Conservatives argue that lower taxes for everyone--and, of course, esp. for big businesses--benefit all of us. It's called Trickle Down Economics, and the general argument says that when corporations make profits, they will invest those profits, create more jobs, hire more people, etc., etc. It sounds rational, but if you look at just 3 things, you will see that the historical evidence demonstrates just the opposite . From 1950 to the present, as capital gains and corporate tax rates declined, so too did the health of the American economy. The evidence is really pretty indisputable--and before anyone starts yelling, "but correlation isn't causation," you need to (a) carefully read the article published at http://www.slate.com/articles/health_and_science/science/2012/10/correlation_does_not_imply_causation_how_the_internet_fell_in_love_with_a_stats_class_clich_.html ; and (b) read the argument that follows the presentation of the evidence.
Between the two graphs, we see three things with a common trend line (that is, if you drew a line through each graph, the trend over time would be the same: a decrease from roughly 1970 to the present). So we can see that as capital gains taxes and effective corporate tax rates declined, so too did the state of the American economy. In fact, the conclusion of the author who created the first graph is that there is simply no evidence to support the assertion that low capital gains taxes correlate in any way to higher economic growth, nor do higher capital gains taxes correlate in any way to lower economic growth. What his evidence does show is that higher capital gains taxes correlate to higher economic growth, and lower capital gains taxes correlate to lower economic growth.
I'm not the first to notice or point out that Trickle Down Economics simply does not work. But too often, the argument gets bogged down into a lot of technical garbage, and the average person's eyes just gloat over. Really, we need to get back to the basics and accept that the simplest argument is usually right. In fact, anyone who has ever been in academics will know that after an initial argument/counter-argument (ok, maybe after a first round of rebuttal), the degree to which any additional tweaking of an argument or re-examination of evidence makes a difference is really, really minimal. It's fun and engaging to those trained in the language of the debate, but it is more-or-less meaningless in any real world sense. It is quibbling, to put it more bluntly. Until someone finally comes along to recast the discussion entirely, it really is just quibbling.
Let us return, then, to the two "Big Arguments" that frame American economic discussions: Trickle Down or Pump-Priming. As just demonstrated, we know that Trickle Down simply does not work: lower taxes on wealthy individuals and companies effectively depress the economy.
The real question, then, is, why? The answer lies in the behavior of wealthy individuals and corporations. To put it simply, they begin to hoard their profits. When the expectation of "safe" profits (meaning, safe from tax "losses") arises, companies use strategies that will limit the number of new employees needed by raising wages somewhat for existing workers while demanding ever more work from them ("work smarter, not harder"). They look for investment opportunities overseas, where they can get more for less--by exploiting foreign workers. They view the decrease in tax burden as a bonanza for themselves--executives, stock holders, surving employees--and hoard the profits for these groups. They have no interest in the commonweal, and they behave accordingly.
What conservatives do not tell you, then, is the ugly truth: that corporations and wealthy individuals will throw over the nation that puts its trust in them. They feel no loyalty to the country because they believe that they owe all their loyalty to themselves, to the company, to the stock holders. Under corporate law, it is actually illegal to "do the right thing," if that action would cut into profits--you can't go green unless it helps you make a buck, you can't "give back" unless it's going to make you more money in the long run. Furthermore, because the "corporate good" is defined by the bottom line on a quarterly basis, the short-term strategy trumps the long-term strategy almost every time. The idea of investing in America and Americans--because over the course of several years, that investment will pay off well--gives way to the plan to invest in China, because that plan will pay off tomorrow.
What is lost in all of this is the potential of the American economy--an economy that has proven extraordinary when it was primarily a consumer-driven economy (vs. a corporate profits economy, as it has become since the 1980s). What is lost is the distinction between "more workers" vs. "working more hours." When companies squeeze more work out of people, they increase their profits but decrease consumption by keeping a new worker out of a job. The net effect is that fewer things are needed/wanted, fewer things are purchased, fewer things need to be replaced by new items, and everything starts to slow down again.
The fact is, while self-interest drives a lot of things, it drives corporate policies in more and more myopic ways as the potential to retain profits increases. It is not unlike the way wealthier individuals may become more miserly as they become even wealthier. Perhaps this is a freak of nature. More likely, however, it is a learned behavior--one connected to another conservative myth, the primacy of the individual. When we take our nation's history out of its proper context--where the fight to protect individual rights was needed to balance out the lopsided emphasis on the common good (defined quite narrowly as the good of the State and those attached most closely to it)--we see an adoration of individualism, unfettered by the very real concerns for--and attention to--the common good, that characterized the world of our Founders. Self-interest, unleased, given no responsibility toward the Commonwealth that protects and promotes it, will and has betrayed that Commonwealth and proves undeserving of the freedom and opportunity it has been given.
So, what's a Country to do?
This is where "pump-priming" comes in--that is, fueling the conomy by redistributing wealth into more consumers' hands through tax policies. If companies will not share their wealth with the American people directly by paying better wages and hiring more people (and let's not forget that the only reason they are wealthy is because they are in America, where Americans do the work, and Americans buy the goods and services, and American tax dollars help pay for the infrastructure that allows business to go on), then they can do it indirectly--through the intervention of the government. There is simply nothing to replace the economic benefit of having well-paid Americans with suitable leisure time. We are a fun and generous people. When we have the time and money, we spend it on things we want and on those we love. We even invest some--saving for college and retirement, thus allowing companies to have or use our money too. Our individual wealth contributes to the national wealth--there is really no "downside" to having more people working, and more working in good paying jobs with reasonable hours.
