Lowering taxes makes the economy stronger. But what if the opposite were true?

[underpants]

Style magazines really shouldn't delve into this without AT LEAST first reading what has to be one of the most simplistic and blindly devotional pieces I have ever read.

Oh there is NO mention of the Great Depression or WWII here.

http://www.styleweekly.com/article.asp?idarticle=17308
Regardless of where one falls in the political spectrum, it’s a widely held belief that easing the tax burden on people and businesses is the best way to grow the economy, spur private investment, increase productivity and create jobs. In macroeconomic textbooks, the idea’s often taught without debate, asserted as a policy-making rule of thumb.

But what if the opposite were equally true? What if higher taxes had a positive effect on the economy, on private investment, on productivity and job creation?

It’s not so far-fetched. In fact, the idea that higher taxes may be good for us has been around since the birth of the country. But ever since former President Ronald Reagan made “trickle-down economics” the GOP’s fiscal mantra, tax increases have largely equated to political death, disappearing from the policy lexicon of even the most left-leaning liberals.


In the months before he left office, Warner told Style Weekly: “The thing that constantly amazes me about the opposition is: If you look at the lowest tax states in the country, they are not the states with the fastest-growing economy, they are not the states with the best schools. They are not the states that have the most jobs or the lowest unemployment rate.

Warner, naturally, wouldn’t take his argument to its natural conclusion. Essentially, his success challenges the very foundation of the fiscal, anti-tax conservative base, which rose to the forefront in the Reagan years. The underpinnings of Reaganomics and the trickle-down theory holds that tax cuts — particularly for the rich — stimulate private investment at the top, which trickles down to the lower income brackets and benefits the entire economy. It’s ingrained in the long-held economic theory that the rising tide lifts all boats: Higher taxes leads to government-deficit spending, which raises private interest rates and equates to less money for consumers to spend on retail goods and services and for businesses to spend on private investment and job creation.

While there are many variations of economic theory, in politics, the simplistic version is this: Lowering taxes translates into more money for consumers and entrepreneurs, who in turn send those dollars rippling throughout the economy.



The no-tax-is-good-for-business philosophy is so pervasive that most macroeconomic textbooks even fail to challenge the assertion, says Arthur H. Goldsmith, an economics professor at Washington and Lee University. What if government spending on public infrastructure such as roads and schools had an equally stimulating effect on the economy? In a research paper published in the spring edition of the Journal of Economic Education, Goldsmith argues precisely this point.


In other words, government spending on infrastructure, such as roads, actually helps make businesses more efficient, and therefore more profitable. So much so that “long-run growth fostered by government investment spending may exceed the detrimental effect on productivity associated with crowding out,” Goldsmith writes.

Translation: The economic benefit of government spending on things like roads appears to outweigh the economic benefits of tax cutting.

The state with the highest tax burden is Connecticut, according to the Tax Foundation in Washington, D.C., with New Jersey at No. 2, New York at No. 3 and California at No. 4. Virginia falls a bit higher than middle of the pack, at No. 12, but the least burdensome tax states are Alaska, No. 50; Mississippi, No. 49; Montana, No. 48; and West Virginia, No. 47.

---the writer actually includes this as the conclusion. Something none of the textbooks he read seemed to mention---
Goldsmith says this fear of taxes is preventing any reasonable discussion about government spending.

“To me we are wasting our energy on the wrong questions,” he says. “It strikes me as naive. We are borrowing and spending $100 million a month to support our activities in Iraq and Afghanistan. Is that spending promoting productivity and economic growth?”

The better question, Goldsmith says, is whether the state is allocating its taxes, or even raising taxes, to pay for public infrastructure that is productivity-based — things like roads, bridges and other infrastructure that make it easier for industry to operate in Virginia. If improved roads in Hampton Roads reduce travel time for a trucking company, they increase productivity, which leads to increased profits and job creation.

“I think we are having the wrong conversation in this country — should we be spending more or less?” Goldsmith asks. “We can’t have a conversation about public-private partnership … when we spend all of our time on the notion of, ‘Is any government spending good or bad?’”