Tag: trickle down

JP Morgan Admits Trickle Down Economics Has Completely Failed

chasdarwinLeave a comment

Source: addicting Info

Author; Wes Williams

Remember how the country was sold the idea of “trickle down” economics? “Oh, if we just give the wealthy more, they will create wealth for the poor and middle classes by increasing spending, investing in new factories, hiring more workers, etc, etc, etc.” In reality, after over 30 years of trickle down, or “supply side” economics, we are looking at just the opposite: the rich have gotten richer, and middle class incomes have stagnated. Now, even some in the financial community are admitting that trickle down economics is a failure.

According to an April 17 story on Bloomberg.com,

While the wealth of American households has jumped more than $25 trillion since early 2009 amid rising equity and home prices, the pass-through to consumer spending is lagging the $1 trillion fillip that would have been anticipated historically, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.

Feroli’s numbers show that since the end of the recession, households have spent only 1.7¢ of each extra dollar they earned in wealth. That compares to an average of 3.8¢ for the years from 1952 to 2009. Simon Kennedy, the author of the Bloomberg story, offers a possible explanation for the difference:

One reason for the adjustment may be that those enjoying gains in wealth are already rich, so have less propensity to increase spending incrementally.

That’s a polite way of saying, “The rich are getting richer, but they already have everything they want and need, so they’re not spending much of their new wealth.”

This past February, Harvard Business Review blogger Andrew O’Connell made the following observation:

Since the end of the recession in 2009, inflation-adjusted spending by the top 5% of U.S. earners has risen 17%, compared with just a 1% average rise for everyone else in the country, according to The New York Times.

So you might be thinking, “Doesn’t that prove that trickle down works, if the wealthy are spending more?” The answer is “no,” and here’s why.

The wealthy can’t spend enough for trickle down to work.

Of course wealthy people buy more things, and more expensive things, than the rest of us do. But there’s still a limit to what they buy. And there just aren’t enough of the wealthy out there for the things they buy to make a difference when it comes to boosting the economy through consumer spending. Take the example of a toaster.

There are, according to the LA Times, 132,000 American households with a net worth of at least $25 million, excluding the value of their homes. Let’s assume, for the sake of  using round numbers, that each of those families owns ten houses, and in each house they have two kitchens. Now suppose that they all decide to buy top of the line toasters for each of their kitchens. They will purchase 2,640,000 toasters. A nice temporary bump for toaster production. But those families are not going to buy 20 new toasters every few months, even though they can.

In 2010, there were 63 million American households that earned between $25,000 and $100,000. Many of those households may need new toasters, but their money is already tight, so they make due with their old toasters. But suppose that, through a different tax structure or an increase in wages, those households all saw increases in income. If even half of them took some of their new income and used it to buy toasters, then toaster producers would see a 31.5 million unit increase in toaster sales. That makes the 2.6 million toasters purchased by the rich pale in comparison. When you consider that not all of those households will buy new toasters at the same time, what you wind up with is sustained growth in toaster sales, leading to increased production, leading to more jobs, and so on. So, who are really the “job creators?”

That example is very simple, but it illustrates the buying power of the middle class — IF they have the money to spend. That buying power has been steadily eroded over the past 30 plus years of Reagan’s trickle down economics. Add to the mix the offshoring of jobs, a move from a manufacturing economy to a service economy, and a tax structure that favors the wealthy. The middle class has watched the failure of trickle down from the time it started. Now at least some in the financial sector are starting to see it as a failure as well. When will Republican politicians stop worshiping at the alter of trickle down? Don’t hold your breath while waiting.

 

 

Emphasis Mine

see: http://www.addictinginfo.org/2014/04/18/jp-morgan-admits-trickle-down-economics-has-completely-failed/

Some Taxes are Too Low!

One cannot complain about negative cash flow when they ignore the opportunity to increase revenue.

chasdarwinLeave a comment

One cannot complain about negative cash flow when they ignore the opportunity to increase revenue.  (CFP)

From Portside:

“Why I’m Right About Raising Taxes on the Very Rich.

