And if he said any one of these things over and over, if he insisted they were true, if he included them in nearly every speech, proudly repeated them to the press, and made them the centerpiece of his campaign... if he did that, the laughter would turn sour. Surely Romney wouldn't be able to give a speech without being met with derision. He wouldn't make it through an interview without the media tearing into his ridiculous and unworkable plans. He'd be laughed right out of the race.
So when Mitt Romney declares that his economic plan involves reducing taxes on the wealthy as a means of growing the economy... where's the laughter?
The assertion that there is a relationship between a growing economy and tax cuts is an old one. For many conservatives, the relationship seems one of pure common sense: allow the rich person to pocket more earnings, and they'll have more to spend on growing their businesses. Simply allow those at he top to "keep more of their own money," and the rewards trickle down to everyone. That this relationship isn't immediately obvious to the must casual observer among the hoi polloi is a source of irritation.
To better convince those who just don't get it, conservative economists have sought elusive proof of this beast with the dauntless dedication and fervid belief of Bobo seeking Bigfoot. In just the last week, Hoover Institution fellow Thomas Sowell made a fresh stab at the idea.
In the early 20s the tax rate on the top incomes was 73 percent. The people making over $100,000.00 paid like 30 percent of all taxes. By the end of the decade the tax rate on the top had been cut to 24 percent. People making over $100,000.00 now paid 65 percent of all taxes, and the reason is quite simple: when you have the tax rate at 73 percent people simply don’t pay it. They put their money into tax-exempt securities and rearrange their financial affairs.Sowell neatly demonstrates both the core of the conservative argument and the requisite obliviousness inherent in being a proud Hoover fellow. Wasn't there something that happened around the end of the 1920s? A quick review shows that the share of taxes paid by the wealthy grew, not because reduced taxes stimulated economic growth, but because the reduced tax rates over that decade produced rapidly growing income inequality, a huge speculative bubble leading to the rapid collapse of the stock markets, and the plunging of the economy into the Great Depression. The rich shouldered a larger share of the tax burden by 1930 not because things were so rosy, but because they had captured nearly all of a rapidly shrinking pie. This is not particularly good evidence that tax cuts = fun times.
Over the last sixty-five years, we've given tax cuts for the rich another go, dropping the top rate repeatedly. Every time we've done so, it was in response to the argument that reducing the burden on those all important "job creators" would unleash the economic hounds and fuel an economic surge. So how did this stretched-out second take on Hooverism work out for us?
The non-partisan Congressional Research Office recently completed a study of the relationship between tax rates and the economy from 1945 to date. In 1945, the top tax rate was 90%. It was cut to 70% in the 1960s, and to 35% today. More importantly for the very wealthy, the rate on investment income was 25% in the 1940s, peaked at 35%, then fell down to 15% today. The tax burden on the wealthy has decreased steadily.
So how'd that work out for us? It turns out, not so well. The top tax rate was found to have no link to greater savings, no link to greater investment, no link to a stronger economy. Actually, that last bit is not true. The study did find a relationship between tax rates at the top and economic growth. A negative relationship. The economy grew faster when tax rates at the top were high.
What do you get when you cut taxes on the rich? Greater income inequality. The one definitive change fueled by cutting taxes on the wealthy is that more and more of the money is held in fewer and fewer hands. Remember that old bit of common wisdom among conservatives about letting a rich person pocket more out of every dollar? As it turns out, that's exactly where it goes–in his pocket. Decreasing taxes on either income or investment earnings doesn't fuel job creation. It doesn't spur innovation. It just makes sure that the money flows to one end of the pool and stays there.
Slow motion Hooverism hasn't worked any better than the more rapid variety. It's generated the same high rate of inequality, distorted markets, falling levels of employment, and overall economic catastrophe as it did the first time. When it comes to cutting taxes, we've preformed the experiment. We've done it not once, not twice, but many times over a period of nearly a century. It hasn't worked. It doesn't work. The evidence is in. The central tenet of conservative economics has been utterly and conclusively shown to be false.
Any politician who promises to right the economy through cutting taxes on the wealthy might as well invoke the Easter Bunny, and any reporter who fails to point this out is failing the public.
There is a difference between believing in the existence of Bigfoot and counting on reducing taxes on the rich as a way to boost the economy. Bigfoot is simply very, very unlikely. Conservative economics are a myth.