Republicans and Business Policies

Procuring the wealth collected from low wage employees described in the previous two sections, is just half the battle. Protecting those large profits from taxation is the all-important second issue. There is no reason to exploit your workers if in the end it all goes to the government. That is exactly why progressive taxation, in the past, has been so beneficial to this country. Oishi, Kushlev, & Schimmack (2018) make this point:

Using historical data in the United States from 1962 to 2014, we found that income inequality was substantially smaller in years when the income tax was more progressive (i.e., a higher tax rate for higher income brackets), even when controlling for variables like stock market performance and unemployment rate. Time lag analyses further showed that higher progressive taxation predicted increasingly lower income inequality up to five years later (American Psychologist, 2018 - psycnet.apa.org).

I think most people would agree that many legal things are purposely confusing so as to mask unfairness, and also that there are probably few things in America more confusing than this county’s tax laws. Progressive taxation, on the other hand, is simple and its effects very logical. So it becomes the perfect tool in examining the true objectives of the Republican Party as it has always viscerally opposed progressive taxation.

The first argument against progressive taxation by the GOP is with the question, if you work extra hard and, as a consequence make greater returns, is it fair you should be penalized with a higher tax rate? The obvious answer is no, you shouldn’t. The high end of the progressing tax rates is not for people who actually earn the money. It should be applied only for incomes higher than what can normally be earned by the true economic efforts of the single person(s) receiving the income. And there is always income averaging if you are, like an artist or athlete having several years of low income and then a big payday year. The intent is to only tax profits at the higher rates against unusually high incomes from generally large businesses that reflect the wealth created, not by the owners or stockowners, but by large numbers of working people in that business. Progressive taxation, always opposed by the Republican Party, is a tax structure designed, not to create state revenues, but to encourage wealth distribution to the ones who truly created it.

The second argument of the Republican Party to progressive taxation, as well as to all taxes against the rich, is that it stifles investment. A simple review of the structure of progressive taxation shows the opposite to be the case. For small profits the income tax can be set from zero up to very small rates. This is just the type of incentive needed for new investments. As profits move up to normal returns the rates can represent normal tax needs of the economy. When, on the other hand, profits get unnaturally high, even assuming, that it is got from sound economic reasons, it is of no damage to the business to avoid those highly taxed profits through other spending options. There is a long list of alternative options that increases the company’s long-term economic health and earnings. They range from product improvements, R&D, making capital purchases, raising wages, giving to charity, and having a Christmas party. Not only is this better for the local economy by circulating local money, it favors one type of stockholder over another; it favors the local investors looking for a long term, dependable wealth growth, like our pension funds, and it disfavors “day traders” and international investors, who goals are the milking of the business now, with little regard to long term health. So, as we see, progressive taxing is good for every American citizen and not as much for offshore profits. When the Republican Party doggedly fights against any form of progressive taxation what does it say about whose side they are on? Additionally, it calls into mind the unfairness there must be in the less transparent loopholes that bloat today’s tax code so that seemingly, the very high earners pay lower rates than normal citizens. Indeed President Trump (who brags that he is too smart to pay taxes) ran, and received many votes with the promise that he would overhaul the tax code and get rid of the loopholes. Instead of even attempting that, to which all of America would have applauded, he just lowered the tax rate for the higher income brackets, which is a spit on all taxpaying citizens that must somehow make up the difference (if not in the Trump years because of historically high deficit spending, in the future years of our children). And he crows about this tax cut to the wealthy as the great Republican Party achievement of his first year in office. So much for Republican fiscal conservatism!

Let’s not forget the first thing Reagan and Bush2 did, and that now Trump has done, was to lower the taxes of the very rich. The second thing they have all done, is to deregulate the finance industry. The Reagan/Bush terms ended with the Saving and Loan Recession. The Bush2 presidency ended with the much bigger Toxic Home Loan Recession. There is no reason to believe that Trump will give us nothing more than the third Great “Republican Recession”. The best we can say about the Republican Party is that they are incapable of learning from their own mistakes. On the other hand; could it be that this debauchery is not a mistake?