If You Want To Understand Why Obama’s Tax Agenda Is Bad for Workers, this Picture Says a Thousand Words

By DanielJMitchell, on April 22nd, 2012

A good tax system (like the flat tax) does not impose extra layers of tax on income that is saved and invested.

I’ve tried to emphasize this point with a flowchart, and I’ve defended so-called trickle-down economics, which is nothing more than the common-sense notion that investment boosts wages for workers by making them more productive.

But if you doubt this relationship, just take a look at this chart posted by Steve Landsburg.

(H/T: Cafe Hayek)

That’s an amazingly powerful relationship. Wages for workers are very much tied to the amount of capital that’s invested. In other words, capitalists are the best friends of workers.

Something to think about with the President proposing big increases in the double taxation of capital gains. And something to consider since he wants America to have the highest level of dividend double taxation in the industrialized world.

Authored By International Liberty

http://www.thecakeparty.com sf_jeff

This article shows a critical thinking deficiency. What is the value of capital? Is it the amount invested? Or is it based on the return you can get back on that investment?

Of course it is the latter. And capital only has a hope of returning dividends on its investment if workers are paid enough to buy what they produce.
- Rogue
  
  When workers are paid enough then the capital returns a greater investment. It is a self-curing problem that needs no government interference. But your point is not well related to the blog. Trickle down works. Witness the total increase in global wealth as a result of the massive increase in US wealth.
  - http://www.thecakeparty.com sf_jeff
    
    A couple points. First, if you look at history, it hasn’t worked. In the recent iteration when we tried it, growth dropped by a third while National debt increased faster than ever in history and consumption based on earnings was replaced with consumption based on loans against capital.
    
    We saw the same thing in the 1920s. Consumption based on earnings was replaced by consumption based on capital growth and loans against it. You saw the same long term drop in interest rates in the 1920-1930 period that you saw in 1980-2010. You saw the same real estate booms as swampland in florida became the new fixer-upper and there were bucket-shops in every town doing a thriving business. However in the twenties we were on a gold standard, so there was a limit to how much rope we could give ourselves.
    
    The other thing is, it simply can’t work. The fundamental paradox of economics is revenues mostly come out of wages while wages are a fraction of revenues. If you are not going to have revenues continually shrinking, you have to find another source of revenues. If you encourage efficiency at all costs, discourage unions, cut federal spending, etc. Then wages will be far less than revenues and the only way to make it up is very large loans against asset growth.
    
    Also, the defining characteristic of a third-world country is people don’t have assets to take loans against, so it becomes even harder to make up the difference. That is why there has never been a first world country that came into being without both a strong private base and a strong public base working together.

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If You Want To Understand Why Obama’s Tax Agenda Is Bad for Workers, this Picture Says a Thousand Words

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If You Want To Understand Why Obama’s Tax Agenda Is Bad for Workers, this Picture Says a Thousand Words

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