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Tuesday, November 16, 2010


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Unfortunately, Zandi's multiplier effects cited have been regularly proven to be inaccurate and greatly overstate the actual multiplier effect of government spending which is less than 1.Further your assertion that the top wage earners tend to save more is correct but belies the fact that the top 3% of wage earners produce about 25% of the consumption which means they spend a lot as well. Also, federal revenues increased every year bush was in office meaning even with tax cuts, federal revenues grew. Our problem is federal spending outpaced the growth in federal revenues. In addition the "deficit" statistics you cite as part of extending the current tax rates into the future assume that the current growth in spending continues. It also does not take into account the change in perception that would come from having certainty over tax policy. For most small businesses the uncertainty over health care is a bigger driver of the unease with which hiring takes place.


I found it interesting that your example of a small business begins, baseline, with a small business in the top 5% of its class. It's illustrative of your point on the money breakdown (it's at the bottom end of the $250,000 cut-off and so provides a minimal baseline savings amount), but it needs to be said again: we're only talking about the top 5% of small-businesses for auto shops. The cut-off applies to few places here. I'm not crying for either owner in the example.

On the consumption claim (top 3% consume 25%=good) by Restum. I guess I'd disagree. I find that sort of consumption horrible for the larger population. Good for economy in the short-run, good for the top 3%, but over-all not so good or desirable. What does that consumption go towards? Extra houses (which drive up property values in local markets)? Extra plane trips (which contribute to extractive industries that--whatever their use value in beneficial production--tend to be destructive of local communities and ecosystems the world over)? Extra servants or wage labor (a possibility that has not led to an increase in most American wages over the past 30 years)? Extra technology (what type and for whom?)? In fact, I'd say that, if you buy the consumptive habits of the rich as being positive, you'd also have to say that the top 3%'s inordinate interest and consumption of, say, individual goods like planes and cars, has in part at least, led to a devaluing of public interest and desire for public transportation (trains, busses, bikes).

Of course I'm not against consumption, nor the consumption by the rich, and I'm not against plane or car consumptive practices (though I think both should be shrunk severely), but I think distinctions need to be made here on what type and how much we find socially (and economically, environmentally and neighborly) desirable. 3% producing/consuming 25% is a problem, not something we should pat someone (or their rich class) on the back for--and its certainly not something that we should be helping along with tax breaks. Somewhat off topic...sorry.


Short Answer - The US needs more revenue and, for those who recall, in 1961, when our economy was seeing real, sustainable growth, the top tax rate (believe it or not) was 91%!

Today both parties agonize of a few points one way or another over 35%. Now, let's also remember that only 1% of US citizens (+/-) make $1M+ while the mean income level of our US House is $975K and the senate is $2.5M.

Seems to me that we're failing to recognize exactly WHO the decision makers are in this discussion, and whether or not they're going to continue to distract us from the true issues at hand...we're getting screwed by our own government because it serves THEM better.

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