Tax the Rich

End Deficits, Increase Employment, and Sustain Demand

High government deficits are being used to justify cuts to public employment and social programs. It is not a surprise that transnational finance, the corporate media and right-wing political parties demand that returns on investments be given priority over employment, workers’ income, and the well-being of the marginalized. Having aggressively supported cuts to business and income taxes, they have reason to worry about the real returns on government bonds.

It is also not a surprise that unions and students in Europe have mobilized millions against these cuts. Unions, public sector workers, pensioners, immigrants and the poor are not to blame. Government deficits are a direct result of tax cuts, capitalist speculation, the 2008 financial crash, government bailouts, and the resulting loss of employment, income and government revenues.

If public deficits were the real problem—not just a pretext—military spending particularly in the U.S. would be drastically cut. Taxes would be raised. Of course, tax increases have consequences. Higher sales and value-added taxes reduce consumer purchasing power, further weakening markets in times of recession. Taxes on enterprise revenues can reduce expenditures for plant and equipment and lead to the failure of more businesses.

Steeply graduated income taxes would upset the super-rich but are otherwise benign. Taxing income over $200,000 a year at rates of 75 per cent, and over $500,000 at 90 per cent would substantially increase government revenues without reducing markets for most goods and services. Taxing profits on the buying and selling of stocks, bonds, real estate, and currencies could raise additional revenues. International agreement to raise tariffs to 15 to 25 per cent from the current average of five to ten per cent would raise more. Although the profits of transnational corporations would be squeezed, the resulting growth in local production for local consumption would expand employment, income, and public revenues everywhere.

Increasing taxes on capitalist income is anathema to the supply-side economists who have dominated government policy for thirty years. They claim that increasing taxes on the wealthy reduces the supply of funds available for private investment, causing job loss, reduced real incomes, and economic decline. Supply-side economics was a wealth-holders’ reaction to Keynesian demand-side policies.

The Keynesian period—from World War II through the 1970s—had been a response to destructive twentieth century wars, financial crashes, prolonged economic declines, and rising support for militant unionism, socialism, and communism. To counter growing opposition to capitalism, to stimulate consumer demand and to revive opportunities for profitable investments, governments increased spending on pensions, unemployment insurance, education, healthcare and income support. Laws were changed to make it easier for unions to organize and to bargain collectively.

Much of the cost of stimulating demand was covered by steeply graduated income taxes. In Canada, the U.S., and the U.K. the highest incomes were taxed at marginal rates up to 90 per cent during the war and after. Although lowered in the 1960s, income taxes remained steeply graduated through the 1970s. The share of total income going to capital as profits, dividends, interest payments, and rent did decline. Nonetheless, investments in machinery, equipment, buildings, infrastructure (bridges, roads, schools, hospitals, public transit), and housing stock rose steadily.

By the 1970s many of the very rich and corporate oligarchs had concluded that the welfare state was not in their interests. Unions were in decline. Communism was clearly not outperforming capitalism economically or militarily. At the end of the decade, neoconservatives like Margaret Thatcher and Ronald Reagan were winning political office claiming that Keynesian policies had increased demand at the expense of the supply of capital for investments. The result, they said, was not growth, but inflation and stagnation.

In fact, the Keynesian period was a time of steady, impressive growth in investment and consumer income. Inflation rates did reach double digits in the 1970s. Neoconservatives blamed this on rising social spending and government deficits. A more obvious explanation was the combination of rising oil prices and massive inflows of capital from abroad. Oil prices had risen from under $3 to over $30 a barrel, increasing the price of nearly all goods and services. Suddenly awash in revenues, the rulers of oil exporting countries invested billions in the U.S., U.K, Europe and Canada. Governments that were already cutting taxes paid by the rich and accumulating deficits, responded by borrowing more. U.S. government decisions to finance war in Indochina with borrowed money, not tax increases, compounded the problem.

In the 1980s, after supply-side policies became the economic orthodoxy, taxes on corporations and upper incomes were methodically lowered. Industries were deregulated. Laws were changed to make it more difficult for unions to organize and to engage in effective collective bargaining. Public utilities and services were privatized.

The rich did get richer—the super-rich substantially richer—but economies did not flourish as supply-siders had predicted. The quality of public services declined. Social infrastructure was allowed to decay. Employment in manufacturing and service industries fell. The real income of wage and salary workers stopped growing. Markets for consumer goods stagnated.

