Lowering Taxes on the Wealthiest: The Job Creation Delusion

Mr. Smithers

Jack Kemp, the “trickle down kid”, a great quarterback for the Buffalo Bills.  President Reagan’s brain, at least on economic matters.  A charismatic congressman.  His ghost happily haunting economic disasters all over the planet.  Without his assistance, Thomas Piketty’s “Capital in the Twenty-First Century” might never have been written.  Trickle down has never really worked but it makes for a great story line, at least in a fictional work, but it’s a fictional work that keeps selling.  Lower taxes on the rich and they’ll share their wealth, spending and creating jobs.  What’s good for General Motors (today think Amazon and Walmart) is good for America.

Yeah, right!!!

But the myth goes on.  In 2018 the United States lowered taxes on the wealthiest.  Now others are being cajoled to jump on the bandwagon, a chorus of one percenters in second tier countries are clamoring for their due.  Take the Republic of Colombia for instance.  Under its new right wing government, again under paramilitary darling Alvaro Uribe Velez (through his mannequin, “how high should I jump boss” Ivan, the man, Duque), Colombia will now join other countries in the delusional illusion of job creation through lowering of taxes on the wealthiest and austerity for the rest.  “Pick up the slack though you damned lazy shirkers!!!!”  How tragically Greek.

Other countries, primarily Nordic, are considering other job creation – common welfare concepts.  One, designed to insure job growth as well as the common welfare, involves a guaranteed minimum wage.  Many of us first encountered the concept in the early 1970’s when it was proposed by Richard Nixon (ironically, probably the most liberal president in the past fifty years).  President Nixon referred to it as a negative income tax.  Of course, then as now, the concept is anathema to the Protestant work ethic.  Heresy!  Socialism!!!!  Heaven forbid.  Poor Jehan Cauvin spins in his grave at the thought.[1]  But think about it.  It certainly promotes employment much more so than does lowering taxes on the wealthiest.  It obviously increases demand and as discussed below, “increased demand” is the key to economic prosperity (as long as it’s coupled with an ability to satisfy that demand).  Ask yourself, “As an entrepreneur, do you really care if the money used to buy your goods and services was earned through a job or received as welfare”?  “Do your employees really care about the source of their wages and benefits as long as it is not the product of criminal activity”?  Okay, many would not be bothered by the latter but that moral deficiency affects the wealthiest much more than it does run of the mill employees.  The reality is that as innovative technology makes workers more and more obsolete, a solution needs to be found that spurs demand while providing for the basic needs of the least economically benefitted among us.  It’s either that or the kind of social pressure cooker that led to the French and Bolshevik revolutions.

Some context would be useful.

At the urging of the neoliberal institutions that flowered at the end of the Second World War (fertilized by millions of corpses), institutions like the International Monetary Fund, the World Bank and the international financial system established at Bretton Woods, dozens of countries, usually third world but now including economies as large as those of France, Spain, Portugal and Italy, have been coerced into forcing austerity on the bulk of their citizens in order to assure profitable economic returns to investors who made bad bets but would rather not pay the price of their poor judgment and must thus be protected from the consequences of either their reckless folly or illegal conspiracies and manipulation (most likely)[2].  The list of victims includes most Latin American countries, most if not all African countries and European countries like Greece, Portugal[3], Italy, Spain and, well, okay, most of the European Union other than Germany and the Nordic states.

Countries that refuse to betray their less well-off citizens find themselves demonized and calumnied and their economies destroyed by fifth columnist economic elites and economic sanctions (formal as well as informal, in both cases usually emanating from the home of the brave and the land of the free, … sort of).  Iceland somehow escaped such punishment, perhaps being too small to matter (in this context, not a bad thing).  As the manipulated economies dive, the successful manipulators cry rivers of crocodile tears, spuriously lamenting the plight of the populace allegedly victimized by corrupt and inept governance (all too frequently also true but only a minor part of the causative factors).  Pressure mounts until the bewildered population of the targeted country either gives in and “democratically” sees the light (i.e., elects approved candidates, think Argentina and Ecuador and Chile) or, if it does not, coups, either military, legislative or judicial are likely (think, e.g., Honduras, Brazil and Egypt, respectively).  Venezuela and Nicaragua, are you listening?

