Taxes are imposed on profits and earnings. Once taxes are paid on profits and earnings the net savings are left alone. This allows those dollars to be invested into productive investments which in turn generate more profits and earnings which will be taxed. As stated above, as the “rich” invest in productive investments it leads to higher employment, strong consumer demand and economic growth. In turn this leads to higher tax revenue.
However, deficits, and deficit spending, are HIGHLY destructive to economic growth as it directly impacts gross receipts and saved capital equally. Like a cancer – running deficits, along with continued deficit spending, continues to destroy saved capital and damages capital formation.
We discussed recently the economic impact of spiraling debt levels that have eroded economic growth. Debt is, by its very nature, a cancer on economic growth. As debt levels rise it consumes more capital by diverting it from productive investments into debt service. As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host. The chart below shows the rise of federal debt and its impact on economic growth.
TD, this was actually a pretty good article. This phenomena the author is talking about clearly extends beyond Obama and there were two paragraphs that I think are dead on,
ReplyDelete"However, beginning in 1980 the world changed. The development of communications shrank the global marketplace while the rise of technology allowed the U.S. to embark upon a massive shift to export manufacturing to the lowest cost provider in order to import cheaper goods. The deregulation of the financial industry led to new innovations in financial engineering, easy money and wealth creation through the use of leverage which led to a financial boom unlike any seen in history. The 80-90's was a period of unrivaled prosperity and the envy of every nation on earth.
Unfortunately - it was the greatest economic illusion ever witnessed."
"There is no way to achieve the necessary goals "pain-free." The time to implement austerity measures is when the economy is running a budget surplus and is close to full employment. That time was two Administrations ago when the economy would have slowed but could have absorbed and adjusted to the restrictive measures. However, when things are good, no one wants to "fix what isn't broken"."
Lost in the countless taunts of communist and Marxist that are aimed at Obama and Democrats, is an actual understanding of what really happened that lead to this debacle. The middle class, who I frequently wail about, have lived way beyond their means and have made so many bad choices, they may, as an economic class, never escape the enslavement to debtors they have placed themselves into. That said, there continues to be an enormous selling of trickle down economics, and the author of this piece certainly does that.
While workers have become more productive, they have seen their wages decline. Simultaneously, profits have grown astronomically and corporations are sitting on tons of cash. With taxes where they are right now compared to where they have been historically in times of great growth, I find the authors premise dubious. If we were actually taxing the rich at 70%, he might have a point. But now, we are not even taxing the top at a rate near 35%.