of economic problems in our country right now, but that's another post.

Right wingers need things explained to them in simple terms. Probably the best explanation could be given by a Warner Brothers cartoon I saw when I was a kid. "Yankee Dood It" explained the basics of business. Wikipedia has a good overview of it here: http://en.wikipedia.org/wiki/Yankee_Dood_It

The cartoon explains how, when a business makes sells a product, the money is first used to pay employees and cover the cost of the business. Anything made over the cost of business is called "profit". When the main character says "and I get to keep the profit", he is told "no". Profit is re-invested in the business to make the business stronger and more able to meet the needs of its customers. This is how busines, and consequently our economy, stays strong. This is how capital formation occurs, as Thom says so often, by creating wealth. When business stops focusing on the customer, stops paying workers a fair wage, and is only concerned about making a ton of money for the people who run the business, that's when things go bad.

An important part of the cost of business is paying taxes. Taxes keep up the infrastructure that allows a real business to flourish. Tax money maintains roads so employees can get to work, water supplies to be used in manufacturing processes as well as cleaning, police departments to protect businesses from crime, fire departments to prevent businesses from being destroyed, regulations to protect businesses from each other as well as protect consumers from dishonest businesses, and so on. You want to know "one nationt hat has taxed itself into prosperity"? Define prosperity. Prosperity for who? Certainly the royal families of England during medieval times felt that they - and therefore England - were prosperous. The peasants probably didn't share their outlook.

Arguably the United States "taxed itself into prosperity" during the FDR administration when the government changed its focus from catering to the wealthy to helping the average citizen. The main thing that helped this prosperity was the progressive income tax. Contrary to what most people believe, the progressive tax that had a top tax rate of around 90%, was a way of encouraging the wealthy to keep their money active in the economy. If decided to just sit on their money, then they would get taxed and the government would put it to good use. If, however, they decided to put their money to good use, such as invest it in business or give it to charity, then their tax would be considerably lower as they would be paying a lower tax rate on less taxable income.

Allowing the rich to keep their money does nothing to help the economy. It just makes the rich richer. No one is going to create a job just because they have more money. You create a job when you have work that needs to be done, which only happens when you sell product, which only happens when people have enough money to buy things.

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