By | November 19, 2012

By Robert A. Richert

It is difficult to calmly discuss political issues with family and friends with divergent opinions.  All of this prompted me to do some homework and to share my views calmly in the form of an article.  I welcome well reasoned responses, hopefully backed by reliable sources.  I am often critical of people who write and speak on issues and claim some authority; yet who do not have the expertise, experience, or wisdom to do so.  Yet, here I go!  However, unlike them, I freely admit that I am not an expert in economics; I am a curious amateur.  I admit that I may be wrong in my assessment of some items in the link below and this article.  I understand that my article is by no means comprehensive, and that I may have inadvertently left out some important and relevant arguments and facts.  I am not rigidly glued to any economic theory, or passionate about this subject to anywhere near the degree I am about science; a subject about which I do have some expertise.  I am writing this partly because I am frustrated by the political polarization in our country, the name calling and blaming from all sides, and what I perceive as a continuous and unfair trashing of ‘liberalism’ and president Obama by the political and religious right.  Liberal ideology has been on the defensive since Reagan was president.  When is the last time you heard a well known Democratic politician brag about being a liberal?  Many conservative views on economics, such as that lower tax rates stimulate economic growth and the converse hurts growth, are generally accepted by many, including some Democrats, as a given fact.  At the Democratic Convention, Bill Clinton presented a detailed critique of conservative economics over the last 40 years, and I think this was long overdue.  The time has come to question established and widely believed conservative economic views and place conservatives on the defensive, for a change.

Finally, I was inspired to share my views at this time because of a question asked recently by a friend and repeated in the first sentence below:

A friend asked why I voted for Obama when my business has been so adversely affected by this economy.  It’s a fair question!  One of my responses is that deep wounds do not heal quickly.  It took more than 12 years to recover from the Great Depression, and the crash of 2008 was nearly as bad as that of 1929; and it’s the worst economic crash since that time.  Many experts claim that despite Roosevelt’s various programs to spur the economy, our entrance into WW II was the primary reason for that recovery.  Through all of those terrible years of Depression, most people stuck by Roosevelt and he remained quite popular.  They understood that he was not the cause, and that he was doing his best to bring on a recovery.  My other response to the above question is that we don’t have a control group for comparison to the last 4 years under Obama.  In other words, we don’t have another twin planet nearby in which McCain won the presidency in 2008 but all other things were exactly the same.  This way, we could observe if McCain and company would have healed the economy any better than Obama.  My opinion is that things would be about the same and maybe worse!  This is based upon the information that follows.  Furthermore, critics of Obama’s economic policies offer no credible evidence to support their argument that things would have been better under a Republican administration.

This brings me to two major Republican claims of relevance here; that low tax rates lead to economic growth, and that trickle down economics works.  Attached is an article with information and lots of graphs spanning the last 60 years.  This information strongly undermines this Republican point of view:

I have checked some the information on the above link with more than one source and I haven’t found any statistics from reliable sources that substantially disagree.  Here’s the bottom line: Since WW II there is no positive correlation between low tax rates and economic growth – in fact, quite the opposite.  For most of that time the economy was better when tax rates were higher!  It may seem counter intuitive, but it is true.  Why?  I’m not sure, but maybe the information below may shed light.

I agree Obama and many, if not most economists that the Federal Government and the private sector should partner to make the economy work for the betterment of all.  Although past Republican administrations advocated smaller government in general, these ‘old school’ Republicans agreed with Democrats that government investment in certain things like infrastructure (bridges, roads, etc.) was good for the economy as a whole.  They understood that these government investments helped to foster economic growth in the private sector and this activity results in increased revenues for the government – it’s a win, win situation.  Eisenhower believed that.  His administration invested heavily in infrastructure; for example, they developed our national highway system and this helped the private sector to prosper.  It opened up the entire country to interstate commerce.  Nixon, Bush senior, and even Reagan to some degree also believed that government had a role to play in helping the economy; particularly in basics like infrastructure.  Classic Republican leaders like Eisenhower, Nixon, and Dole were moderates by today’s standards.  Nixon created the EPA; that would never happen today under a Republican administration.  Unfortunately, many of today’s Republican’s have moved so far to the right that they don’t seem to agree with their counterparts of years ago on even the basic issue of funding infrastructure.  There is a big difference between believing in smaller government, but respecting its role in various important ways, than in believing, like most in the Tea Party, many Republicans, and shrill conservative talk show hosts, that government is the problem and cannot do anything right.  I think this view has caused great harm to our economy, and has contributed to negative public attitudes about government.  I wonder if it has become a self fulfilling prophecy: If the morale of government leaders and workers is continually undermined by these harsh voices, why should we expect excellence from them?