Supply-side theorists ignored the evidence. Instead, they turned phrases from Adam Smith into a mantra. More income for capitalists, they intoned, meant more savings, more investment, more economic growth. But Smith was not talking of twentieth century corporate oligarchs when he equated capitalist income with savings and investment. He was describing a middle class of prosperous farmers, shopkeepers, and merchants, whose frugality he contrasted with the aristocracy’s fondness for luxury. The middle class, he said, turned their surplus income into savings for investment in the future; aristocrats spent and borrowed for their current pleasure.

Today’s super-rich are more like eighteenth-century aristocrats than the middle classes of Smith’s day. They are mega and giga-consumers who transform revenues from productive assets and social labour into personal wealth—into mansions, yachts, beachfront condos, and winter retreats. As a class, they are obsessed with maximizing returns on their wealth, but they have little interest in productive investment. For them, innovation means new more profitable investment instruments: futures, derivatives, dubious mortgages packaged as collatoralized debt obligations, and credit default swaps (bankruptcy insurance).
Even when pyramid scams and outright fraud are not involved, nothing is added to means of livelihood when one capitalist buys and another sells stocks. Financial entitlements are merely shuffled from one to another. When the rich do invest in actual plant and equipment this is likely to be abroad where labour is cheaper and profits are higher.

The economic argument

Steeply graduated income taxes would make public debt manageable. Unlike taxes on consumption, taxes on the highest incomes would not dampen markets for consumer goods. Additional public revenues could be used to improve education, healthcare, social housing, income support, public transit. As employment and markets expand, enterprises would be encouraged to invest more.

Undistributed corporate profits are the main source of investment in research, development, plant, and equipment. By discouraging the distribution of profits as dividends, executive salaries, and bonuses, confiscatory tax rates on the highest incomes would give enterprises more reason to retain earnings, increasing the funds available for investment in real means of livelihood.

With far higher taxes on capitalist income, the super-rich will have to make do with less sumptuous homes, fewer and less luxurious automobiles, yachts, and vacation spots. For everyone else, the cost of keeping up with the Joneses will be less. People in all income groups are likely to save more, making more funds available for investment in housing and local enterprises.

The democratic argument

Capitalism claims to be a system of individual opportunities. Increasing the revenues for education, healthcare, pensions, and income-support would expand opportunities. Steeply graduated income taxes would transfer control of social surpluses from a corporate oligarchy to elected national, regional, and local governments.

Can governments and elected representatives be trusted to act in the common interest? With steeply graduated income tax, a small self-serving minority would have less money to influence legislation and corrupt politicians. Billionaires, like the Koch brothers—two of the wealthiest men in the U.S. who have bankrolled the U.S. Tea Party—would have less spare cash to dominate and manipulate political agendas in their narrow class interests.

Steeply graduated income taxes alone would not end capitalist entitlement, but as elected governments gain more revenues to expand social entitlements and public employment, people will demand to have a voice in economic decisions. The right of wealth-holding minorities to impose their immediate interests will be replaced with the transparent, democratic right of people to direct economic life in the common interest, in the interests of human and environmental well-being.

The environmental argument

The wealthiest one per cent presently claim twenty per cent and more of total income. If their share were reduced to five per cent, extravagant consumption and the accompanying waste of resources would be greatly reduced.

Governments would have the funds needed to replace dependence on private automobiles with fast, accessible public transportation. Federal, regional, and local governments could be provided with the funds to construct public heating and cooling systems that require less fossil fuels. Investments could be made in local agriculture for local markets. Environmental protection agencies could employ enough inspectors to investigate complaints and to act against corporate damage to ecosystems.

As control of social surpluses passes from the hands of wealth-holding minorities to elected governments, people will mobilize to demand that national, regional, and local communities provide more employment and goods and services as human rights. Fewer people will come to depend on the profitability of capital in general and of transnational corporations in particular. More people will be free to oppose environmentally destructive industrial activity.

As communities replace private corporations as the institutions making economic decisions, industrial and service workers, professionals, the retired, homemakers, students, farmers, mushroom pickers, loggers, and ecologists will all have the right to a voice and equal vote. The interests of major shareholders and top corporate executives will no longer take precedence over the income and employment of common people, or over the carrying capacity of environments.

Allan Engler is a Vancouver trade unionist and social and environmental activist. His Economic Democracy, the working-class alternative to capitalism was published earlier this year by Fernwood Books. Read other articles by Al.

16 comments on this article so far ...

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  1. Don Hawkins said on November 23rd, 2010 at 7:39am #

    The environmental argument Allan wrote some on and in some of the clearest terms yet James Hansen just posted on his web site titled “the price of change” put’s it right there for all to see. If we are going to stand up now might be the time.

