Here I try to lay out a proof of progressive taxation, and then expand that to a model demonstrating what a 15% taxable profit margin between productive business and financial investment has done to our economy.
Then I work on showing why the Federal Reserve should work towards inflation to help solve this, while the Federal Reserve is incapable of resolving it alone. That bit is a work in progress that I'm trying to get back to, so feel free to pitch in your thoughts!
If a trucker is making 5 cents per dollar of wear on a road but his trucking company makes 50 cents per dollar of wear, the trucking company's income needs to be taxed at a higher rate than the truckers in order to fairly maintain the road.
Of you tax both at 10%, and each make $100, you now have $20 to repair $55 in wear on the road.
And if the trucking company pays for ads and lobbies congress to convince people that social insurance programs, not low tax rates, are bankrupting this country, then that company is attempting to profit by exploiting the lower classes who pay into and rely on those social insurance programs.
Having established the mathematical fairness of progressive taxation, let's look at the Laffer curve and the claim that lowering taxes can raise tax revenues. Let's start by balancing trucker and trucking company tax rates at 20% for truckers and 35% for companys, so now we are at least paying the system what we owe.
That company then goes to Bush Jr. and says "hey, if you lower my taxes I'll be able to hire more people and do more business, which will raise your total revenues!". So let's lower taxes on the company, just to 5%. How is this company's expanded business going to increase revenues, if every $100 of business they do now leaves a $5 deficit? It doesn't. Simple. The only way this can work is if taxes were already too high, and the only way to really tell if they are too high is to observe how the debt/GDP ratio reacts to a change.
It is abundantly clear that debt-to-GDP exploded as soon as Bush Jr.'s tax breaks were passed. So, did tax cuts improve revenues? Or even productivity? Only if you never intended on paying the bill.
http://www.angrybearblog.com/...
If taxes WERE too high, there would have been a systemic deficit on the business side, reducing the total amount of business they are doing. However, bringing taxes too low results in the same behavior, because businesses then find they don't have to do as much business to make the same profit. This may not inhibit all expansion, but any rational participant will take a safer road to higher profits and simply not expand rather than take unnecessary risks.
And to get into Bush Jr.'s tax cuts specifically, they simultaneously made financial investments much more attractive to those interested in acquiring risk. These combined, deficit exploding incentives to make investments and disincentives to expand productive business, compose a new financial system that manages a massive and continual concentration of wealth without seriously disturbing price stability.
This means
A: people are profitting from this idiocy and
B: disrupting price stability is a very accessible way for our society to break this system, but not necessarily fix it.
To clarify, there are instances of such robber-barony backfiring, Jay Gould's run on the gold market being an excellent example. But under the gold reserve this was like running a speculation bubble on your own national currency - not so smart because the market value of the money you just made goes nuts. In the current case, the price-defining mechanism between Federal Reserve and open market is still intact and working to keep prices stable as all non-speculative investment increasingly goes to U.S. Treasuries boosting their value and deflating the currency, and the Fed rides zero-interest to keep basic liquidity thus fending off the deflation.
So to think the inflation situation through, there are 2 possible layouts: 1 is an optimization problem much like the Laffer curve, where you have imports and exports, debt and savings - inflation reduces imports and brings up exports, reduces both debt and savings; 2 is the figuring out what available metric would have to be met to even generate monetary inflation at this point, after 3 years of QE brought none, and if that is another influence on how problem 1 works.