It is my contention that during the first four years of Obama’s presidency, we have lived in essentially a Republican economy; yes, a Republican economy!  For example, despite strong objections by progressives and many other Democrats, Obama did NOT raise taxes during his first four years.  He bended to the Republicans and preserved the Bush tax rates from 2001.  Note that these federal tax rates are the lowest per capita since WW II, and have been in effect for eleven straight years.  According to The Economist magazine, during Obama’s first term, the growth of government increased much less than in the last 40 years!  At the same time, the income of the top 2% has skyrocketed, while the income for the average Joe Blow has stagnated.  Also, large corporations and several banks are sitting on huge reserves of cash.  So, all these things being in Republican economic favor, why hasn’t the trickle trickled down?  I think the evidence is clear that since WW II, conservative beliefs about low tax rates stimulating economic prosperity and trickle down economics are not supported by the evidence.

Republicans complain about the exploding deficit.  The fact is that since WW II, the deficit has increased more under Republican administrations than Democrats.  George W. Bush increased the deficit substantially from a surplus by engaging us in two unpaid for wars!  Yes, the deficit has increased by about four billion under Obama, but this is due to the fact that although the government must continue to pay its bills, revenue has shrunk greatly thanks to the 2008 crash and subsequent devastated economy.  The deficit skyrocketed during WW II to a much higher degree per capita than today.  We recovered from that and we can recover from our current negative balance.  I speculate that the deficit would be about as high as it is now had McCain been elected in 2008.  No President is a dictator with the power to wave a magic wand and make bad things disappear!  In order to effectively reduce the deficit, most economists and our president favor cutting government spending AND increasing revenue.

Republicans also complain about over regulation, and that this is hurting economic prosperity.  I am uncomfortable with over generalizations like this.  Obviously, some regulations, such as on how our drugs are tested, the way that our food is made and processed, and the way that industry affects our environment are needed and important.  I’m also sure that over regulation is a problem in some areas.  How much regulation should be imposed upon Wall Street, and how effective would it be?  I haven’t a clue; I only hope that smart, rational, cool heads will prevail.  It seems to me that debates about government regulation should be about specifics and details, not broad, sweeping generalizations.

Few people know that since WW II tax rates on high income earners were far higher than in recent years.  For example, the top income tax rate was 90% under Eisenhower, and I don’t recall anyone calling him a Socialist!  When Kennedy took office, I believe the top rate was 71% to 75%, and his administration reduced it.  No doubt that extreme tax hikes like these would adversely affect the economy today.  However, no one is advocating such extremes.  Obama’s tax plan only raises taxes moderately on those making over $250,000 per year.  I agree with conservative columnist Bill Kristol that most of these earners would barely feel it.  This is the same rate as during the Clinton presidency when the economy soared and deficits dissolved to become a surplus; after his tax hikes!  Now that the election is over, several Republicans in Congress are finally conceding that small tax hikes on the so called ‘rich’ will not adversely affect the economy.  It is about time!  Thus, based upon past experience and the weight of evidence, it is highly unlikely that Obama’s proposed tax hike, if signed into law, would have a negative impact on the economy.

I agree with Republicans and the president that the corporate tax rate at about 35% is too high.  However, few, if any large corporations pay that amount!  They have armies of lawyers working the system exploiting loopholes to reduce the amount of real taxes they pay.  I also agree with Republicans that in past years California Democrats have been reckless with our money.  For example, it is outrageous that some state employees receive early retirement with high pay and some receive ridiculously high pensions!  Governor Brown got his wish with the recent tax increases.  I think that it would be a big mistake if the new Democratic super majority raises more taxes, especially now in a slow ‘recovery’.  While I’m uncertain as to how moderate increased taxes will affect California’s economy in the near future, I am certain that this would not be smart politics considering that so many people feel that taxes are high enough or too high.  I also understand that in the past when Federal tax rates were high, state sales and state income tax rates were low or non-existent.  I am uncomfortable that people I know who are making good money, around $150,000 per year, pay about 40% of their income in state and Federal taxes.  I think that is uncomfortably high.  At the same time, I am quite uncomfortable that people like Mitt Romney only pay about 15% of their income in taxes.

Like Obama, I want smart, efficient government.  I want our government to operate with the mind set that each dollar they spend comes out of the pockets of their loved ones and neighbors, not some abstract, bottomless well.  I agree with our president that the best way to make for a healthy economy is from the middle outward not the top down.  Put more money in the pockets of middle class Americans and they will spend it.  This not only involves keeping middle income taxes at a low rate, but also encouraging small business growth.  This is trickle up economics.  Trickle down economics does not work!  At the same time, reward companies that create jobs here by reducing their taxes and punish companies that send jobs overseas by raising theirs.  The same goes for companies that are environmentally friendly and those that are not.

Despite the right wing barrage of nonsense about Obama over the last four years – that he is a Muslim, Socialist, weak on foreign policy, not born in the US, etc. – the people have spoken, and he was re-elected President.  Obama is a good man.  He is a smart, pragmatic, realist…and on the right track!  That is why I support him despite my own and our country’s current economic situation.

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