For Economic Stability, Follow the French

For the past 32 years, Americans have been living a lie. It’s a lie that helps out rich people and screws working people, and it’s a lie that needs to be called out.

The people promoting this lie – most all of them rich people themselves – have been so good at promoting this lie that pretty much everybody believes it. It’s even asserted as fact, without contradiction, in the mainstream media. But it’s a lie.

The lie is that raising income taxes on rich people and hugely profitable companies hurts economies and even leads to unemployment. The truth is that raising income taxes on rich people and hugely profitable companies actually helps economies and causes companies to hire more and more people, thus lowering unemployment.

What makes this lie particularly relevant right now is that the French Constitutional Council – their court that decides what’s constitutional and what’s not – has just agreed with the new socialist government that it’s totally legal to raise the very top income tax rates on very wealthy individuals and hugely profitable corporations to 50 percent (effectively 75 percent when you add in their other taxes like our FICA that funds healthcare and retirement).

The lie that tax increases – like the one the French Constitutional Court just approved – raise unemployment, and that tax cuts reduce unemployment, is widely believed because, like so many Big Lies, it has a small germ of truth at its center. That germ of truth is that when people who spend all (or nearly all) of their income every year – poor people and working-class people – have a little more money in their pocket, they spend it. That increases economic activity – there’s more demand for goods and services. To meet that demand, employers hire more workers.

So, you’d think that if you cut the taxes on poor and low-wage people, they’d have more money, which they’d spend, and it would stimulate the economy. That’s true – except for one thing, which is the germ of the lie that rich people use to get everybody to think that tax cuts for rich people help economies.

And here’s that lie. While it would be true that if you cut income taxes on the poor and low-end working people so they had more money in their pockets it would stimulate the economy, it’s impossible. Why is it impossible? Because, as Rush Limbaugh and Mitt Romney point out as often as possible, the bottom 47 percent of American workers make so little money that they don’t pay any income taxes. So there’s nothing to cut. When Republicans talk about tax cuts, they’re not talking about tax cuts for working people.

But what about cutting taxes on rich people? Wouldn’t that give them more money to spend – or even invest – which would stimulate economic growth? That’s the core, of course, of the tax religion of Limbaugh (who has a reported $400 million contract) and Romney (who was reported to have paid no taxes for years on hundreds of millions in income). Cut rich people’s taxes, they say, and the good times will roll!

The thing that makes this a lie is that rich people behave differently from poor and working class people. When they get extra money from tax cuts, they don’t spend it. After all, they already have pretty much everything they may want or need.

Instead, as we learned about Mitt Romney in 2012, they open bank accounts in the Cayman Islands and Switzerland and stash that money for future generations. Or, they’ll buy an American company, like Sensata, and move it to China where they can get cheaper labor and pollute all they want. Or, since they got the money relatively easily and don’t worry so much about losing it – after all, their basic needs are already covered – they gamble with it. They call it “investing in real estate and the market,” but it’s really just gambling.

None of this, of course, translates into America jobs.

And history backs this up.

In 1922, when Republican Warren Harding dropped the top tax rate from 73 percent down to 25 percent, it kicked off a gambling real estate and stock market bubble that burst in 1929. President Roosevelt fixed that by raising the top tax rate on the uber-rich back up to over 90 percent, which led to over 40 years of stability and prosperity. Rich people left their money in their companies, and only took 30 times what their employees did as pay. The economy boomed, and the middle class prospered.

Then Reagan dropped the top tax rate down to 28 percent, leading within a year to the worst recession since the Great Depression, followed by the Savings and Loans crisis.

Bill Clinton took the top income tax rate back up to 39 percent and – presto – the economy boomed. But then Bush junior came into office, cut it back down, and we got another crash. And lots of unemployment.

It’s a simple point of fact. Four times since 1913 we’ve had big tax cuts on the rich, and two led to major crashes, while the other two led to stagnation for working people. All, however, made the rich a lot richer.

And when taxes have gone up? As author Larry Beinhart points out, “Since 1950 we have had five tax increases on the rich. Four out of five times unemployment went down.” Things got better, in other words, for working people.

The flip side, as Beinhart points out, is that, “Since 1950 we have had ten cuts to the top marginal [tax] rate. Six out of ten times unemployment has gone up.” Tax cuts for the rich, in other words, screw working people at least 60 percent of the time, and never help working people.

When Ronald Reagan came into office, taxes on rich people were over 70 percent, and the American middle class was the strongest it’s ever been. Ever since the Reagan tax cuts, however, we’ve been lurching from bubble to bubble, economic crisis to economic crisis.

The French have figured it out that if you want a stable economy, you need to tax the rich. That’s why their version of the Supreme Court just OK’ed a big new tax on the wealthiest people in France. The countries of Scandinavia have been taxing their billionaires and millionaires for over a half a century, and doing so has worked great for places like Sweden and Denmark. And the history of much of the 20th century shows that taxing the rich works right here in America, too.

So if we really want an economy that works, then we need do just one simple thing: ignore the Republican lies and roll back the Reagan tax cuts.