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THE MORE UNCLE SAM TAKES, THE MORE THEY’LL WANT

by Gary Ferdman

 

LAST WEEK, Donald Trump’s chief economic advisor Gary Cohn gave new meaning to the term “speaking truth to power” by proclaiming: “The most excited group out there are big CEOs, about our tax plan.”

Ever since 1974, when conservative economist Arthur Laffer sketched his infamous curve on the back of a napkin, it has been conventional Republican wisdom that the more corporations and wealthy individuals are taxed, the less likely they will be to make job-creating investments in their businesses.

But Laffer and his ditto heads in Congress are standing everything we know about human behavior on its head.

Let’s accept the conservative assumption, which goes back at least as far as Ayn Rand, that money is THE major motivator. It then follows that a) business leaders and shareholders are motivated by the mansions, Maseratis, yachts and gilded shower curtains that no respectable CEO or corporate-coupon-clipping conspicuous consumer could live without. b) The more money the government takes away from corporate profits in the form of taxes, the more those companies will have to earn to assure that CEOs can maintain their extravagant life styles and keep their shareholders happy.  c) The more they need to gross in order to preserve their corporate bottom lines, the more wealth-creating jobs they will be incentivized to create.

The truth is that a corporate tax cut enables CEOs to increase net corporate earnings without creating any new jobs at all.  Why should they give in to that risky entrepreneurial urge that has made our country great? It’s far easier to use their political influence to get Congress to increase their profits by cutting their company’s taxes.

But if taxes are increased enough, corporations may even have to take those tens of billions of dollars stashed away in the offshore tax havens so vividly described in the Paradise Papers and invest them in growing their businesses here in the U.S.

“You can’t hate the job creators and love jobs” said Laffer recently on Fox News, proclaiming corporate tax cuts as the “big engine of growth.” Well, if love CEOs as job creators we must, why not at least make it tough love?

 

TOUGH LOVE was one of the more benign justifications for the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, which used draconian cuts in aid to poor families to incentivize them to work or work longer and harder. Why the double standard?

Liberal economists oppose tax cuts for the wealthy based on fairness and the need for government to have resources to invest in the educational, social service and physical infrastructures that enable American workers to thrive. Fiscally conservative deficit hawks fret about ballooning budget deficits and national debt.

Both camps would do well to learn from the Eisenhower days. According to POLITICSTHATWORK.COM, median family income rose almost 22 percent during the eight years of Ike’s administration, far above the average since. Debt as a percentage of GDP plummeted.

All this with a marginal corporate tax rate of slightly over 50 percent.

In these polarized political times, here’s one thing on which many on the left and right who sincerely care about our future prosperity might agree: For a fair and fiscally responsible government, tax the rich — more.

 

Gary Ferdman is a not for profit executive and political activist based in San Diego, CA. Among the articles he has written for us is an account of the presidential campaign of jazz great Dizzy Gillespie.