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In the recent debate, Vice Presidential candidate Joe Biden said the wealthy would gain by paying higher taxes to lift up the middle class. The theory is that a healthy middle class is necessary for the wealthy class to thrive. Let's call that Trickle Up Economics.

Viewed in that light, the unwealthy are more like an investment opportunity than a tax burden. If you can make the poor and middle class more educated, healthy, and better employed, everyone wins. That makes sense, to a degree. But would the wealthy gain enough financially to make the extra taxes a good investment? I wonder if that has ever been studied.

Perhaps there are too many variables to make any kind of general statement about the benefits of taxing the rich. If the government raises taxes on the wealthy and pisses away the money on sketchy wars and pork, that's probably a poor investment. If the money goes into education, healthcare, and alternative energy, that starts looking a lot more like an investment with a 10-year payoff.

Obviously higher taxes on the rich are counterproductive if it stops them from building new factories, or causes them to invest overseas. Maybe corporate taxes have to remain low no matter what, or everyone moves their operations to Ireland. You can always tax the individuals, since most people won't leave the country just to save money on taxes.

Henry Ford famously paid his factory workers more than the market rate so they would be able to afford cars. I've never seen a study of how that worked out for him. Does anyone have a link to tell me if investing in poor people benefits the rich?
 
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Oct 6, 2008
"It's called demand-side economics. Robert Reich and his crowd are big on.

So was Bill Clinton. That this, this is the kind of thinking that guilded our national economic policy in the 1990's. "

Clinton had the extreme good fortune to be president during the emergence of a MASSIVE new industry that created enormous wealth for Americans -- the Internet/New Media/etc.

He also presided over a period of massive investment in technology infrastructure... driven both by the fact that the Internet became a vital part of doing business and the Y2K scare, which drove companies to upgrade systems.

For the most part, Clinton/Reich stayed out of the way and let it happen... which was good when the tech stocks were through the roof... and less good when the bubble burst.

One could certainly argue that the abuses that led to Enron/Worldcom and several other companies happened, for the most part, on Clinton and Reich's watch.
 
 
-1 Rank Up Rank Down
Oct 6, 2008
See
http://www.nytimes.com/2008/08/31/business/31view.html
for some relevant information (though clearly not a controlled experiment).
 
 
Oct 6, 2008

It's called demand-side economics. Robert Reich and his crowd are big on.

So was Bill Clinton. That this, this is the kind of thinking that guilded our national economic policy in the 1990's.

Do you think that that worked out well for most people? I sure do.


 
 
Oct 6, 2008
Seriously, a good read in this subject comes from the nobel price winner in Econmics (1992?) Amartya Sen, an expert in Welfare Economics. Please do not confuse welfare with what welfare is conceptualized in the USA. It is just about investing in public good, which mostly likely will benefit the lower and the middle classes.

 
 
Oct 6, 2008
Here's my economic tax plan: Have a national lottery with HUGE payoffs. Only, secretly tax the winnings at a 90% rate - so the guy who wins a $100 million lottery "only" walks away with $10 million. And make it illegal for the winner to tell anyone about the tax - on penalty of losing the $10 million and going to prison in Cuba. Encourage non-citizens to play, but tax them at 95%.

Then eliminate income and corporate taxes altogether (but fund Gamblers Anonymous).
 
 
Oct 6, 2008
Strictly speaking, you're right that there are too many variables. Obviously, government's spending habits matter, but also the marginal propensity to consume and the extent to which it is a function of income is also key.

There is some level of poverty at which a person can not invest, because they are at or below subsistence. Many development economists say that there is a level of income at which investment begins to fall. The very rich have already saved so much that they stop saving and start spending on extravagances. If it's possible, at reasonable cost to efficiency to tax the richest and invest in the poorest, then you can enlarge the middle class and cause more saving and this will manifest as more physical and human capital (education). This gain in capital means greater overall income, again, assuming that the higher taxes aren't too distortionary.

Of course, taxing still comes at a cost and exactly what the marginal propensities to consume and save are is a matter that hasn't been settled yet. However, there is one case for very moderate redistribution of income helping the rich, and everyone else.
 
 
-2 Rank Up Rank Down
Oct 6, 2008
That's supposed to read c i r c u m s t a n c e s.
 
 
-4 Rank Up Rank Down
Oct 6, 2008
It is typical for the kind of commenters you have that the only commenter providing a link that PROVES American income growth was higher under democratic government is rated negatively.

This rating system does not work as it supposed to. Not the best comments are rated but the ones that suit ones opinion.

Anyone who still thinks that the market 'regulates itself' under these !$%*!$%*!$%*! is no better then a religious fanatic. Sure, if you find that hundreds of thousands of people loosing their jobs and millions of people getting poor is 'regulating', then you probably also think a catastrophe is the normal way of things and one should not try to avoid it by letting the government get in the way.

