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December 12, 2012 10:31 AM Taxing Unproductive Wealth

By Ed Kilgore

At TNR today, John Judis has a must-read piece that challenges much of today’s economic policy orthodoxy. Instead of worrying about how much we can tax the very wealthy without inhibiting their life-giving, job-creating pollination of economic growth via capital investment, says Judis, we ought to recognize that higher taxes prevent the rich from destabilizing speculation at the expense of the consumption that actually drives growth:

When firms suffer from global overcapacity or merely from domestic overproduction - when a glut arises of automobiles, ships, textiles semiconductors or fiber optic cable — as happened in the late 1920s and again in the earlier part of the last decade, the wealthy, joined by corporate treasurers and bankers, have tended to pour their money into speculation rather than productive investment. The financial sector has become a casino for the rich, where they have gambled away funds that could have fueled the economy. So redistributing income through tax policy isn’t just fair; it is one way to began restructuring the economy to prevent future slowdowns and crashes.

So according to this perspective, we should no long think of progressive tax rates as a furtive effort to snatch some resources from the natural aristocracy of economic life. Inequality tends to produce not only offenses to justice, but the kind of instability that afflicts us so notably today.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • c u n d gulag on December 12, 2012 10:44 AM:

    The wealthy of today have WAAAAAAY too much untaxed money lying around.

    And so, they take what's left over after they've bought every feckin' thing anyone could ever want, dream of, or hope for, and spend it on paying think tanks, and supporting politicians, who'll work to make sure that they have a continued endless stream of even more untaxed money, to pay for their speculation jones at the Wall Street casino.

    Go back to Ike's 91%, and we'll be a functioning and productive country again.
    Let the Galtian Gazillionaires spend their left over money on lawyers and CPA's looking for loopholes, to lower that top rate a percentage or two.
    I'll settle for France's 75% top rate, too.

  • Andrew on December 12, 2012 10:58 AM:

    Exactly. Our current way of non-taxation and extreme inequality is unamerican, undemocratic and unsustainable.

  • troglodyte on December 12, 2012 11:06 AM:

    Of Course!

  • Mimikatz on December 12, 2012 11:24 AM:

    Much more direct and efficient, we need a transfer tax on stocks, bonds, eggs etc. A minimal tax of .1% (that it $1 on every $1000 traded) would bring in a great deal of money. Even a .01% tax would help.

  • emjayay on December 12, 2012 11:51 AM:

    It seems likely to me that the taxing of capital gains at a lower rate than earned income is just as important, or the most important factor. Even during Reagan the rates were equal. I suppose the idea was originally sold by financial sector money convincing everyone that supercharging capital investment and speculation would help the economy, and homeowners in some areas wanting to strike it rich when they sell their house. But the negatives way, way, outweigh andy positives. It creates a huge incentives in all kinds of ways that sucks money into speculation and sucks smart people into becoming speculators instead of engineers or doctors etc. Financial sector profits have become a many times larger per cent of profits overall. Kind of like CEO incomes.

    And of course, this policy drastically reduces government funding - funding that doesn't come out of wage earners pockets so they don't even get any direct advantage. The "clff" raises the rates from 15% to 20%. not enough but a step in the right direction.

    I'm sure books and articles about this have been written by people who did some actual research and thought. Any suggestions?

  • jjm on December 12, 2012 1:05 PM:

    One word: A M E N !

    (I recall living in Paris, France in the early 1970s in a tiny apartment that had been carved out of a very grand apartment that was still extant. Near the first of the year, tax men came in and checked what 'stuff' was there -- antique furniture, e.g., and even purebred dogs were on the list of items that were taxable... all of it going on the apartment owner's bill. Very different system from ours!)

  • Doug on December 12, 2012 6:24 PM:

    Everything "old" is new again! Kids, can't tell'em anything, so I guess they have to learn it all over again!
    The pitiful part is that using high tax rates to prevent "idle" money setting off rounds of economically dangerous speculation used to BE economic orthodoxy.
    And it worked!