The following article by Nick Hanauer was posted on the Politico website October 11, 2017:
And then, of course, there’s Kansas.
In 2012, Kansas Governor Sam Brownback famously embarked on what he called “a real live experiment,” pitting pure trickle-down theory against economic reality. Unfortunately for Kansans, reality won. Kansas has dramatically underperformed its neighboring states and the nation as a whole in economic growth and job creation since slashing taxes on individuals and corporations to as low as zero. Compare that to California, which in 2012 elicited the usual apocalyptic warnings from trickle-downers by daring to raise its top income tax rate to a highest-in-the-nation 13.3 percent. By 2015, California had the fastest-growing economy in the nation. Kansas? Dead last.
And the evidence is more than just anecdotal. Multi-decade statistical reviews by the Center on Budget and Policy Priorities, the nonpartisan Congressional Research Service, and the highly regarded Brookings Institution have all failed to find any negative correlation between top tax rates and growth. And the same holds true of every other economic indicator the trickle-downers like to go on about: tax revenue growth, investment growth, employment growth, productivity growth, real median income growth. If they show any statistically significant correlation between top tax rates and growth, the slope is positive, suggesting that raising taxes on the rich is actually pro-growth. “The argument that income tax cuts raise growth is repeated so often that it is sometimes taken as gospel,” the Brookings authors conclude. “However, theory, evidence, and simulation studies tell a different and more complicated story.”
President Donald Trump boasts that the “biggest winners” from his tax cuts for the rich “will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor, and as wages start going up at levels that you haven’t seen in many years.” But the Republicans’ problem is that they have economic cause and effect reversed: Low wages and rising inequality are not symptoms of slow growth, low wages and rising inequality are the disease that causes slow growth—and inequality cannot be cured by creating even more inequality. In reality, our modern technological economy is best understood as an evolutionary feedback loop between innovation and demand. Innovation is the process through which we evolve new solutions to human problems, while consumer demand is the mechanism through which the market selects and propagates successful innovations. And it is economic inclusion—the full participation of as many people as possible in as many ways as possible, as innovators, entrepreneurs, workers and robust consumers—that drives both innovation and demand. The more we invest in the American people—in our wages, our education, our health care and our infrastructure—the more dynamic that feedback loop, and thus the faster and more prosperous our economy grows. But the Trump/Ryan tax cuts—which promise to slash rates for the wealthy and the corporations they run—would do nothing to increase innovation or demand.
Today, wealthy corporations and investors already have more money than we know what to do with—literally trillions of dollars of hoarded cash just sitting in U.S. bank accounts doing absolutely nothing—and yes, that includes the several trillion dollars of foreign earnings the Trump administration wants to “repatriate” tax free. The truth is, these “overseas” reserves are largely an accounting trick. According to the Federal Reserve Bank of Atlanta, much of this money is already held in U.S. bank deposits, in U.S. Treasury notes, and in dollar-dominated corporate securities. That’s why the most recent time Congress enacted a foreign earnings “tax holiday,” far from boosting the economy, the biggest corporate beneficiaries actually cut thousands of domestic jobs, choosing instead to funnel their after-tax windfall into (surprise!) stock buybacks and dividends. Every “$1 increase in repatriations was associated with an increase of almost $1 in payouts to shareholders,” Harvard and MIT researchers concluded. Obviously, a tax holiday can’t possibly deliver an economic boost from bringing home dollars that are already here.
The real problem with our economy is that we are concentrating wealth in the hands of people who aren’t spending or investing it, while starving working- and middle-class Americans of the ability to invest in themselves—not to mention sapping the consumer spending power that accounts for 70 percent of GDP. We rich Americans may not all be idle, but these days, much of our money is—and you will not get it flowing back through the economy again by cutting our taxes even further. I already earn about 1,000 times more per hour than the average American, but I couldn’t possibly buy 1,000 times more stuff. I only own so many pairs of pants. My family and I can only eat three meals a day. We enjoy a luxurious lifestyle, but we already own several houses, a private jet and one too many yachts (turns out, the optimal number is two). Cutting our taxes will make us richer, but it won’t incentivize me or my venture capital partners to spend or invest more than we already do. What’s holding us back isn’t a shortage of cash, but rather a shortage of demand—from you.
That’s why I join the Not One Penny campaign in opposing any effort to cut taxes on wealthy people like me. The American tax code is already rigged in favor of the rich and powerful, and the Trump/Ryan tax plan would make it only worse. If we truly want an economy that works better for all Americans, we need to move in the other direction.
We should create more tax brackets, not fewer, with substantially higher tax rates on our wealthiest households and our largest inherited estates. As for simplifying the tax code, here’s an idea: Let’s treat all income equally. For example, I’d eliminate the cap of $127,000 on payroll taxes, apply it to all income, and then slash the rate, increasing the spending power of most Americans. Rich people like me make most of our money from dividends and capital gains, and it’s just plain crazy that I pay a lower tax rate on investment income than a truck driver or school teacher pays on their hard-earned wages or a small businessperson pays on her hard-won profits. As for the corporate income tax rate, cut it if you want—but only if those cuts are more than offset by eliminating corporate tax loopholes. As a percentage of federal tax revenue, corporate income taxes already account for only a third of what they did in the 1950s, despite years of record profits. What corporate America needs and deserves is a fairer, simpler, more predictable tax code, not a cheaper one.
More importantly, what our economy needs now, at this moment in time, is a massive reinvestment in expanding and enriching the working and middle classes. Tax the rich to put money back in the hands of the American people, and corporations will expand production and payrolls to meet the resulting spike in consumer demand. Tax the rich to invest in roads, transit, bridges, health care, schools and basic research, and America will rebuild the physical and human infrastructure on which innovation and thus our collective prosperity relies. Tax the rich not just because it is fair, but because experience teaches us that in America fairness and growth always go hand in hand.
The trickle-down myth on which the Trump/Ryan tax plan relies represents much more than just a fundamental mischaracterization of how market capitalism works. It is, in fact, a scam and an intimidation tactic. When rich guys like me tell you that if you cut our taxes we’ll invest in creating more and better jobs, that is a scam. When we tell you that if you raise our taxes (or your wages) you might lose your job, that is a threat. Either way, if we can get you to believe that taxing the rich is bad for you, then we will get richer. The beauty of this con job is that it hides our true intent: We’re rich, you’re poor, and we’d like it to stay that way. And like any good con, rather than stealing your money, we just persuade you to hand it over voluntarily.
But we’ve been playing this con so long that we rich folk have started to con ourselves into believing that there is no limit to how much we can enrich ourselves at your expense. This epidemic of greed is crushing new investment opportunities before they can arise. The irony is that it was always you who enriched us, not the other way around. Back when we paid our fair share and invested in growing the middle class, prosperity always trickled up.
So please, don’t just raise taxes on me because it’s good for you. Do it for me and for all my rich friends. Raise our taxes. And watch America grow.
View the post here.