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Issue #3 - Taxation

Conservative Republicans are a “one-trick pony”: we must cut taxes to revive the economy, they say. High taxes stifle entrepreneurial activity (even if rich people invest mainly in money-market or equity funds). Supply-side economics argued that, if we cut tax rates, the government would get more back in tax revenues than before because the rich taxpayers would be incentivized to work harder or some such thing. In fact, the Reagan and Bush conservative Republicans ran up the deficit as never before.

In the mid 1970s, Bill Simon, Secretary of the Treasury in Gerald Ford’s administration, went on a national speaking tour to promote the free-enterprise system. It was so successful that Ford asked him to discontinue the campaign because Simon was threatening to overshadow the President who was preparing to run for re-election. Today, the man who orchestrated Simon’s publicity campaign, James N. Sites, is passionately advocating that taxes be increased on the rich. He and other conservative stalwarts see a danger of “economic royalism”.

The American middle class is based on a reasonably equal distribution of national income. Instead, as Sites points out, the share of national wealth held by the richest one percent of the population went from 19.9% in 1976 to 34.6% in 2007. In 1960, corporate CEOs were earning 42 times an average worker's pay; by 2007, it had increased to 344 times the average worker's pay.

Meanwhile, the marginal tax rate in the highest income bracket dropped from 91% in 1963 to 39.6% in 2003. The Bush administration then cut the rate further from 39.6% to 35%. In fact, the super rich pay an average of 22 % of their income in federal taxes because of special breaks given to income from capital gains and dividends.

It's time to stop believing in the fairy tale that tax cuts for the rich translate into increased entrepreneurial activity that produces jobs. No, jobs are created when there is a market for particular goods and services; and that happens when the masses of people have adequate incomes and want those products.

The rich should shoulder their fair share of the cost of running government. That they do not is testimony to the undue influence that rich people have over Congress and the President. Progressive Republicans should support a more balanced tax policy that would ease the burden upon the middle class.


See also:

James Sites' proposal for U.S Tax Reform


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