1) Supply Side assumes that the rich have a zillion other uses for their cash and thus have to be lured into investing it! Now ponder that nonsense statement. Roll it around and try to imagine it making a scintilla of sense! Try actually asking a very rich person. Once you have a few mansions and their contents and cars and boats and such, actually spending it all holds little attraction. Rather, the next step is using the extra to become even richer. Naturally, you invest it. Whatever the tax rates, you invest it, seeking maximum return.
Instead of enticing the rich to invest, these super low dividend and capital gains rates simply used money taxed from middle class wage earners to give bonuses for speculations wealthy folks were doing anyway. If anything, the only major effect, other than budget deficits, was a pumping up of asset value bubbles.
2) Now to be sure, some of the rich … a few… put a fair amount of their wealth into truly bold and risky new enterprises. I know such men and women, who engage in Venture Capitalism or starting up creative new enterprises. And just so you know that I’m no socialist I believe this kind of investment truly should be encouraged by taxing it at a very low rate! Not only because of the risk, but also because equity shares that are bought de novo directly from a new firm actually deliver nearly all of that value directly into capitalization and company development.
In contrast, most exchanges through the NYSE or NASDAQ are purchases from other stock-owners who happen to disagree with you about prospects for future capital gains and dividends. It is just as much a betting/gambling system as any Vegas casino, Your trades may marginally raise or lower the posted price, allowing the company to raise a little capital on the side, but almost nothing from your stock transaction actually goes to the company itself, or into new products or plants and equipment.
(Hence, that kind of investing - by far the largest portion - helps industry only at appallingly low levels of efficiency, but diverts management into spending nearly all its time trying to bribe stockholders with short term benefits, ignoring long-term company health.)
No wonder Adam Smith himself expressed contempt for passive investments that he called “rents”… compared to investments in which the owner actually gets involved in starting up or entrepreneurial development of long term company or enterprise health.
3) So what about “targeted investing”? The towering hypocrisy of supply side tax cuts for the rich is that they are claimed (without a scintilla of evidence) to help create jobs. But then, why treat investments overseas equally to those made in domestic companies? President Obama proposes narrowing the super-low rates to U.S. companies that are (a) startups, or (b) demonstrably adding jobs, or (c) investing directly in new equipment or R&D. For this he is derided for “picking winners and losers”… even though the list of targeted tax breaks for GOP-favored industries like coal and oil are myriad. (and outrageous.)
4) In fact, we spoke earlier about how stock and equities markets have lately become the tail wagging the dog. Instead of serving the capital needs of companies, firms like Mitt Romney’s Bain Capital show that productive corporations making goods and services are now like cattle, farmed by Wall Street, to be bled or dissected at whim. Nor is the whim even human anymore! Most trades are now propelled by hyper-aggressive, parasitical “flash trading” computer programs that vastly amplify volatility, sap investor earning potential, and threaten our entire economic system in a dozen ways.
5) The reduction of dividend and capital gains tax rates almost to zero has coincided with the rapid ending of the relatively flat social structure that we inherited from the Greatest Generation of the 1950s and 1960s. Back then, the rich managers of major corporations earned only ten or twenty times what factory workers got, a situation that still exists in Japan. Only now, American wealth disparities are approaching levels not seen since the American Revolution.
The last thing that the GOP or Fox wants you to do is look across the last 6000 years. The class that they call “job creators” used to have another name. Lords.
6) The outrageous inherent unfairness of passive dividend-clipping getting far better tax treatment than earned wages is inherently suspect. It is exactly what you would expect rich and powerful men to lobby for, whether or not their supply side rationalizations were true! It should be no surprise that, in our money-drenched political system, those with such power and influence have benefited immensely.
But are the arguments and rationalizations valid at all? At minimum, supply-siders should bear some burden of proof. Their experiment has been run, now, for more than three decades, and never once has their core predication come true… that cutting taxes on the rich will result in increased overall revenues and a vanishing federal deficit.
Yes, reducing deficits would be good! Indeed, under Clinton they vanished. The middle class, according to all opinion polls at the time, wanted any surplus to go to buying down debt. It was the upper caste who used the surpluses as an excuse to demand immediate tax cuts. So where does maturity reside?
The results are utterly conclusive.
Supply side is disproved, top to bottom.
(Source: azspot)
