Neocon Failures: Tax Cuts for the Rich

The Republicans are apparently unwilling to let go of their opposition to a tax increase for the richest Americans. A cynic might conclude that opposition was purchased by the contributions from their patrons. But the claims made in support of the claim would make Pollyanna cynical.

Can we just think about this for a moment? Since the Bush tax cuts in 2003, tax rates on the wealthiest Americans are the lowest since the Eisenhower adinistration. By Neocon reasoning – for a given definition of “reasoning,” at least – the economy should be unusually spiffy because, you know, that’s what it takes. Instead, we have one of the slowest economic recoveries in recent decades. We’ve been swilling the patent nostrum the Neocons offer for the last nine years. It’s given us the worst economic hangover since the 1930s. You can make the case it significantly contributed to the occurrence of the recession. But that’s another blog post.

Let’s look at it from the other side. The longest period of economic prosperity the United States has enjoyed was from the 1950s to the 1960. The middle class was in much better shape then than now. And according to Paul Krugman, the marginal tax rate for very top end tenth of a percent taxpayers was 91%. No typo there, Ninety-one Percent. Today, of course, the top end rate is 35%. Now none of those taxpayers beck in the 1960s paid 91%,just as none of the taxpayers today pay 35%. But the point is that tax rates on the wealthy have no proven relationship to the health of the national economy. In fact, for the single period for which we have the best data, 1950-1969, the evidence is that higher tax rates for the very wealthy are associated with the periods of broadest prosperity.

Nor is there any credible economic theory for the Neocon claim. Investment opportunities for capital re all about risk and return. At the very worst, higher marginal tax rates command higher rates of return. According to reports, venture capital accounts for about 11% of private sector U.S. jobs and contribute to more than 20% of of the U.S. gross domestic product.Venture capital programs are the poster child for the wealthiest Americans investing in new startup companies. There’s no evidence that available venture capital funding has shrunk as a consequences of changes in the marginal tax rates. In fact, peak venture capital funding peaked in 2000, just before the dot com bubble, before the Bush tax cuts in 2003.

Patent Medicine, via Library of Congress

The Neocons’ cure for the nation’s economic woes isn’t supported by the history of the last nine years or by the evidence of prosperous periods. It isn’t supported by the availability of capital, the underlying premise. In fact, it doesn’t seem to be supported by anyone except the very wealthy campaign donors who might have to pay the proposed higher taxes.

Isn’t it clear that the Neocon tax cut arguments are economic snake oil? Snake oil, a patent nostrum, made a great deal of money for the folks who sold it, but gave no benefit, and sometimes sickened, the poor saps who bought it. Low tax rates on the rich, according to the Neocons who are selling the idea to the voters, will make the economy well again. In fact, if the middle class is the patient, the Neocon snake oil will do them no good at all. The rich folks selling the snake oil will do just fine. The middle class will continue to decline.

WC suspects that most Neocons believe their own economic quackery. The most effective salespersons are the ones who believe what they are saying. But we don’t have to indulge in the psychology of self-deception to understand Congress’s motivation here. They – Congress – are for the most part the very folks who wold have to pay the higher taxes. Recall that we have a Congress of Plutarchs, much wealthier, on average, than the average voter. The Neocon claims about the benefits of low tax rates on the rich are simple self-interest.

It certainly makes a lot more sense than the Neocon argument.