“When the household is so far in debt,” the conservatives’ argument goes, “you can’t go printing more money. You have to cut spending.”
The conservatives’ argument likens the nation to a household, and that no household will last long if it perpetually runs up debt. Sooner or later, they say, the level of debt will overwhelm the household’s, the nation’s, ability to pay those debts. What’s more, they believe that many government programs – and especially social programs such as Medicare, welfare, and unemployment insurance are a waste of taxpayer dollars, that they are essentially money pits. They believe in “starving the beast,” that the lower the taxes are, the lower the spending must go, and that sooner or later this will not only force government spending back under control, but will enable the nation’s businesses to keep more of their money so that it can be profitably invested, and that the nation as a whole will benefit.
We can all agree that perpetual deficits are not good for an economy, but when it comes to “starving the beast,” the conservatives are working with a faulty paradigm. Why? Because in the macroeconomic view, the only tax dollars that are wasted are those that are sent outside America’s borders (and even those are not always wasted). Read that last sentence again: any taxpayer dollars that are not sent outside America’s borders are not wasted.
Let’s go back for a moment to the household metaphor I mentioned above. If the nation is likened to a household, then the government is the head of the household, and any money that is spent outside the nation’s borders is gone, just as is the money that the head of the household must spend on utilities and expenses. But, and this is where the conservative paradigm of government waste utterly fails, the money that the government spends within the nation’s borders must then be likened to the head of the household spending money within the household. The money is not wasted at all, but is still there circulating within the household.
Now let’s take this metaphor a step further. When one person who is not the head of the household has a lot more money than the others within the household, there are bound to be ill effects. This can be likened to the fact that the Walton family of Wal-Mart fame has more money than the bottom forty percent of all Americans. Right now, America has greater inequality of wealth than at any time since the 1920s, just prior to the Great Depression, and there are many who think that’s somehow a good thing, a reward for someone’s hard work.
But it’s not a good thing, not at all. A yawning gap between the rich and the poor is a hallmark of third-world nations, whereas, with the exception of certain OPEC nations, high taxes and extensive regulation are found in all first-world nations. Why is that? Because rich people will not invest where they cannot make money, and the less the people have to spend, the less likely it is that rich people will invest in something to sell those people. Rich people may not like to build factories in places where they have to pay higher wages and taxes, but they absolutely love to sell products in nations with strong middle classes, for the middle class, not the rich, is the real engine of prosperity for first world nations.
That is precisely what higher taxes provide: a stronger middle class. They do so by enabling more and better schools staffed by better paid teachers (who don’t need second jobs just to make ends meet), better staffed fire and police departments, and the regulatory agencies necessary for the prosperity of a nation. In other words: big government.
No, I’m not referring to big government in the Soviet sense, for in the days of the USSR, there was no place for it. I’m referring more to the America of the 1950s and 1960s where, for all the troubles and internal strife we faced, our economy was doing quite well despite the fact that the top marginal tax rate was at 70 percent! At that time America had a burgeoning middle class; and much of the middle class was comprised of those government jobs that modern conservatives rail against. And the proof that socialized democracy is the best economic model is all around us, for every single first world nation (except for certain OPEC nations) is a socialized democracy with big government, whereas every single nation that has low taxes, small government, and weak regulation is a third world nation. Whatever one may claim in philosophical arguments, it’s hard to argue with the obvious difference in the living standards of the regular citizens of first world socialized democracies and those of citizens of fiscally-conservative third-world nations.
I’m not recommending that we go back to having a 70 percent top marginal tax rate. I do, however, say that we need to raise taxes, for as long as those taxes do not leave America’s borders, they are not wasted. Instead, they are used to create jobs which build the infrastructure that our private sector so desperately needs to prosper. It’s time for the tax rates to go up, particularly for those who can best afford higher taxes: the rich.