Fair Economy Essential to Growth

titanic capitalismOne of the most pernicious falsehoods you’ll hear during the next seven months of political campaigning is there’s a necessary tradeoff between fairness and economic growth. By this view, if we raise taxes on the wealthy the economy can’t grow as fast.

Wrong. Taxes were far higher on top incomes in the three decades after World War II than they’ve been since. And the distribution of income was far more equal. Yet the American economy grew faster in those years than it’s grown since tax rates on the top were slashed in 1981.

This wasn’t a post-war aberration. Bill Clinton raised taxes on the wealthy in the 1990s, and the economy produced faster job growth and higher wages than it did after George W. Bush slashed taxes on the rich in his first term.

If you need more evidence, consider modern Germany, where taxes on the wealthy are much higher than they are here and the distribution of income is far more equal. But Germany’s average annual growth has been faster than that in the United States.

You see, higher taxes on the wealthy can finance more investments in infrastructure, education, and health care – which are vital to a productive workforce and to the economic prospects of the middle class.

Higher taxes on the wealthy also allow for lower taxes on the middle – potentially restoring enough middle-class purchasing power to keep the economy growing. As we’ve seen in recent years, when disposable income is concentrated at the top, the middle class doesn’t have enough money to boost the economy.

Robert ReichFinally, concentrated wealth can lead to speculative bubbles as the rich in the same limited class of assets – whether gold, dotcoms, or real estate. And when these bubbles pop the entire economy suffers.

What we should have learned over the last half century is that growth doesn’t trickle down from the top. It percolates upward from working people who are adequately educated, healthy, sufficiently rewarded, and who feel they have a fair chance to make it in America.

Fairness isn’t incompatible with growth. It’s necessary for it.

Robert Reich
Robert Reich’s Blog 

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Comments

  1. Hwood007 says

    WWI ended and the US began making products for our citizens instead of war.  Germany was once two countries, I lived in both, when they joined, another boom in products and services began. You are talking apples and pears as far as I think.  FDR’s years of high taxes did not do a thing for our economy and his tres sec said so in his writings. The war saved FDR’s butt but the voters had no problem in ending his multiple terms.   Each case must be looked at in it’s own light.

    • JoeWeinstein says

      Reich’s simple solid article does not talk about the FDR era or FDR’s taxes, but commenter HWood007 pretends that it does, and then turns around and complains of talking ‘apples and pears’ and tells us (as if we didn’t know) that each case should be looked at in its own light.   

  2. go99ers says

    Thank you LA Progressive for the great Robert Reich articles.

    I’m sold and don’t need more evidence that raising taxes jusst a little bit on the very wealthy will be a trigger point pain shot to the economy, and a big relief for the middle class. It’s ass-tounding that I am paying the same % income tax as GE (or maybe they’re not paying anything) and the other megacorporations.

    And yes, it is absolutely time for higher taxes on the wealthy, so that we can start to finance more investments in infrastructure, education, and health care “… which are vital to a productive workforce and to the economic prospects of the middle class.”

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