Austerity, well yes, but not for all.  Banks and investors are “too big to fail” and must be protected from the folly of their failed scams, err, we mean unfavorable and unpredictable market forces.  Okay, not unpredictable but let’s say, unfortunate.  Kind of like “acts of God”, an Old Testament kind of vengeful God.  And of course, the senior executives responsible for the “unfortunate” decisions must be consoled.  Mustn’t deprive them of their bonuses and golden parachutes.  What would their trophy wives say?  If God had not wanted this tiny minority preserved, why would he have created so many common people to share burdens “equitably”?

Anyway, back to tax cuts for the wealthiest so that everyone can be assured of a well-paying job.  Somewhere a gadfly murmurs: “Of course, the generation of goods and services does require another element for economic theories to function, even good old capitalism.  Now what was that other element, supply and, hmmm?  Prices equal something divided by supply.  … What the Hell was that?

Ah demand!!!!  Without demand we just have overstocked shelves and warehouses and idle accountants and lawyers and actors and athletes and, Heaven forbid, politicians. So, … Demand?  How does one generate demand above and beyond that generated in circular fashion by our wealthiest “brethren”?

Hmmm, well the guaranteed minimum wage (or negative income tax) previously alluded to was an interesting idea but as we know, the Protestant ethic abhors giving the poor something for nothing.  The “elect” of course, are exempt from that proscription.  Is it perhaps time to rethink Protestant prohibitions?  I wonder how Jehan Cauvin felt about divorce.  I know Henry VIII was all for it.  And what about abortion or equal gender rights or alternative gender concepts or contraception or premarital sex?  Or popular democracy, or a free press, or freedom of speech.  Horrors!!!  Are we to burden poor Jehan with one more revolutionary concept?  Will that be the straw that breaks his back (apologies to camels everywhere)?  Of course, … he has been dead for almost six centuries.

Drats!!!

Giving it serious consideration, is it possible that demand is the most essential element in job creation?  If so, for some reason (I have a strong compulsion to write “ergo” here, but I shan’t) it would seem that adequate demand requires that the least financially well off also have the wherewithal to purchase goods and services.  From stage right a whispered comment from the very short sighted among the one percent can be heard, “that’s a problem for another day” (echoes of “let them eat cake” resound).

The reality is that the surest way to increase jobs and to assure a well-functioning economy is by increasing the financial capacity of the poorest among us.  They spend everything they get, they have to, and that flows upwards through small merchants and their employees to larger and larger suppliers and their employees until it lands in the pockets of the wealthiest anyway.  Percolate up rather than trickle down is what really works.  Sorry Jack.

But what about the funds necessary to fund the state, that protector of private property through internal police forces, fire departments, departments of homeland security and judicial systems, and externally through armies and navies and air forces?  Taxes right and public debt?  Well, for now yes.  In a modern financial system where the state reacquired the power to create money from the banking industry, both of those concepts would be anachronistic.  The state would merely create the money required to represent the nation’s capacity to produce goods and services, assuring that it would circulate freely, free of inefficient hoarding and accumulation, kind of like blood works in the body (too much blood accumulating rather than circulating and it’s off to the undertaker).  But that system seems unlikely at present given the fact that bankers and financiers seem to own all the governments (the verisimilitude of democracy notwithstanding).

