OMG A CHART
The unemployment rate vs the top marginal tax rate in the US.
As you can see, when the top marginal tax rate is high, the unemployment rate is low.
Yet, we’ve constantly been told that in order to create jobs and stimulate the economy, we need to cut taxes for the wealthy, for the “job creators.” Why doesn’t the data support this claim?
Because it’s not true.
See, a high marginal tax rate ENCOURAGES the wealthy to re-invest in their corporations, providing jobs, technology improvements, economies of scale, etc, while a low marginal tax rate DISCOURAGES this sort of economic reinvestment and instead stimulates the high mucky-mucks in the company to pay themselves outrageous salaries.
When Mitt Romney pays 13% “tax” (and it should be noted that the amount of social security tax he pays on whatever he makes is less than one tenth of one percent, as opposed to the 7% the rest of us pay) the 87% of his millions that he’s sending to the Cayman Islands ISN’T going to hire workers, buy equipment, or build factories—it’s going to bankers, brokers, and other high mucky-mucks in a shadow economy that has almost no resemblance to the real business of working people.
A high marginal tax rate provides the the economic impetus to reinvest in the infrastructure of your business—you’re keeping your money by buying goods for your business instead of giving it to Uncle Sam. The direct jobs created by that demand (you’ve hired people, bought equipment built, installed, and maintained by people) improve the economy, increasing total revenues across the board and making things better for everyone.
Look at the data: Throughout the 1950s and early 1960’s there’s a 90% tax on the highest incomes, and the unemployment level hovers around 4%. 1964 starts a trend toward decreasing that marginal tax rate periodically, which corresponds to a trend of increasing unemployment until Bush I and then Clinton started raising that rate, shoring up the economy and putting unemployment in check, until Bush II took office and slashed taxes again, putting us in our current situation. The single biggest thing Obama could do to stimulate the economy would be to raise taxes on millionaires to at least Clinton-era levels, and preferably Reagan-era levels. Unfortunately, that sort of political will requires a popularity and strength of determination that Obama isn’t willing to risk having in an election year, as raising taxes is wildly unpopular, even if it’s the right thing to do.
Still, it’s important that we do our part to educate folks, so consider this lesson in economics from someone who doesn’t officially know anything about economics, but knows how to read a chart well enough to know when the numbers don’t back up the story he’s being told.
(By the way, the chart is by me, using publicly available data from as far back as I could get it)