Short-term self-interest is simply incompatible with long-term national interest. We need to restore the balance between the individual and the common good, and make every American citizen and every American company accept the responsibilities that have always--until modern times--been understood to co-exist with having rights. Only then will we be truly honoring the gift of freedom that our Founders endowed upon us, and only then will we begin to pay that gift forward to the generations that follow us.
Between the two graphs, we see three things with a common trend line (that is, if you drew a line through each graph, the trend over time would be the same: a decrease from roughly 1970 to the present). So we can see that as capital gains taxes and effective corporate tax rates declined, so too did the state of the American economy. In fact, the conclusion of the author who created the first graph is that there is simply no evidence to support the assertion that low capital gains taxes correlate in any way to higher economic growth, nor do higher capital gains taxes correlate in any way to lower economic growth. What his evidence does show is that higher capital gains taxes correlate to higher economic growth, and lower capital gains taxes correlate to lower economic growth.
Let us return, then, to the two "Big Arguments" that frame American economic discussions: Trickle Down or Pump-Priming. As just demonstrated, we know that Trickle Down simply does not work: lower taxes on wealthy individuals and companies effectively depress the economy.
The real question, then, is, why? The answer lies in the behavior of wealthy individuals and corporations. To put it simply, they begin to hoard their profits. When the expectation of "safe" profits (meaning, safe from tax "losses") arises, companies use strategies that will limit the number of new employees needed by raising wages somewhat for existing workers while demanding ever more work from them ("work smarter, not harder"). They look for investment opportunities overseas, where they can get more for less--by exploiting foreign workers. They view the decrease in tax burden as a bonanza for themselves--executives, stock holders, surving employees--and hoard the profits for these groups. They have no interest in the commonweal, and they behave accordingly.
What conservatives do not tell you, then, is the ugly truth: that corporations and wealthy individuals will throw over the nation that puts its trust in them. They feel no loyalty to the country because they believe that they owe all their loyalty to themselves, to the company, to the stock holders. Under corporate law, it is actually illegal to "do the right thing," if that action would cut into profits--you can't go green unless it helps you make a buck, you can't "give back" unless it's going to make you more money in the long run. Furthermore, because the "corporate good" is defined by the bottom line on a quarterly basis, the short-term strategy trumps the long-term strategy almost every time. The idea of investing in America and Americans--because over the course of several years, that investment will pay off well--gives way to the plan to invest in China, because that plan will pay off tomorrow.
What is lost in all of this is the potential of the American economy--an economy that has proven extraordinary when it was primarily a consumer-driven economy (vs. a corporate profits economy, as it has become since the 1980s). What is lost is the distinction between "more workers" vs. "working more hours." When companies squeeze more work out of people, they increase their profits but decrease consumption by keeping a new worker out of a job. The net effect is that fewer things are needed/wanted, fewer things are purchased, fewer things need to be replaced by new items, and everything starts to slow down again.
The fact is, while self-interest drives a lot of things, it drives corporate policies in more and more myopic ways as the potential to retain profits increases. It is not unlike the way wealthier individuals may become more miserly as they become even wealthier. Perhaps this is a freak of nature. More likely, however, it is a learned behavior--one connected to another conservative myth, the primacy of the individual. When we take our nation's history out of its proper context--where the fight to protect individual rights was needed to balance out the lopsided emphasis on the common good (defined quite narrowly as the good of the State and those attached most closely to it)--we see an adoration of individualism, unfettered by the very real concerns for--and attention to--the common good, that characterized the world of our Founders. Self-interest, unleased, given no responsibility toward the Commonwealth that protects and promotes it, will and has betrayed that Commonwealth and proves undeserving of the freedom and opportunity it has been given.
So, what's a Country to do?
This is where "pump-priming" comes in--that is, fueling the conomy by redistributing wealth into more consumers' hands through tax policies. If companies will not share their wealth with the American people directly by paying better wages and hiring more people (and let's not forget that the only reason they are wealthy is because they are in America, where Americans do the work, and Americans buy the goods and services, and American tax dollars help pay for the infrastructure that allows business to go on), then they can do it indirectly--through the intervention of the government. There is simply nothing to replace the economic benefit of having well-paid Americans with suitable leisure time. We are a fun and generous people. When we have the time and money, we spend it on things we want and on those we love. We even invest some--saving for college and retirement, thus allowing companies to have or use our money too. Our individual wealth contributes to the national wealth--there is really no "downside" to having more people working, and more working in good paying jobs with reasonable hours.
Short-term self-interest is simply incompatible with long-term national interest. We need to restore the balance between the individual and the common good, and make every American citizen and every American company accept the responsibilities that have always--until modern times--been understood to co-exist with having rights. Only then will we be truly honoring the gift of freedom that our Founders endowed upon us, and only then will we begin to pay that gift forward to the generations that follow us.
