Fair Share, Robert Reich v. Kudlow, Moore and America

Hillary Clinton touched off an age old discussion this week about whether the rich are paying their “fair share.” It is, of course, one the Left’s most used demagogic cries and one of its biggest proponents is former Labor Secretary now University Professor Robert Reich. He was on Larry Kudlow’s show recently demonstrating, in glaring fashion, the Left’s the case for big government and higher tax rates. It was a case study on why the American economy is slumping today.

What is Fair?

Hillary, Nancy, Harry, Obama and many others on the Left use the fair share argument, which is nothing more than a class-warfare tactic, as a prelude to raising tax rates to pay for social welfare programs. Stephen Moore, who was also the show and has been fighting this fight for years, and ably so, pointed out that the top 2 % of income tax payers pay the same amount in income taxes as the bottom 97 %. It is also fact that the bottom 50% of income earners pay almost no income tax at all. If that is unfair in the minds of the Left, then clearly they want a chosen few to pay for everything and believe FDR when he said: “increasing the tax paid by individuals in the higher brackets . . . was the American thing to do and increasing still further the taxes paid by individuals in the highest brackets was even more the American thing to do.”

Of course, the problem with such policies is that wealth moves in the form of businesses and their owners moving away, along with sensible people realizing that it is not worth their time to risk everything only to have the state confiscate their rewards, and for still others to simply engage in tax evasion such as under reporting income and bartering.

Wherever and whenever in history the tax rates have become too confiscatory they have destroyed the economic vitality of the city or state that pushed them in the name of fairness. The result has been lower income, less jobs, poorer people and , oh yes, less tax revenue. That is why Keynes said that the high tax rates defeat their own purpose.

Capitalism Requires Capital.

For Robert Reich, who has had government job after government job, the notion that capitalism needs capital appears to be downright Greek to him. While advocating for higher tax rates, he stated that there were higher tax rates in the 50’s and 60’s and there was more economic growth than today. Such rhetoric is fraud by omission. While it is true that the top marginal rate was 94% under Truman, 91% under Eisenhower, and 70% under Johnson, Kudlow and Moore well pointed out what Professor Reich conveniently forgets or never knew: there are multitude of other taxes now on the books, or that are much higher than ever before, that have produced an overall tax burden much higher than in those years.

Beyond that, the regulatory burden businesses faced in the 50’s and 60’s is dwarfed by the burden they face today. Finally, the only sustainable growth economic periods, over the last 40 years, were all touched off by the cut in the marginal tax rates in 1965 from 91% to 70% by Johnson, from 70% to 28% by Reagan, and George Bush 2003 tax cuts. By contrast, the 50’s had no less than 3 recessions because the high marginal tax rates choked off capital formation and the government spending of the day couldn’t sustain the US economy. Sound familiar?

In the face of such facts, Reich offered the theory of the social-welfare Left for economic growth: “investing” in “people” through education and social welfare programs leads to job and economic growth. As Reich listed the many such programs for which he wants the rich to pay their fair share, which he surmises will lead to jobs, Stephen Moore attempted to interject multiple times: “What about businesses?” You know, the outfits that actually hire people?

Reich wouldn’t bite – he just doesn’t accept that if you raise the costs on businesses and their owners, you deprive them of the very capital they need to survive, grow and add employees – let alone pay income tax. And that, in a nutshell, is why the welfare state of the Left which they have long sought is choking off American prosperity today.

Fortunately, recent Rasmussen polling today indicates that 2/3rds of Americans believe like Kudlow and Moore that tax cuts are the key to economic revival not tax and spend policies. As the 2010 midterm elections approach, the Congressional Republicans need to join that choir in earnest and start winning back the hearts and minds of Americans on the issue of economic prosperity.