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Lower tax rates for rich absurd

December 31, 2010
Joe Migliorise, retired economist, Shepherdstown resident

A recent Letter to the Editor slams "Liberals" for opposing tax cut extensions for people with incomes over $250,000. The letter states that employers will not hire if they face higher taxes. This is a canard. There is no empirical data showing a causative relationship between lower tax rates for the rich and lower unemployment. The letter includes comments such as "There is a law that is as true as the law of physics, as government increases liberty decreases. That principle is specifically applicable as it applies to our economy."

Really, where can this law be found? However, there is an economic principle called, "Supply and Demand." Simply translated, when there is increased demand for products/services, employers increase their hiring to satisfy the demand.

History has shown that lower tax rates for the wealthy are not linked to lower unemployment.

For example, during the Clinton era, economic growth increased significantly despite raising marginal tax rates for people with incomes exceeding $250,000. The higher tax rates did not prevent creation of 22.5 million jobs; overall unemployment dropping to the lowest level in more than 30 years; increased home ownership rate averaging 67.6 percent, the highest on record; 116 consecutive months of economic growth, the most in history; poverty rate decline from 15.1 percent to 11.8 percent; inflation averaging 2.5 percent; a balanced budget, the first since the Kennedy Administration and, in February 2000, the nation was on track to be debt free for the first time since 1835. Moreover, in FY 2000 the surplus was $237 billion, the largest surplus ever. Compare this to a net gain of 2.5 million jobs over 8 years, modest economic growth and mile-high deficits, after significant tax cuts were enacted in 2001 and 2003 for those with incomes over $250,000. (Source: Wikipedia)

In summary, targeted tax cuts, which increase the purchasing power of the middle-class has proven to produce the most "bang for the buck." The growing disparity between the "rich" and "all others" has not created the economic growth required to achieve a low unemployment rate. I can be persuaded that reducing taxes on the wealthy is sound economic policy, which will create jobs and corresponding low unemployment, if reliable data is offered to support this position. However, it is not productive when those making this argument do so only with absurd analogies such as, "liberal government leaders - after chopping your legs off, they'll give you a 10-percent discount on a wheelchair." This is neither probative nor helpful in acquiring the knowledge needed to make sound policy decisions.

The writer also blames extended unemployment benefits on those unable to find jobs as another reason for high unemployment. This, also, is factually incorrect, with no supportive empirical data.

History tells us that disastrous results happen, when economic/political decisions are based on unsupported opinion and political dogma. We must not repeat the mistakes of the past.. As has been written: Those who fail to learn from history, are doomed to repeat it.

 
 

 

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