  2. MichaelKenny said on November 23rd, 2010 at 7:57am #

    Don’t lose sight of the fact that there is an enormous difference between the situation in the US and Europe. Whatever may be the origin of America’s economic problems, Europe’s problems result from a deliberate attack, for political, not economic, reasons, on the European economy by US financial interests. An extreme segment of Wall St, probably the neocon wing of the Israel Lobby, has sought to use sovereign debt as a weapon to set Europeans at each other’s throats, the better to keep Europe under the American jackboot and ensure its continued availability as a forward base, near to Israel, for American troops and military equipment. Ex-Yugoslavia, Polish missiles, Russian minorities in the Baltic and Georgia have all been manipulated for the same purpose. The American situation is nothing like that. Whatever may be America’s problems, they are of its own making and their is no foreign enemy to beat off. Thus, parallels with Europe are not really valid.

  3. bozh said on November 23rd, 2010 at 8:39am #

    “deficits r direct results of the tax cuts, financial crash, bailouts, and capitalist speculation”
    this statement i evaluate as a conclusion and not as a scientific fact.

    i do not know whether Engler is aware of this fact; i.e., his statement being a conclusion?

    i propose that the cause for crash, bailouts, tax cuts is the division of people into, broadly, servant class [having next to zero powers] and master class which can do anything it at anytime it wants.

    what the supremacists cannot ever utterly control is the size of the pie or amount of resistance to their warfare! TNX

  4. mary said on November 23rd, 2010 at 8:53am #

    Names and faces in the Irish bail-out, ie theft from the people

    dailybail.com/home/rothschild-bank-and-goldman-sachs-are-both-on-the-list-of-bo.html

  5. mary said on November 23rd, 2010 at 8:56am #

    Hold up. Here’s another and he’s a rich Greek and a friend of Mr Barroso.

    spirolatsis.crazybillionaire.org/spirolatsis.php

  6. bozh said on November 23rd, 2010 at 9:01am #

    many of engler’s proposals seem ok to me. but he does not tell us how to implement them; especially, in lands or empires which r ruled solely by law.
    don’t the laws need changing first of all?
    how’s one gonna change any u.s law when u.s law forbids passing any law that may adversely affect or violate a set of laws, called constitution.
    as things stand now, only the party can pass the laws. and which appears as hired mouth and gun of who knows whom!
    but most likely of onepercenters! tnx

  7. Joe Ramsey said on November 23rd, 2010 at 9:29am #

    Thanks for this article, Allan.

    You make many good points.

    Basically, you are arguing for establishing socialism through graduated taxation. (Don’t get me wrong, I’m a radical socialist myself.)

    The question I have for you is: What is gained by arguing for social and democratic control of the economic surplus in terms of taxation rather than say directly advocating and organizing for system-change, that is, for socialist revolution?

    Along these lines do we really think that there is any likelihood that US politicians are going to take up the proposals that you put forward? If not, then why continue to direct people towards thinking and advocating for “more government action” when it is clear that this government is so tightly in the hands of the ruling classes as to make this a fool’s errand? Why not focus on delegitimizing the system altogether, and on building alternative circuits and circles of power and consciousness amongst the people?

    In my view the goal should be preparing people to take stake power and to revolutionize society, not simply to mount principled pressure on the existing state, and thus cultivating the (methinks naive) belief that they are actually open to the kind of radically progressive proposal that you are putting forth here.

    That said, raising such principled and logical demands and mobilizing people around them may serve a useful function, insoafar as it may help to expose the class nature of the state, which will refuse to take seriously such demands, no matter how well they are presented. (And you do make a good case.) Such hypothetical solutions as the one you introduce can play a role in exposing the class nature of the ruling state; that is, the fact that they are not out to protect the “common good” or whatever, but ultimately to defend the interests of those who control capital.

    Btw, this is the kind of thing we discuss over at the Kasama Project these days: http://www.kasamaproject.org . Love to have your intelligent and informed perspective participating in this unfolding process.

    We’ve got a world to emancipate!

    -Joe

  8. jlohman said on November 23rd, 2010 at 11:56am #

    Look, there’s one simple answer: get the politicians off the payroll of corporate and special interests, put them on a pay-for-performance basis, and they’ll fix the economic system. Because they’ll no longer be getting bribes from the rich, or being obligated to them, they’ll be taxed accordingly and fairly. Only public financing of campaigns will fix it, and at $5 per taxpayer per year it’d be a bargain.

