David Cay Johnston, author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)
writes about the grand experiment that is ‘supply side economics’ that somehow “lower tax rates will encourage more investment, which in turn will mean more jobs”. Unfortunately thirty years of data indicate the theory is a failure and doesn’t produce the promised results. Like so much bad technology, however, that doesn’t stop the US from continuing on the same path and we now see a massive income disparity and the demise of the middle class.

Tax policy is something the framers left to politics. And in politics, the facts often matter less than who has the biggest bullhorn.

The Mad Men who once ran campaigns featuring doctors extolling the health benefits of smoking are now busy marketing the dogma that tax cuts mean broad prosperity, no matter what the facts show.

1. Poor Americans do pay taxes just not a lot of federal taxes.

2. The wealthiest Americans don’t carry the burden. “It’s true that the top 1 percent of wage earners paid 38 percent of the federal income taxes in 2008 (the most recent year for which data is available). But people forget that the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.”

3. In fact, the wealthy are paying less taxes. Poor Americans pay 21% while rich Americans pay only 18% after various loopholes and deductions.

4. Many of the very richest pay no current income taxes at all.

5. And (surprise!) since Reagan, only the wealthy have gained significant income.

6. When it comes to corporations, the story is much the same—less taxes.

7. Some corporate tax breaks destroy jobs.

And right now America’s corporations are sitting on close to $2 trillion in cash that is not being used to build factories, create jobs or anything else, but acts as an insurance policy for managers unwilling to take the risk of actually building the businesses they are paid so well to run. That cash hoard, by the way, works out to nearly $13,000 per taxpaying household.

A corporate tax rate that is too low actually destroys jobs. That’s because a higher tax rate encourages businesses (who don’t want to pay taxes) to keep the profits in the business and reinvest, rather than pull them out as profits and have to pay high taxes.

8. Republicans like taxes too.

In 2009, President Obama pushed his own tax cut—for the working class. He persuaded Congress to enact the Making Work Pay Tax Credit. …

The Obama administration called it “the biggest middle-class tax cut” ever. Yet last December the Republicans, poised to regain control of the House of Representatives, killed Obama’s Making Work Pay Credit while extending the Bush tax cuts for two more years—a policy Obama agreed to.

By doing so, Congressional Republican leaders increased taxes on a third of Americans, virtually all of them the working poor, this year.

As a result, of the 155 million households in the tax system, 51 million will pay an average of $129 more this year.

9. Other countries do it better.

Germans work less, make more per hour and get much better parental leave than Americans, many of whom get no fringe benefits such as health care, pensions or even a retirement savings plan. By many measures the vast majority live better in Germany than in America.

To achieve this, unmarried Germans on average pay 52 percent of their income in taxes. Americans average 30 percent, according to the Organization for Economic Cooperation and Development.

At first blush the German tax burden seems horrendous. But in Germany (as well as in Britain, France, Scandinavia, Canada, Australia and Japan), tax-supported institutions provide many of the things Americans pay for with after-tax dollars. Buying wholesale rather than retail saves money.

Read the full article here

Nobel prize winning economist, Joseph Stiglitz author of Freefall: America, Free Markets, and the Sinking of the World Economy
speaks on the widening gap between rich and poor.