The economic consequences of major tax cuts for the rich

It's always good to have scientific data and analysis confirm your intuition, though.

It's not really the case so much anymore. A decent Silicon Valley salary would put you in the top 10% of earners, and a Python programmer doesn't usually hire a lot of people. Top 1%ers tend to be of the financial rent-seeking sort, who might hire some people, but they're not expanding the concrete pylon plant to another state or anything like that, which would expand middle class wages and/or employment.

The gutting of the industrial base since Reagan cut high tax rates for the top earners demonstrates that things don't always work out how you expect.

Do high taxes have any significant effect on economic growth or unemployment?

What people think causes wealth inequality: Low tax rates on higher income people.

What actually causes wealth inequality: Corporate mergers, consolidation, lack of antitrust enforcement.

When does Zuckerberg have more wealth? When Facebook has a 900 billion dollar market cap and he pays a 70% tax rate, or when Facebook has a ten billion dollar market cap and he pays a 30% tax rate? (Hint: 30% of 900 billion is a lot more than 70% of ten billion. Also, he doesn't pay the tax until he sells anyway, which he doesn't.)

The problem with all of these studies is that people think the top tax rates were significantly reduced during Reagan, which is around the same time we stopped enforcing antitrust, so they see the effect of the latter and ascribe it to the former.

But we can distinguish them because the first one never actually happened. The nominal tax rates decreased a lot during Reagan, but that's because it coincided with the closure of a ton of tax loopholes that meant that high income people never actually paid those rates. Government revenues as a percent of GDP have basically been flat since the end of WWII and are about the same now as they were under Kennedy and LBJ:

https://fred.stlouisfed.org/series/FYFRGDA188S

So any study that purports to use this to show what happens when you "lower taxes" faces the trouble that the tax lowering never really happened in practice.

Modern Inequality is _not_ driven by tax rate. The tax system in the USA is a income tax (the only thing authorized in the constitution). What folks here have created is wealth that is relatively il-liquid. What has changed is that interest rates are low enough that the wealthy have used loans against their stock to generate revenue. This is also because of the government working to keep interest rates artificially low.

On the flip side, the poor in America pay virtually no federal income tax, and rarely state income once tax credits and rates are worked in.

So who would increasing the tax rate hurt? The middle class - upper middle class in particular. They don't have the capacity to do investment backed loans to circumvent income tax, nor do they qualify for reduced tax rates (often zero at a federal tax level) for poorer Americans.

I suspect the point where tax rates for the rich matters sailed a long time ago. It was effective in some places, ineffectual in some other places. It certainly was part of the financial breakthrough in the 1980s, but had other problems.

So instead, a more basic question - what is a fair level of taxation given equal protection clauses in the USA? and also given that we don't want to disincentivize people working to better their own financial situation.

It strikes me as fascinating that so many of these reforms, once touted as essential and prudent, have over two or more decades proven to be outright political grifting.

https://cushman.host.dartmouth.edu/books/CommonSenseFM/Chap5...

The thing people seem to forget is that taxed money doesn't just disappear. It right back into the economy. The target, predominately, is the working class, either directly via Gov't employee wages, or social programs. Or it goes back indirectly, through Gov't contractors. At which point it filters back up the system to the rich.

I think taxes (if we plug various holes) can decrease income inequality, but the challenge is efficiently spending the proceeds in a way that lifts up everyone ... and not creating firehoses of public spending that primarily benefit the same small pool of companies.

Money has an insurance effect. Simply having money lets you pay off random expenses. It also doesn't spoil like goods. If we had a grain money system, then the central bank would pass the cost of grain storage onto the holder of the dollar bill which would give the lender an incentive to lend it out even at 0% interest, which protects the lender from the storage costs. This is known as liquidity preference. The borrower has to compensate the lender for giving up the liquidity benefits of money.

Right now cash itself has no storage costs, so nobody will lend it at 0% interest.

In theory giving the rich money through lower taxes lowers the interest rate because they lend it out. However, as I said, there is no mechanism that actually lets it fall to 0% (extreme cases like deflation can in theory justify negative rates). If you were to charge a negative interest rate on a bank account to enable 0% loans, then people just pull their money out and hold cash instead.

The free market basically ends the moment markets are saturated and everything only makes enough money to cover its own costs with 0% profit. This is one of the areas where Marx was correct. Once profit is gone, the system collapses because someone forgot to enable the 0% interest feature of money.

I don't think anyone is suggesting "Hey, let's increase taxes on those making under a million a year". But there is no good reason that the people making a billion a year are paying the same 37% as the people making $600k.

- We all got free vaccines, produced in record time.

- A lot of people are getting the child tax credit.

- A lot of people got extended or expanded unemployment benefits.

- Some jobs were sustained by PPP funding.

- A lot of people were able to stay in their homes both because of eviction moratoriums and rent repayment programs.

- Literal military personnel were setting up and staffing hospitals.

Sure, you might say, but all these things are temporary responses to a short-term-ish crisis. And that's true; and that's also partly what the state is for, right?

But in normal times, I was raised middle class and:

- I went to 3 public schools and a state university

- Growing up my parents regularly took me to the public library. I later became a volunteer there.

- When I commuted daily, it was on public transit.

- I backpack in USFS wilderness zones. I maintain a plot at a community garden managed by my city's parks department. When it's sunny I run through a park with a literal polo field.

- When I am choking on wildfire smoke, I know that state and federal firefighters are trying to control it.

- I haven't had the time yet, but I want to take free Spanish classes at my city's community college.

- I drink clean municipal tap water and flush into a municipal sewer.

- And basically every item I've bought has traveled over public roads, bridges, etc, which I navigate with GPS.

I'm not saying we get a good deal. Public spending is often laughably inefficient or downright corrupt. But to pretend one doesn't benefit at all seems like it's failing to notice a lot of the fabric of our world, or appreciate how much worse it could be.

A tax on work basically tells us to use people as little as possible, e.g. use more automation than necessary. You end up with a situation where you both have too many robots and too many unemployed people.

Wealth is again, mostly just leverage on the working class future product. in that sense they already own atleast half of it, just defining it as income instead of wealth.