And yes, a government can know how to spend your money better then you because you only think of your own interests. That the government doesn't always do the best job is only natural, they're people after all.

I am not writing this because I think I can change anyones mind but because the stupid stubborness of some people just gets on my nerves.
 
 
Oct 6, 2008
I think a significant factor to consider is crime rate.

As the middle and lower classes lose their wealth, homes, and way of life, crime will increase. And who are they going to come after? The fellow poor? The rich need to look at their contribution not so much as an investment, but as crime prevention.

For example: It'd be better and cheaper to give people meaningless gov't jobs at $30k/year than imprison them for $60k/year.
 
 
Oct 6, 2008
I recently read a science fiction story that allowed for the rich to directly invest in the lives of the poor and middle class. The story was set up in an auctioneering parlor in Thailand, where the world's wealthiest people and their representatives would convene to "buy" the lives of children from an entire range of socioeconomic backgrounds. Once a child was "bought", the purchaser would subtly control their futures by sending the best teachers to their location, offering their parents better jobs in better places, arranging for scholarship opportunities, etc...it was much more complex and more elegantly explained, but the culmination of all of these secretive arrangements would hopefully be the hiring of the "bought" child in order to have return on the original investment.

I think it ties in quite nicely. I'll post later with the author and the title of the story if anyone wants it.
 
 
Oct 6, 2008
Personally, I'm moving to Canada to avoid taxes....wait, nevermind. Oh, now I remember, I'm going there to get prompt healthcare for free...oh wait, nevermind. No, no, wait. I'm moving to Canada to watch polar bears wander my back yard looking for ice.
 
 
Oct 6, 2008
As Neil Bortz says: Go get a job from someone in the middle class and see how successful you will be.

The wealthy create jobs and the government eliminates them through taxation and bureaucracy.
 
 
Oct 6, 2008
So basically it's an argument between the government taking money from the rich to give to the worker class, or letting the rich give money to the working class themselves in the form of buying products and services and investing in job creating activities. Which of the two do you think will be more efficient than the other?
 
 
Oct 6, 2008
I've always believed that taxing the rich heavily was, economically speaking, a bad idea(*). However, in a (potentially failed) attempt to become slightly more informed I'm trying to plow through a lengthy book titled "Does Atlas Shrug? The Economic Consequences of Taxing the Rich". I haven't got far enough through it yet to know whether to openly recommend it but it's the only text of it's kind that I've seen.

(* - I'm a Libertarian so I actually believe that most of the Federal Government is a bad idea.)
 
 
Oct 6, 2008
It seems to me that the rich became that way by doing the things that are in their best interest, financially speaking at least. Therefore, if improving the condition of the middle class or improving the condition of the poor "trickles up" to benefit the rich, it seems they would be doing these things as efficiently as possible.

Assuming "trickle up" works, and it is quite possible it does, then I question why the government is needed at all. In fact, the government manages to impose inefficiency in the vast majority of cases. There are areas where this is tolerable, due to the nature of the task (national defense for instance). However, from what I see, health care and education have not, nor will they in the future, benefit from additional government intervention. If you think government operated health care works, try getting an MRI in Canada.
 
 
Oct 6, 2008
Three word answer to Scott's question: John Maynard Keynes.
 
 
+4 Rank Up Rank Down
Oct 6, 2008
I read somewhere that you would save half the national debt per year if you had a flat rate Income tax of say 40% for all income levels. The reason being 1. People of higher incomes stop spending time/money trying to avoid tax and 2. you significantly reduce the number of people and cost associated with collecting tax.

Anyone know about this study ?
 
 
+2 Rank Up Rank Down
Oct 6, 2008
all this rumination on taxing the "rich" just makes my stomach churn. This is income redistribution and that is stealing. The governement doesn't have the constitutional right to take more of my money to give to those "less fortunate" And those who are the recipient of the government largess should remember that the more socialist we become the less incentive for those who are willing to work harder and do more. When that happens the whole thing collapses, Everyone gets less. I wish more people traveled the world and realized that our so called poor live better than the middle class in France (for instance). We are all in this together we should all contribute. The fair tax is the only equitable solution.
Socialism never has worked and having different socialists in power won't make it work this time.
 
 
+1 Rank Up Rank Down
Oct 6, 2008
Apparently, I didn't enter the link properly. The story I am referring to is "Henry Ford's Revolution for the Worker" published in American Hertiage magazine, and available on their website, americanheritage.com. Enter Henry Ford in the search box.
 
 
Oct 6, 2008
This article does a great job comparing the economic health of the rich and the middle class between democrat and republican presidencies. If you overgeneralize that democrats tax the rich more and ignore the millions of other factors at play, then this shows that the trickle up effect does work for the rich, even when you account for their increased taxes:

http://www.nytimes.com/2008/08/31/business/31view.html?_r=1&em&oref=slogin
 
 
 
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