Republicanswho ran up massive deficits say the recession comes from overspending.Democrats who gutted the job market with free trade policies nonetheless insistit's all George W. Bush's fault. Meanwhile, pundits who cheered both sides nowoffer non-sequiturs, blaming excessive partisanship for our problems.
But ashistory (and Freakonomics) teaches,such oversimplified memes tend to obscure the counterintuitive notions thatoften hold the most profound truths. And in the case of the WRSTGD, the mostimportant of these is the idea that we are in economic dire straits because taxrates are too low.
This is theprovocative argument first floated by former New York governor Eliot Spitzer in a Slatemagazine article evaluating 80 years of economic data.
"Duringthe period 1951-63, when marginal rates were at their peak91% or 92%theAmerican economy boomed, growing at an average annual rate of 3.71%," hewrote in February. "The fact that the marginal rates were what would todaybe viewed as essentially confiscatory did not cause economic cataclysmjust theopposite. And during the past seven years, during which we reduced the topmarginal rate to 35%, average growth was a more meager 1.71%."
Monthslater, with USA Today reporting thattax rates are at a 60-year nadir, Secretary of State Hillary Clinton told aBrookings Institution audience that "the rich are not paying their fairshare in any nation that is facing (major) employment issues...whether it isindividual, corporate, whatever the taxation forms are."
A primeexample is Greece.While conservatives say the debt-ridden nation is a victim of welfare-stateprofligacy, a Center for American Progress analysis shows that "Greece hasconsistently spent less" than Europe's other social democraciesmost ofwhich have avoided Greece's plight.
"Thereal problem facing the Greeks is not how to reduce spending but how toincrease revenue collections," the report concludes, fingering Greece'scomparatively "anemic tax collections" as its economic problem.
On the otherhand, the opposite is also trueas Clintonnoted, some high-tax, high-revenue nations are excelling.
"Brazil has thehighest tax-to-GDP rate in the Western hemisphere," she pointed out."And guess what? It's growing like crazy. The rich are getting richer, butthey are pulling people out of poverty."
This makesperfect sense. Though the Reagan zeitgeist created the illusion that taxesstunt economic growth, the numbers prove that higher marginal tax ratesgenerate more resources for the job-creating, wage-generating publicinvestments (roads, bridges, broadband, etc.) that sustain an economy. Theyalso create economic incentives for economy-sustaining capital investment.Indeed, the easiest way wealthy business owners can avoid high-bracket taxrates is by plowing their profits back into their businesses and taking thecorresponding write-off rather than simply pocketing the excess cash and payingan IRS levy.
In summingup her remarks, Clintonsaid that this higher-tax/higher-revenue formula "used to work for usuntil we abandoned it."
Though shefelt compelled to insist, "I'm not speaking for the (Obama)administration," it was nonetheless a politically bold statementso bold,in fact, that like all of the other corroborating tax facts, it was summarilyignored by politicians and the Washingtonmedia. They had their cliches to promoteand unfortunately, until they letsubstantive-though-uncomfortable ideas displace conventional wisdom, it's agood bet that the WRSTGD will continue unabated.
David Sirota is the author of thebest-selling books "Hostile Takeover" and "The Uprising."He hosts the morning show on AM760 in Coloradoand blogs at OpenLeft.com. E-mail him at ds@davidsirota.comor follow him on Twitter @davidsirota.
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