Tax the rich!

This American Prospect essay by Nick Hanauer makes a very compelling case for why increasing taxes on the rich, and then investing the money in programs that benefit poor and middle class is the key to economic growth.  He also argues that embracing this message is good politics for the Democrats. You should read it:

Democrats can’t just run against the Trump/Ryan tax cuts; they need to run for substantially raising taxes on me and my wealthy friends

That’s why if Democrats want to take back Congress—and hold it—they must do more than just attack trickle-down economics; they need to replace it with an alternative theory of economic growth that places the American people back at the center of the American economy. Democrats can’t just run against the Trump/Ryan tax cuts; they need to run for substantially raising taxes on me and my wealthy friends—not on the grounds that it’s more fair (or because of “The Deficit!”), but on the sound, if radical-sounding, economic principle that taxing the rich is the only plan that would increase investment, boost productivity, grow the economy, and create more and better jobs…

As a venture capitalist and serial entrepreneur who’s made a personal fortune founding or funding more than 30 companies, I can tell you firsthand that this classic trickle-down narrative represents more than just a fundamental misunderstanding of how market capitalism works; it is in fact a con job and a threat—an intimidation tactic posing as a theory of growth. The con works like this: If we can get you to believe these three things—that if you raise taxes on the rich, we’ll refuse to invest; that if you regulate corporations, they’ll be less competitive; and that if you raise the minimum wage, we’ll hire fewer workers—then you will accede, to some degree or another, to a 1 percent–enriching trickle-down agenda of tax cuts for the wealthy, deregulation of the powerful, and wage suppression for everyone else. Yet despite these claims, what you’ll never get from trickle-down is faster growth and better jobs. Because economic growth doesn’t come from making the rich richer; it comes from making the middle class and working people generally stronger.

To be clear: There is simply no empirical evidence or plausible economic mechanism to support the claim that cutting top tax rates spurs economic growth. Zero. Zilch. Nada. [emphases mine] When President Bill Clinton hiked taxes, the economy boomed. When President George W. Bush slashed taxes, the economy ultimately collapsed. It wasn’t until after most of the Bush tax cuts expired during the Obama administration that the post–Great Recession recovery started to pick up steam—an ongoing recovery that, as uneven as it has been, has grown into one of the longest economic expansions in U.S. history…

In fact, the real economy is immensely more complex than the “Supply and Demand” fairy tale they teach you in Econ 101, for while tax rates don’t have zero effect, there is nothing magical about them. For decades, Republicans and some Democrats have taken it as an article of faith that, fairness issues aside, cutting taxes increases growth while raising taxes impedes it. But as we have just documented, there is absolutely no correlation. So, given the anecdotal and empirical evidence, how do Republicans justify their relentless trickle-down agenda?…

The problem isn’t that corporations and investors don’t have enough after-tax cash; it’s that they’re not productively spending or investing the cash they already have. And it’s a problem greatly amplified by the dramatic rise of income and wealth inequality in recent decades…

Raise taxes on the rich, and almost anything the federal government does with the revenue will pump more money through the economy than what the wealthy are doing with their hoarded cash today. Tax the rich to put money back in the hands of the American people through middle-class tax cuts, and corporations will expand production and payrolls to meet the resulting spike in consumer demand. Tax the rich to invest in roads, transit, bridges, health care, schools, and basic research, and we will create millions of good-paying jobs while building the physical and human infrastructure on which our collective prosperity relies…

What our economy needs now is to get those trillions of dollars of hoarded cash off the sidelines, and back into the hands of working- and middle-class Americans—not because it is fair, but because it is pro-growth. Tell that story. Run on it. Believe it. Give voters a choice between an economic narrative that lionizes the rich as “job creators” or a middle-outward narrative that rightly celebrates the American people as the primary cause and source of growth, and most voters will choose the story that places them back at the center of the American economy.

Plenty more good stuff in there.

I think most all of Hanauer’s analysis is spot-on.  I think what prevents Democrats from fully embracing this is a fear that they will lose too many wealthy donors (ugggh, campaign finance reform, please!).  That said, there’s plenty of wealthy Democrats already who understand that there’s far more to politics and government than their personal tax rates (all the wealthy people who feel otherwise are already Republican) and the modest changes that would actually happen would be very unlikely to change their party support.  Let’s go for it, Democrats.


About Steve Greene
Professor of Political Science at NC State

One Response to Tax the rich!

  1. R. Jenrette says:

    This has been my idea of what Democrats should be all about. That’s what FDR acted on finally to move toward recovery after the Great Depression. Yes, and it was supported by World War II by huge public spending. And yes, there was a lot of opposition to the New Deal which limited what FDR could do. That’s what being a Democrat should be about without that Puritan worry that someone might get something for no effort. Today’s Democratic leadership got just too cozy with rich liberal donors and repaid them handsomely for their donations.
    Time to get back to our roots, Dems. Up with the 90% – they are our base and we need them to know it.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: