I propose an idea that reduction in tax rates, especially on large wealth and income holders, leads to economy-wide destabilization effects including increased inflation and prices, market volatility, and increased public and private debt. The amount of public spending by government does not decrease in line with decreased tax rates; any reduction in top tax rates and resulting decrease in revenue to government is made up by borrowing and shifting costs around and onto the public. Reduction in income tax leads cities to hike property tax rates, sales taxes, fees and other costs to make up the difference for example, as well as puts increased pressure on the bottom line. Increased pressure drives competition and can improve efficiency, but also has the effect of shortening timelines for project planning and execution and creates incentives to cut corners to remain in or under budget (e.g. Flint water crisis), as the budget becomes the primary concern and not the actual project or spending itself. A shift toward capitalization of public spending in this way affects the ethos of what it means to spend money on public works and governance, shifting the emphasis from the works and governance to the bottom line cost and narrow economic gain. Conservative political ideology follows suit along this route of capitalization as the idea of what government and public spending exist for is changed from emphasis on societal value and public long-term good to an emphasis on a business-oriented return on investment capitalization of public funds.
Such a shift de-emphasizes what money is spent on and emphasizes instead the money itself, with the natural result that taxes are demonized as “taking money” from people without recourse or interest to what that tax money would be used for or how well it is being used, or how necessary the uses toward which it is to be put may be. Decreasing tax rates is a regressive policy that has little or no effect on most people, who exist at the poverty level or lower middle class level, and has only a significant positive effect for those in upper middle class and upper class. The reduction in revenue to the treasury is significant despite saving only a tiny amount of money, or not saving any, on the taxes the poor and lower middle class pay. Due to the reduction in revenue and resulting increase in debts and fees, shifting costs to consumers, and short-term borrowing including interest payments, the entire system becomes subtly more expensive over time, as we have seen in America. Prices increase drastically over time, there are artificial bubbles in the stock market and commodity markets right now, and inflation measured by cost of goods and services is higher than the official inflation numbers. Costs of starting a business, buying an education, buying a house or car, these are all hugely increased over the last decade or two. In part this is all caused by the subtle economic shifts that occur in a society that de-values the idea of public spending and taxes and has successfully demonized taxation to the point where low tax rates on the wealthy lead to a host of detrimental consequences for the society as a whole, again which includes mostly people who are at or near the poverty line, or relatively low middle class.
As a percentage of GDP government spending has increased only very slowly from around 15% in 1950 to around 25% today. Govenment spending will start increasing more quickly soon as interest payments on government debt increase. The main concern is official government debt and continuing large deficits, which issue is most easily and effectively addressed by increasing tax rates in a progressive fashion. However the opposite has occurred, and what used to be 70% or higher tax rates on upper income earners have fallen to around 39% today. This has the effect, since public spending has not decreased but slightly increased over time, of shifting more tax burden on lower income earners and on debt spending, as well as those other insidious effects I mentioned such as bubble economies, shifting costs to consumers, inflation and rising prices, and an overall “capitalization” of what it means to spend money in public works and social goods. And while the top tax rate decreased by as much as 50% of its original value from the 1950s-today we have the second top tax rate also decreasing slightly from around just over 40% to around 30%, and then the second lowest tax rate (lower middle class) actually increasing from around 20% to 25%.
Today the US economy is a massive debtor economy of continuous false bubbles of growth sitting atop a generally increasing cost of living and an erosion of public trust in what government exists to do, namely to spend money on socially-valuable and necessary projects such as defense, infrastructure, social safety nets and the functions of governance. Real costs of things like education, housing and rent, and food are relatively speaking through the roof, if you take a historical view; public debt is also tremendous and risks becoming a runaway debt situation where interest payments on the debt will top 50% of all public spending in just a couple of generations. All of this could be addressed by returning to a strong progressive tax system that would re-institute a view of socially-conscious and long-term value spending and refuse to dump costs onto the lowest income earners while defaulting costs away from the upper earners and supplementing spending with huge deficits (massive deficits for domestic government spending increased drastically under Reagan, who cut upper tax rates sharply due to his ideological views but as I mentioned already government spending didn’t decrease proportionately; Reagan and his economists said this reduction in upper tax rates would actually increase revenue to the treasury, but of course the exact opposite happened). The large increase in the income gap is causing problems including a fracturing of the people into strongly polarized groups and more militant ideological politics, where each “side” of the political spectrum tends to thinks the world is going to end unless their candidate wins. In fact the problems are far more benign and could be addressed with relatively moderate reforms to tax structure. The costs of living for most people are unreasonable and society just isn’t working for the average person’s anymore, and yet those moderate changes will not occur because of how the wealthy have taken over the political system and would never voluntarily tax themselves more in order to prevent continued social and economic pain and collapse for everyone else. We have effectively today an oligarchy, with a sham democracy propping it up to lend the appearance of popular mandate: so long as people vote in elections it doesn’t matter who wins, because whoever wins can do whatever they want under the false idea that they possess the “will of the majority”. Bernie Sanders is the only one who wants to meaningfully raise taxes on upper income earners, which would go a long way to starting to reverse the trends toward collapse, including large deficits and debt, of recent times. This reversal would include shifting back projects and money spent to public entities and direct government programs and away from private entities who naturally must insert added costs to secure a profit margin for themselves; the subtle capitalizing of public spending and governance is furthered when money and spending shifts from government to private organizations and contractors, and the more middle-man players you have in an economic system (such as healthcare) the more costs rise throughout that system, because not only are these players capitalistic profit-making machines driven to raise prices over time but there are simply more of them, and every layer needs to extract its surplus value from the larger system. In terms of healthcare this synthesis of many private entities all layered together on top of a government funding stream severely increases costs of the entire healthcare system, whereas a single payer public healthcare system wouldn’t have that problem.
Demonizing the wealthy isn’t the way to go, that is stupid, but addressing the real problems of wealth disparities and the effects and consequences of drastically reduced tax rates on upper income earners is necessary. Society exists in part to offset and counter-balance the natural tendencies of capitalization in social and economic life; defending capitalism is unnecessary since capitalism is the default and will always take care of itself, whereas placing limits on capitalism is necessary and important. But unfortunately the popular tune today is taken over by super-conservative wealthy interests who only wish to demonize public spending and taxes, as if these were somehow way out of wack and the real problem–no, public spending is only slightly greater over time and taxes are actually less than they used to be (unless you’re poor, in which case your taxes are greater, either as income on lower middle class or as sales taxes, property taxes passed on into rent costs, and fees). As I said, we now live in an oligarchy, and the vested interests control the popular image, and shape the popular outrage.