So taxes it is, but what kind of taxes would both supply a state’s operating requirements and generate employment?  Trickle down has resulted in the ever increasing gulf between the wealthy and the poor that Thomas Piketty described in Capital in the Twenty-First Century.  Too many of the wealthiest among us hoard their wealth or spend it on luxury items that don’t do much to help the masses economically.  That of course changes if their income and wealth are taxed in a manner commensurate to the protective benefits the state provides them.  Contrary to neoliberal propaganda, when we refer to the wealthiest among us we are not referring to the middle class.  Reasonable wages should not be highly taxed.  Rather, income from pure investments, especially involving inherited wealth, income that involves no meaningful work, and wages at unjustifiable multiples of minimum wages (say twenty) is where the bulk of taxation should be and where it ought to remain[4].  If the wealthiest “workers” then want to reduce their taxes, the only way would be to increase the minimum wage, a reasonable and efficient tie-in to promote a more just economy for all.

The foregoing seems obvious but the obvious truth is that for the foreseeable future, neoliberal pseudo democracies managed through control of tame media will continue to replay old Jack Kemp story lines.  Unfortunately, they won’t be about his days as an outstanding quarterback.

 

There is a scene I like to imagine when I think that someday reason will overwhelm greed and stupidity, one with which I sometimes end articles and essays.  A series of scenes really.  It starts with Oliver Hardy chastising Stan Laurel (look them up in Wikipedia if you’re younger than forty): “Another fine mess [they’ve] gotten us into” Ollie complains.  Then it shifts to a café where Che Guevara smiles as he sips a mojito, whether in Havana, Heaven or Hell it’s hard to tell.  With reference to this article, he’ll have just finished reading Thomas Piketty’s “Capital in the Twenty-First Century” and will say to a well-dressed albeit somewhat effete fellow sitting nearby (he doesn’t recognize H.P. Lovecraft): “Isn’t that exactly what I’d been saying when I was so rudely interrupted?”  Lovecraft grins enigmatically.

Something to think about.
_______

© Guillermo Calvo Mahé and Diana Marcela Cardenas Garcia; Manizales, 2018; all rights reserved.

Guillermo Calvo Mahé (a sometime poet) is a writer, political commentator and academic currently residing in the Republic of Colombia although he has primarily lived in the United States of America (of which he is a citizen).  Until recently he chaired the political science, government and international relations programs at the Universidad Autónoma de Manizales.  He has academic degrees in political science (the Citadel), law (St. John’s University), international legal studies (New York University) and translation studies (the University of Florida’s Center for Latin American Studies).  He can be contacted at guillermo.calvo.mahe@gmail.com and much of his writing is available through his blog at http://www.guillermocalvo.com.  Diana Marcela Cardenas Garcia is a Colombian social communicator and journalist who collaborates with Dr. Calvo on diverse civic, social and political projects.

[1] Hmmm, John Calvin (Jehan Cauvin, 1509 – 1564).  What a guy!  A guy for his times but perhaps not for ours.  His disciples turned his doctrines on their heads and one result was the Protestant work ethic and capitalism, something that once promised a better world here for everyone and of course, for the “elect”, a better world forever (although, if you were not among the elect, well, … sorry about that, no hope as you crossed the portals that require that all hope be checked before entering).  Kind of like today’s “capitalism” (okay, really more an extreme form of corporate welfare).

[2] See, e.g., Clark, Neil (2018).  “The 2008 financial crash: Punishing the victims, rewarding the perpetrators”; RT.com, © Autonomous Nonprofit Organization “TV-Novosti”, 2005–2018. All rights reserved, August 10, 2018, available at https://www.rt.com/op-ed/435665-2008-crisis-rich-austerity/, first accessed on August 10, 2018.

[3] But see Sugarman, Jacob (2018). “The Evidence Is In, and Austerity Is Declared a Loser”; Truthdig, August 15, 2018, available at https://www.truthdig.com/articles/let-this-be-the-end-of-austerity-once-and-for-all/, first accessed, August 15, 2018.

[4] See McDermid, Brendan (Reuters, 2018). “CEO compensation surges dramatically while average workers get no significant pay raise – report”; RT, August 17, 2018, available at https://www.rt.com/business/436197-ceo-compensation-average-worker-report/, first accessed on August 17, 2018.

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