The article by Ken Morris provides a good explanation for why higher marginal tax rates (MTR) spur more economic growth.
During the period from 1951 through 1963, (MTR: 91 percent), the economy grew at the annual rate of 3.70 percent. By comparison, the growth rate these past seven years, with MTR at 35 percent, was 1.70 percent.
The article gives plausible reasons why the higher MTR was a cause not a just a coincidence.
Morris cites Ray Kroc’s founding of the McDonald’s restaurant chain as a case in point. The high marginal tax rates encouraged Kroc to take very little salary and to reinvest the companies profits in growth of the company. This was a way of avoiding paying lots of taxes, but it created a growing company, jobs, and wealth for many.
To make the case for lower MTR being bad for job growth he postulates that:
A billionaire making $100 million a year is unlikely to increase spending if given another $10 million. One can argue the point, but logically speaking, it’s hard to refute. Their windfall is likely to get socked away with all those other tens of millions in excess cash.
Another economist, Robert Frank, has made the point that all this extra cash doesn’t even lead to greater happiness for the wealthy. As this economist pointed out, if a wealthy person wanted to make a lavish birthday party for his children, years ago he could hire a famous entertainer for tens of thousands of dollars. With today’s excess wealth this same lavish party would cost millions to hire the same entertainer. The cost of lavish things has just risen to meet the ability of the wealthy to pay without providing any extra benefit for the money.
The number of jobs that could have been created for middle class people with the amount of money now needed to give a lavish party has risen because inflation for the middle class is not nearly as bad as inflation for the wealthy. More total happiness would be created with a more even distribution of wealth.
Some of the points from this video include:
“Because satisfaction depends more on relative consumption, most people will adapt quickly to an across-the-board reduction in consumption.”
“By simply changing what we tax, we can eliminate enough waste from our current system to pay down debt and provide a high level of public services.”
“A tax on any activity has two effects:
“1. It generates revenue.
“2. It discourages the activity.
“The current tax system taxes mostly useful activities, such as savings and job creation.
“If we instead taxed only harmful activities, we could raise all the revenue we needed without requiring any painful sacrifices.”
Real waste is in the private sector. Government waste in public sector trivial compared to waste in private sector.
“Private waste occurs not because consumers get overcharged, but because they get caught up in wasteful ‘positional arms races’.”