By Robert Reich
www.robertreich.org
February 15, 2011

http://robertreich.org/

My proposal to raise the marginal tax to 70 percent on
incomes over $15 million, to 60 percent on incomes between $5
million and $15 million, and to 50 percent on incomes between
$500,000 and $5 million, has generated considerable debate.
Some progressives think it’s pie-in-the-sky. Here, for
example, is Andrew Leonard, a staff writer for Salon:

A 70 percent tax bracket for the richest Americans is
pure fantasy – even suggesting it represents such a
fundamental disconnect with the world as it exists today
that it is hard to see why it should be taken seriously.
I would be deeply worried about the sanity of a
Democratic president who proposed such a thing.

Fantasy? I don’t know Mr. Leonard’s age but perhaps he could
be forgiven for not knowing that between the late 1940s and
1980 America’s highest marginal rate averaged above 70
percent. Under Republican President Dwight Eisenhower it was
91 percent. Not until the 1980s under Ronald Reagan was it slashed
28 percent.

Incidentally, during these years the nation’s pre-tax income
was far less concentrated at the top than it is now. In the
mid-1970s, for example, the top 1 percent got around 9
percent of total income. By 2007, they got 23.5 percent. So
if anything, the argument for a higher marginal tax should be
even more realistic now than it was during the days when it
was taken for granted.

A disconnect with the world as it exists today? That’s
exactly the point of proposing it. For years progressives
have whined that Democratic presidents (Clinton, followed by
Obama) compromise with Republicans while Republican
presidents (Reagan through W) stand their ground – with the
result that the center of political debate has moved steadily
rightward. That’s the reason the world exists the way it does
today. Isn’t it about time progressives had the courage of
our conviction and got behind what we believe in, in the hope
of moving the debate back to where it was?

Would a Democratic president be insane to propose such a
thing? Not at all. In fact, polls show an increasing portion
of the electorate angry with an insider “establishment” – on
Wall Street, in corporate suites, and in Washington – that’s
been feathering its nest at the expense of the public. The
Tea Party is but one manifestation of a widening perception
that the game is rigged in favor of the rich and powerful.

More importantly, it will soon become evident to most
Americans that the only way to reduce the budget deficit,
preserve programs deemed essential by the middle class, and
not raise taxes on the middle, is to tax the top.

In fact, a Democratic president should propose a major
permanent tax reduction on the middle class and working
class. I suspect most of the public would find this
attractive. But here again, the only way to accomplish this
without busting the bank is to raise taxes on the rich.

Republicans have done a masterful job over the last thirty
years convincing the public that any tax increase on the top
is equivalent to a tax increase on everyone – selling the
snake oil of “trickle down economics” and the patent lie that
most middle-class people will eventually become millionaires.
A Democratic president would do well to rebut these
falsehoods by proposing a truly progressive tax.

Will the rich avoid it? Other critics of my proposal say
there’s no way to have a truly progressive tax because the
rich will always find ways to avoid it by means of clever
accountants and tax attorneys. But this argument proves too
much. Regardless of where the highest marginal tax rate is
set, the rich will always manage to reduce what they owe.
During the 1950s, when it was 91 percent, they exploited
loopholes and deductions that as a practical matter reduced
the effective top rate 50 to 60 percent. Yet that’s still
substantial by today’s standards. The lesson is government
should aim high, expecting that well-paid accountants will
reduce whatever the rich owe.

Besides, the argument that the nation shouldn’t impose an
obligation on the rich because they can wiggle out of it is
an odd one. Taken to its logical extreme it would suggest we
allow them to do whatever antisocial act they wish – grand
larceny, homicide, or plunder – because they can always
manage to avoid responsibility for it.

Some critics worry that if the marginal tax is raised too
high, the very rich will simply take their money to a more
hospitable jurisdiction. That’s surely possible. Some already
do. But paying taxes is a central obligation of citizenship.
Those who take their money abroad in an effort to avoid
paying American taxes should lose their American citizenship.

Finally, there are some who say my proposal doesn’t stand a
chance because the rich have too much political power. It’s
true that as income and wealth have moved to the top,
political clout has risen to the top as well.

But to succumb to cynicism about the possibility of
progressive change because of the power of those at the top
is to give up the battle before it’s even started.”

Emphasis Mine.

___________________________________________