Comment & Debate
“Progressive Taxation, Socialism and Godwin’s Law”. The Eclectic Quill. 21 Oct. 2008 – Moving on now though, let’s return to the subject of progressive taxation. I’m not an economist and I don’t really pretend to be, yet I’m a pretty reasonable person and I think I’ve made certain observations in life. One thing I’ve noticed is that money doesn’t flow down, it flows up. When I go to Microcenter and buy this laptop my money goes to Microcenter. Now some of that theoretically went to the salesman who helped me, some went to the manager of the store, some went to the CEO, some went to the shareholders of both corporations. The money I spent went to a lot of people, and they spent the money in turn, and in turn they spent money. Always a little percent of that money ends up working its way up to the top, until eventually almost all of it works its way up to the top. In this little example we can intuit two things about progressive tax cuts. 1) If I have an extra $500 to spend it’s a lot more than $500. The more hands it passes through the more money it is. If you give an extra 500 dollars to a million people it is a lot more than 500 million dollars because each of those little $500 tax cuts are going to go through an exponential number of people, each of which will in turn have more money to spend. That this benefits the economy should be pretty obvious. 2) Money flows up, not down.
The “trickle down” theory of economies is at this point in time another “failed experiment.” The underlying problem with it is money doesn’t trickle down, it trickles up. Imagine that the economy is a fountain, and that money is the “water” of that fountain. The idea is to keep the fountain going, to keep the water moving through the fountain. The free market, capitalism, by virtue of the way it works keeps the “water” flowing up. The problem that can occur though is that the top of the fountain can get gummed up, blocking the water from being able to come down. When that happens the water at the base dries up and the entire economy stagnates. What progressive taxes do is clean up the top of the fountain and force the flow of wealth to reach the base of the fountain. When the top of the fountain gums up the whole fountain stops flowing, and the whole fountain suffers.
Now I imagine there are some Chicago-Schoolers, puffed full of theory who are going to be quick to lecture me on the virtues of supply side, and lecture me on how if that money is given to the wealthy then they can have money to invest in generating jobs etcetera. The problem with theory though is that it has to get tested, and tested this theory has been, for the last 30 years, and the final grades have come in, to the tune of a trillion dollar bailout, a 150 billion dollar stimulus package and a 10 trillion dollar plummet in the stock market. I’m no student of economics but I am one of history, and I can tell you that certain things are historically true. When you cut the taxes on the wealthy and shift the primary burden to the middle class you get a wealthier version of wealthy, an increase in those below the poverty level and a smaller middle class. When you increase the taxes on the wealthy and cut the taxes on the poor and middle class the trend is to take more people out of poverty, enlarge the middle class, and incredibly, to also increase the wealth of the wealthy. How can that be? Simple. Money flows up. The economists and theorists can worry about what should happen; I’ll worry about what has happened.