    Jack Lohman
    http://MoneyedPoliticians.net

  9. Don Hawkins said on November 23rd, 2010 at 2:06pm #

    James Hansen wrote big money forces legislatures to hatch ineffectual schemes such as cap and trade with off set’s a system designed by big bank’s and fossil fuel interests that assures continued fossil fuel addiction. Oh and also something about an ice free desolate planet. Do the big bank’s know this; yes does Wall Street know this; yes the fossil fuel companies; yes the other little God’s; yes. A reasonable person would have to think there is something very wrong in river city and or some’s mind’s. A question is it harder to fight crazy people? Can it be done is there away? Ok two questions.

  10. bozh said on November 23rd, 2010 at 4:57pm #

    proposal to get the pols off corporate payroll wld be valid only if made in congress; still more valid if laid dwn by at least 50% of the congress.
    It wld nice if one can get the electorate not to vote in numbers of 99% in favor of one party system of rule. tnx

  11. hayate said on November 23rd, 2010 at 11:58pm #

    jlohman said on November 23rd, 2010 at 11:56am

    “Only public financing of campaigns will fix it, and at $5 per taxpayer per year it’d be a bargain.”

    Why should I pay some chunk of corporate excrement $5 to propose corporate written laws? I don’t give them any money now. Is that it, you guys want to tap into untapped sources?

    BTW, you never answered my questions on the other threads about how your slogans will make any difference.

  12. hayate said on November 24th, 2010 at 12:01am #

    Joe Ramsey said on November 23rd, 2010 at 9:29am

    Interesting questions. Thanks for posting it.

  13. jlohman said on November 24th, 2010 at 7:01am #

    >>> “Why should I pay some chunk of corporate excrement $5 …”

    Because, hayate, you are ALREADY paying hundreds of times that amount when the special interests buy your politicians and convince them to pass taxpayer dollars to their companies. Please review http://www.wicleanelections.org/. Please UNDERSTAND why the flow of taxpayer money takes place.

    What is it about political bribes do you not understand?

  14. hayate said on November 24th, 2010 at 8:48pm #

    That isn’t an answer to my question, just more of your sloganeering for the ziofascist/fascist status quo. Still waiting, lohman.

  15. Don Hawkins said on November 25th, 2010 at 3:12am #

    11/25/2010 and not looking all that great on this mote of dust called Earth. I see having a few minor problems with START talk’s and the most dangerous weapons ever devised by man. More important problems like tax cut’s for the wealthy and repeal and replace although health care may be the least of our problems. The push is on and who will be in power in 2012 well with the help of the tea party who all seem to be pro life another good question. James Hansen is calling on China to take the lead on clean energy as again more important things to concern themselves with here in the States. For some reason it seems these so called leaders can’t even do one thing that comes close to reason that makes sense I guess it’s to hard or another way to put it not easy heck maybe Goldman Sach’s could help them on how to make sense. The parade today in New York City and if we can make it just the next few years am sure there will be many kid’s watching the parade and so far those kid’s in just twenty years will not be playing the back nine.

    Only when the last tree has been cut down; Only when the last river has been poisoned; Only when the last fish has been caught; Only then will you find that money cannot be eaten. Proverb American Indian

  16. mary said on November 26th, 2010 at 1:57am #

    Meanwhile an emetic from the BBC who are lionizing this revolting creature even down to his hairdo. Free PR as far as I see it. Ms Maitlis is one of the lead presenters on BBC News 24.

    Donald Trump: All American Billionaire
    Watch:Next on:
    Sunday, 21:00 on BBC Two

    Synopsis
    Emily Maitlis tells then+ incredible story+ of Donald Trump, the world’s most famous developer, who changed the New York skyline with his glitzy towers and made himself a multi-billionaire. With unprecedented access to Trump and his family Maitlis finds out how he did it. Trump’s own lifestyle, with the glamorous wives and the private jet, is all marketing for his luxurious brand.

    Now the all-American tycoon is over here. Maitlis asks why he wants to build a huge golf resort on the sand-dunes near Aberdeen, and watches him presiding over his own beauty pageant in Las Vegas. She finds out how it was a Brit who made Trump the star of the original Apprentice series, bringing + the media-loving mogul with the amazing hair+ to an even bigger public.

    (www.bbc.co.uk/programmes/b00wdp7s)

    The Scottish golf course at Menie referred to has been the subject of a bitter fight by locals and environmentalists. The planning authority rolled over to Trump and gave outline permission. The fight goes on though.

    (www.eco-essentials.co.uk/trump.php)