This item from truthout (truth-out.org) has given me hope that, in at least one country, there will be a true test of whether or not raising taxes on the rich helps or hurts the national economy. Frankly, I would be very surprised if it does not have a huge positive effect on the French economy--and, if that's the case, I would hope (and all of us should hope) that lawmakers in this and other countries follow the French example.
What I appreciate most about this article is the way in which it lays out the 20th-century history of tax cuts and increases on the wealthy, and shows that, in almost every case, tax hikes had the effect of jump-starting the economy, while tax cuts merely created speculation that led to economic disaster--most recently, of course, in 2008. As counter-intuitive as those trends may seem, there's really nothing counter-intuitive about them.
As I have said before (most recently here), tax hikes on the wealthy are quite simply the equivalent of welfare reform for the 1%. This should, frankly, surprise no one. When one segment of society is given far more money, through tax policy and the tax code, than it could ever productively use, and at the expense of everyone else, that money can only go into two places--speculation, and tax shelters. The truthout item points this out; the Reagan-Bush tax cuts amounted to a foreign aid program for countries that feast off of wealth transfers from productive nations. There are, even as I write this, literally trillions of dollars being held hostage overseas, money that could and should be use to build an American future even greater than America's past. Instead, it's simply comforting the cash paranoia of plutocrats for whom no amount of money is enough. And, of course, as truthout points out, the history of speculative bubbles speaks for itself: from the 1929 crash to the S&L scandals of the 1980s to the housing-derivatives "bubble" of this century's first decade.
Why do tax hikes on the rich work? Simply put, they force the well-off to take their excess capital and put it to work in ways that actually make a profit--ways that, in turn, generates hiring, consumption, a forward-thinking orientation and, in short, all of the ingredients for economic growth. Our Puritan history tends to make us believe that wealthy people are inherently virtuous, and do not need the force of public policy to use their money wisely. But wealthy people are no different from poor people, in this regard and others. They will only use money wisely if society makes it clear at every turn that doing so is a requirement, and not an option.
I hope, and I expect, that the changes being made by the French will work, and that they will help other nations, including the U.S., understand that austerity is a warped, brutal mistake of a fiscal policy that increases misery needlessly. Just ask the Irish. We desperately need to get over our Reagan-era fantasies about how taxation works.
Yet another reason, by the way, not to sit at home in 2014.
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