Part 3 — History of Taxation in the US
In the first section, we discussed the regressive nature of the current US tax policy, that gives the wealthiest American’s the LOWEST aggregate tax rate of all citizens. In the second section, we showed how problematic these tax rates have been over time, contributing to the rich getting richer and the middle class stagnating. The widening income and wealth gaps leave an ever increasing percentage of the nations assets in a smaller and smaller group of hands. But how did we get here? Why did we start giving those who need it the least the largest tax breaks?
Our tax policy hasn’t always been so deeply regressive. We used to tax the wealthy at a MUCH higher rate than the middle class. But over the last 40 years, effective lobbying, a broken belief in “supply-side” or “trickle-down” economics and an increase in tax shelters have helped wealthy Americans pay less and less over time.
Additionally, we have reduced the tax rate on corporate income, which is largely held by the richest Americans, further skewing the burden if taxation.
So what happened? How did we get here? The US spent 4 decades continually testing the broken conservative theory of supply-side economics.
Supply-side economics suggests that cutting taxes and deregulation are the best way to simulate the economy. The idea is that greater tax cuts for investors and entrepreneurs would get people to want to save and invest which produces economic benefits that “trickle down” to other segments of the economy.
Demand economics suggest that a healthy consumer that drives demand for goods and services drives the need for capital and labor and the cycle is self reinforcing.
While both have merits in theory, supply side economics has shown to be a failure in practice. Reaganomics was the failed idea that tax cuts on the wealthy would “trickle down” to average workers and the boost in growth would pay for the tax cuts. That never happened. Deficits and the debt ballooned from the Reagan tax cuts, and wealth inequality worsened.
Under pressure from wealthy Americans, the US has continually tested, and tested and tested supply side economics with the same results every single time:
- Growing wealth and income inequality
- A huge budget deficit as the growth in GDP was much slower than projected, leading the aggregate loss in tax revenue to be financed with borrowing
3. Reduced investment and capital expenditure
Supply-side economics has been an incredibly expensive failure of policy that the Republican Party can’t seem to give up on.
A 2012 study by the Tax Justice Network indicates that wealth of the super-rich does not trickle down to improve the economy, but it instead tends to be amassed and sheltered in tax havens with a negative effect on the tax bases of the home economy.
In 2013, Pope John Francis stated “Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.”
