Let's start from a clean state here, about why, a liberal (and not a socialist, as so many who claim to be liberals are), believe that higher taxes on the rich are sometimes justifiable.
1. Government spending will almost always boost aggregate demand and promote economic growth in some way. Even if the government buys seemingly useful trinkets, someone has to make the trinkets, and they have to hire people, so government spending will create jobs and boost the economy.
2. Conservatives argue that government spending is less efficient than private spending, and that they would rather have individuals spending their money than the government. I believe this is a reasonable belief, and it is very much often true. After all, if the government buys useless trinkets with a million dollars, it will technically boost the economy, but that would be a form of malinvestment and we would suffer severe opportunity cost because an individual would have probably boosted the economy more if he had spent that one million dollars. Most of the times, this will manifest as pay-offs toward political supporters, inefficient central planning, or failed government programs. And when people see examples of this on television, it is very easy to come off with the conclusion that all government spending is wrong and undesirable. But I do not believe this belief is always true. Many times, individuals are simply not willing to spend their money at all, especially during economic busts, like our recent recession.
4. This is why I believe the government should spend money during economic downturns, in order to lessen how large they are. In a recession, even somewhat inefficient spending is preferable to no spending. However, the government cannot vastly increase the amount of revenue it collects in a short-period amount of time that quickly. Thus, in order to spend this money, we need to deficit spend. Often a lot, by cutting taxes and increasing spending.
5. However, we will need to pay off this debt eventually. We cannot merely spend our way out of every single recession, our debt will simply eventually drown us. That's why I believe during economic upswings, the government should collect higher amount of taxes, in order to help compensate for the large amounts of money spent in during the downturn.
6. Most taxes, especially taxes on the wealthy, are an
automatic stabilizer, which in economics, is defined as a fiscal tool that the government uses that automatically raises aggregate demand during a recession, and lowers it during a economic upswing. The taxation base of richer Americans fluctuates with the economy much stronger than the taxation base of poorer Americans. In a recession, many wealthy Americans will see their incomes slashed greatly and their investments worth much less (typically, the richer you are, the more money you have in investments) Thus, the government collects much fewer taxes from the rich in a recession. The opposite is true in an economic upswing. Thus, with a progressive taxation system that taxes the rich more, taxation fluctuates more with the economy. Thus, higher taxes on the rich are a good way to accomplish fiscal policy because the difference in how much capital the government puts into the economy and how much it takes away from it will naturally be much higher in a recession than in an upswing.
7. Thus in the end, I believe that higher taxation on the wealthy is necessary toward the functioning of a strong and stable economy.
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Edit: Unemployment benefits and welfare also represent a great automatic stabilizer. Instead of taxes, they are a form of spending that matches the economy. In an economic downturn, a lot more people will be collecting welfare and unemployment benefits, and in an economic upswing, a lot fewer people will be collecting them. Thus, it means the government will automatically spend more in a recession, and less in an economic boom. So I think they're very useful programs.
However, I do believe you are fairly correct with Social Security and Medicare. Both of them are relatively useless wastes of money, and will probably eventually wreck our nation's economy unless we slash them. Social Security is merely wealth redistribution, which even I, as a liberal, thinks is stupid. Medicare is even worse because most of the individuals it subsidizes will be subsidized long-term, and may actually
GREATLY increase social costs by keeping chronically ill (and expensive to treat) low-economic performance individuals well... in a polite way, still treatable. But both programs are relatively popular among both conservatives and liberals (President Bush presided over one of the largest expansions of Medicare in history, the Medicare Modernization Act), so...yeah. Don't blame me.
- By Rich
- By FiveofSwords
- By Potemkin