David Sirota: Are Low Taxes Exacerbating the Recession?

[marmar]

from truthdig:




Are Low Taxes Exacerbating the Recession?
Posted on Jul 8, 2010

By David Sirota


As the planet’s economy keeps stumbling, the phrase “worst recession since the Great Depression” has become the new “global war on terror”—a term whose overuse has rendered it both meaningless and acronym-worthy. And just like that previously ubiquitous phrase, references to the WRSTGD are almost always followed by flimsy and contradictory explanations.

Republicans who ran up massive deficits say the recession comes from overspending. Democrats who gutted the job market with free trade policies nonetheless insist it’s all George W. Bush’s fault. Meanwhile, pundits who cheered both sides now offer non sequiturs, blaming excessive partisanship for our problems.

But as history (and Freakonomics) teaches, such oversimplified memes tend to obscure the counterintuitive notions that often hold the most profound truths. And in the case of the WRSTGD, the most important of these is the idea that we are in economic dire straits because tax rates are too low.

This is the provocative argument first floated by former New York Gov. Eliot Spitzer in a Slate magazine article evaluating 80 years of economic data.

“During the period 1951-63, when marginal rates were at their peak—91 percent or 92 percent—the American economy boomed, growing at an average annual rate of 3.71 percent,” he wrote in February. “The fact that the marginal rates were what would today be viewed as essentially confiscatory did not cause economic cataclysm—just the opposite. And during the past seven years, during which we reduced the top marginal rate to 35 percent, average growth was a more meager 1.71 percent." ........(more)

The complete piece is at: http://www.truthdig.com/report/item/are_low_taxes_exacerbating_the_recession_20100708/

[econoclast]

1. The thing about the 1950's

In talking about growth and marginal tax rates in the 50's ... remember that the world had only recently emerged from WW 2. With the exception of the US, most of the industrial capacity of the planet was either a smoldering ruin or locked behind the Iron Curtain. So the US was the major supplier of most everything and it is no surprise that growth was high IN SPITE of high taxes. As Europe and Asia reestablished themselves as industrial powers (thanks to the Marshall Plan etc) America lost it's monopoly on supply.

Furthermore, as supply became available from foreign sources, Americans increased their purchases of imported stuff. When driving this weekend, try to notice the numbers of foreign cars on the road. Nobody forced us to buy these. We ourselves helped spur growth in Japan and Germany by purchasing Toyatas and BMWs and VWs ans Nissans etc. America remains a powerful engine of growth ... But thanks to our proclivity to buy imported stuff, that growth occurs elsewhere. And please don't blame business offshoring production. Yes they did. BUT, we validated their production decisions by continuing to buy the imported stuff. If we had spent ten seconds looking at the lables on things and saying " made in Japan ... Made in China ... No thanks!" then things might be different now. But no.

We believe in Keynes. Keynes tells us that it is demand that drives the economy. No? As long as we continue to demand the imported stuff, that's what will be supplied. Where is the American economic growth? In China. In India etc. And we did it to ourselves.

[Gman]

2. The times are two completely different times

there is little, it anything at all in common between the 1950's and now, except both times had do nothing Republican presidents.

[Bgno64]

3. But I think the point about plowing money back into the business

instead of taking the profits is a valid one.

And as for us buying imported stuff - well, there's an argument for tariffs. And a pretty good one, too.