The liberal’s historical argument for higher taxes on the rich doesn’t add up

I can’t blame left-wing ideologues for not understanding the difference between causation and correlation. It’s a tenant, actually, of liberal ideology, to completely misunderstand the very nature of reality in cause and effect.

But when economists start screwing it up, there’s cause for serious concern.

Paul Krugman hasn’t been the most non-partisan economics writer of his time, but in his latest dive off the deep end into the political economic climate in a post-Hostess world, his title ‘The Twinkie Manifesto” is a fitting one.

You can imagine Krugman’s glee at his Karl Marx pun.

In his piece, he explains that in the 1950’s and 60’s when economic growth was booming, top tax rates were above 70%, even at 90% at various times and the corporations were taxed at double the rates they are now.

All of this in a world where one in three workers were part of a union.

In short, the life of a corporate CEO was anything but luxe…just the way the left likes it.

The implication Krugman seems to be making is that if we go back to these kinds of tax rates, what could it hurt? We’ve seen it work before.

What Krugman is missing here – besides mostly everything – is reality (you know…nothing important).

The post-World War II world was an industrial boom. Cities were being built and rebuilt, industries were expanding, being created and this was happening while the rest of the world, for the most part, was mired in economic hardships.

Europe was still struggling to unshackle itself from the devastation of two world wars, Asia was still woefully behind the modern world and this truly was the time when America asserted its world dominance.

There’s a reason they got in an international pissing match with the USSR; they were the only two countries with any sort of economic or military might at that point.

The point of the history lesson is to point out that this industrial revolution of sorts was what drove economic growth. Imagine, conservatives could say, a world in the 1950’s with some technological advancements and industrial growth, had you let the business owners and investors actually keep some money from their endeavors.

We might still be reaping the boons of such an economic policy. Just because those top tax rates didn’t absolutely murder the U.S. economy, doesn’t mean that they wouldn’t now – they certainly would.

In short, the global economy is such an inescapably different place that to compare current economic circumstances with those historical ones is fallacy and near lunacy.

Enormous top tax rates didn’t cause those economic booms, it was a function of circumstances and opportunities. It’s not a difficult argument to make that if top rates and corporate rates had been lower, we likely would have seen even higher rates of growth.

Perhaps more to the point, modern economists have expressed concerns that America’s history as an economic superpower is too reliant on innovation and growth. The U.S. was a burgeoning behemoth when the car was invented, when digital technology was discovered and industrial advancements were being made.

Now, innovation is harder, there is more global competition. No economy can rely solely on innovation to drive it forward.

Essentially, Krugman’s argument is the leftist Clinton argument re-hashed and doubled down. Clinton’s higher tax rates on the rich are where liberals always turns to in an argument about pushing rates up. But Clinton had the housing bubble and the tech bubble both in full boom when he was in office. Those tax rates didn’t cause either bubble, but they didn’t significantly inhibit them either.

The housing bubble was creating by bad long-term fiscal policy (which is Clinton’s fault), and the tech bubble was created by overzealous business owners and ultra-aggressive investment professionals.

Also remember, Clinton lowered taxes on investments, which caused millions to be re-invested, growing the economy.

But even just 15 years ago, the complexities of the global economy were not the same. Higher tax rates didn’t have the same effects they do now as millions and probably billions of dollars in American corporate profits are being sheltered in other countries with more favorable tax structures.

Higher taxes on the rich would only make liberals feel better. That’s the only causation in this equation. It wouldn’t put even a nick in our debt, nor would it account for even a fraction of our deficit spending. It would just make liberals feel the world is fair and they could pay for more inefficient and ineffective government programs.

For all the talk about the GOP not being the party of math, the liberals’ math on tax reform doesn’t add up. Nor does their stance on physics: their reality is not the one in which we all live.

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2 thoughts on “The liberal’s historical argument for higher taxes on the rich doesn’t add up

  1. I’d like to add a caveat here. Economics doesn’t tell us what’s the right and wrong policy decision to make. It’s simply a tool to analyze how each choice effects other factors. So Krugman (just like a lot of conservative economists) often “advises” things, not based on economics, but on priorities identified by other means.

    • youngright says:

      Yes and no. To say you can separate economics from policy is fallacy. Paul Krugman is an economist by trade. Therefore, his policy prescriptions are inherently aimed at having economic repercussions. In other words, his prescriptions are inherently aimed at having and creating a certain economic outcome. Certainly we can argue that policies may be the “right” or “wrong” policies for other reasons, but in this case, Krugman’s argument is centered around the idea that the economic outcomes wouldn’t be as conservatives argue. And he’s just wrong about that.

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