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Thursday, November 08, 2007

"There are Only Two Economic Philosophies in America"

Robert Reich says bottom up:

Trickle Down or Bottom Up, by Robert Reich: ...There are only two economic philosophies in America – trickle down and bottom up. Trickle down means the rich get richer and pay less taxes. Supposedly they use their extra income to invest in America, which makes all of us more productive. But it doesn’t work that way. In a global economy, investments don’t trickle down; they trickles out to wherever on the planet the rich can get the highest return. If trickle down worked as advertised inequality wouldn’t be widening so fast.

Bottom up means giving all Americans what they need to be productive – universal and affordable health coverage, good schools, a chance to attend college, job retraining, affordable child care, and good public transportation to and from the job, for starters. But as we learned a decade ago, this requires money – even more, now. So the question is how the nation can afford it and ALSO give the soon-to-retire baby boomers the Social Security and Medicare they expect, pay for homeland security and national defense, invest in non-fossil based fuel technologies, and repair the nation’s decrepit infrastructure (recall the pipe that blew out in New York last July and the bridge that collapsed in Minneapolis). I haven’t even mentioned the trillion dollars necessary to shield the middle class from the Alternative Minimum Tax. Even if we cut corporate welfare, eliminated subsidies to agribusiness, and banned all earmarks, we wouldn’t have nearly enough.

The only way is to stop obsessing about balancing the budget and start pushing for a serious tax hike on the rich. Yet all Democratic presidential candidates are styling themselves "fiscal conservatives" and none has suggested raising the marginal tax rate on the richest beyond the 38 percent rate it was under Bill Clinton. They may talk bottom-up economics but they're still wedded to trickle down.

What is fair? For a given level of government spending, how would you decide who pays what? What sort of tax distribution would you consider equitable and why? I like the equal marginal sacrifice principle, i.e. that the pain of giving up the last dollar in taxes should be the same for everyone, and that gives a progressive structure, but there are other principles of taxation that can be used. As to the tax hike on the wealthy, I think a revenue neutral change that tilted the structure upward a bit more might be viewed as more equitable and hence be politically viable, though it would be a close call, a large upward tilt would face more resistance, and a tax proposal designed to enhance revenue would face more resistance yet, to the point where pushing for it in an election year may not be wise.

    Posted by on Thursday, November 8, 2007 at 01:17 AM in Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (150)

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