29

Taxing the rich is good for the economy

Commentator Robert Reich says increased tax revenue greases the wheels of economic growth

One of the most pernicious economic falsehoods you'll hear during the next seven months of political campaigning is there's a necessary tradeoff between fairness and growth. By this view, if we raise taxes on the wealthy the economy can't grow as fast.

Wrong. Taxes were far higher on top incomes in the three decades after World War II than they've been since. And the distribution of income was far more equal. Yet the American economy grew faster in those years than it's grown since tax rates were slashed in 1981.

This wasn't a post-war aberration. Bill Clinton raised taxes on the wealthy in the 1990s, and the economy produced faster job growth and higher wages than it did after George W. Bush slashed taxes on the rich in his first term.

If you need more evidence, consider modern Germany, where taxes on the wealthy are much higher than they are here and the distribution of income is far more equal. But Germany's average annual growth has been faster than that in the United States.

You see, higher taxes on the wealthy can finance more investments in infrastructure and education, which are vital for growth and the economic prospects of the middle class.

Higher taxes on the wealthy also allow for lower taxes on the middle -- potentially restoring enough middle class purchasing power to keep the economy going.

As we've seen in recent years, when disposable income is concentrated at the top, the middle class doesn't have enough money to boost the economy.

What we should have learned over the last half century is that growth doesn't trickle down from the top. It percolates upward from working people who are adequately educated, sufficiently rewarded, and who feel they have a fair chance to make it in America.

Fairness isn't incompatible with growth. It's necessary for it.

About the author

Robert Reich is chancellor's professor of public policy at the University of California, Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.
Log in to post29 Comments

Pages

Seems like the majority of the previous comments wish to ignore history and/or ignore or dispute facts. There was no mention of any political parties or campaigning... just laying out the historical truth -- higher taxes on the wealthy leads to greater investment in our country, greater growth of the economy, and more equal distribution of wealth. Sure the rich could invest more on their own, but, with exception of a few, they just aren't. The result of the Bush tax cuts' great increase of wealth in the top of the economic ladder while the middle and lower classes become poorer proves it. You can't just take facts you don't like, such as greater growth under Clinton's higher taxes on the rich (or even Eisenhower's during the Post WWII era, before my life time) and call it liberal bias. Just because liberals use facts doesn't mean they are biased, it just means TRUTH is on their side. However, when the conservatives fabricate arguments such as saying the "job creators" and "investors" need more money to grow the economy, that is worse than bias, it's intentionally misleading ignorant people into voting against their own and their country's economic best interest for the selfish wants of a few.

In an interview with Bill Moyers;David Stockman stated Reaganomics(trickle-down) does not work.
Mr Reichs views deserve a broader audience.
A rising tide lifts ALL boats!!

@ Common Sense. - what is difficult in reading this article is that Reich doesn't really go into specifics as to how an economic system would work. He just shows a correlation without establishing a causality. Consider this though, if you raised taxes on the wealthy considerably, and then made it financially worse to invest your money into offshore accounts (if you ever wanted to bring that money back into the US for American purchases), then the wealthy would be faced with one of two alternatives. They could either A, pay the taxes, or B, reinvest into the economy utilizing the investments as a way to safeguard their cash without necessarily handing it over to Uncle Sam.
The problem as I see it with trickle down economics is that there is really no incentive for the rich to reinvest into the economy after a certain point (this point being either age, a certain monetary point, etc.). Therefore they don't, they simply horde the money and you have the wealth divide deepen. However, under a higher tax on the wealthiest in America, they are forced rather to reinvest their monies into the economy to ensure that they are able to keep said monies.

Christo1' it seems to me you are missing part "C" of your proposal, which would be creation of some sort of incentive system for investments. If one raises taxes considerably on the wealthy, yet also puts in restrictions on moving capital offshore, then I agree the wealthy will simply sit on their money (you overlook the fact that cash in bank accounts is usually redirected into bank loans that also stimulates the economy, but that's another story), but ultimately the way to expand jobs, the overall economy, and the tax revenues is GROWTH, which folks like Mr. Reich and our current President seem to think can be achieved more through government intervention (wealth redistribution, governement jobs, etc.) rather than through private sector job creation, which comes from direct investment into startup companies by folks with extra cash. Unfortunately, the current movement to raise taxes on the wealthy and eliminate or reduce incentives for investment by raising the capital gains tax will do nothing to stimulate growth, it will simply drive intelligent capital away from the place where we need it most, the private sector, where meaningful jobs are created. Like it or not, rich people are smart, and they will find a way to keep their money from flowing into goverment coffers, meaning any revenue increses from tax increases will be short lived, and private sector job creation will be reduced; the economy, and all boats, will sink with the ebbing tide as a result.

The incentive program itself would be the tax structure. By keeping a higher tax rate on the wealthy, you encourage them not to sit on their money but to reinvest into the economy so that they are regularly drawing on it. What you are missing from this is that this is the "investment capitol" from which the private sector can thrive and start ups can rise up from.

If you tax away the money, how will there be any to invest?

Economic growth may "trickle up" but the investment dollars provided to small companies -the very companies responsible for the vast majority of new jobs in America - comes from a waterfall called "investment capital," which is provided largely by rich people with extra cash to invest - that's why they're called "rich people." Mr. Reich should know better, tax the rich and take away their extra capital and there will be no waterfall, not even a trickle.

I'm disappointed that Marketplace allows Mr. Reich a place to campaign for Mr. Obama and the liberal more government politians. At least, have a counter view. He more than most should know that our economy is much more complex than just tax the rich and give our Pel Grants and everything will be rosey. You can always sniff out the grow government people when not one word is said about correcting the horrendous tax code loop holes, just tax the rich who will find ways to makes sure their wealth is protected. Wake up people! bob

I could not possibly agree more with this comment. Come on Marketplace, at least try and put up a front that you are non-partisan! This liberal bias (while pretending to be nonpartisan) has truly grown old.

Pages

With Generous Support From...