American Economy and Other Entropic Processes

Graphically illustrated here, we have the history of the top marginal tax rate in the United States of America from the inception of the income tax in 1913, brought to you by the Sixteenth Amendment, through 2003, when the top rate was reduced from the Clinton era rate of 39.6% to the present 35%.  

It's all there, if you look closely.  As with any new toy, the income tax was taken out for a spin by the central government as soon as the law was enacted, the top rate zooming to nearly 80%. The rate was just as precipitously reduced at the outset of the Roaring Twenties to 25%, under the leadership of three consecutive Republican presidents, Harding, Coolidge and Hoover. These three,  in cahoots with Congress, were the original "supply siders," believing that low taxes on the rich would foster growth and prosperity through trickle down mechanisms.  And so it did, for awhile, and America's economic fortunes improved along with the rest of the world following the catastrophic destruction of World War I.  And also, as the low tax rates were maintained and the financial sector was allowed to run wild with unlimited margins and unsupervised stock markets, the pro-fatcat regime led to the kind of unbalanced wealth distribution not seen again until...now.   Sic semper gloria mundi.

It all crashed in 1929.  Roosevelt, the original creator of the Mother of All Stimulus Packages, the New Deal, had one enormous advantage, visible in the chart above, not available (in any practical sense) to President O.  He could draw upon the accumulated wealth of the country, and that of the plutocrats still earning big money, through the income tax, pushing the top marginal rate from 25% to 80% in his first two terms in office. As World War II reached America's shores, the populace tolerated a confiscatory top rate of over 90%; you see, in those days Americans thought that if the country was at war, it must be something pretty important.  Something worth sacrificing and paying for.

Such quaint ideas.  So World War Twoish. Under George W. Bush, no sacrifice whatsoever was asked of America's disaffected, indifferent masses, the ignorant armies watching TiVo by night. The tax burden was lightened during the Afghanistan and Iraq wars even though these conflicts were ruinously expensive.  But W, after all, was simply a child of his times.  That's how we do things now.  America is not really a nation anymore; it's a market, a demographic, a place to network and make your money,  keeping as much as you can.

That's why the modern "Recovery Act" cuts taxes as part of its program of spending $1 trillion to stimulate the economy.  No one is suggesting that the top rate of 35%, applicable to incomes over $300,000, be increased at all.  No one is suggesting that the FICA tax apply to incomes over its present maximum of $100,000.  Why isn't Congress suggesting something so obvious, so fundamental, particularly with Roosevelt's example to light the way?

Because Congress works for the people whose taxes would be increased.  See how obvious all this becomes with a few simple charts and graphs?  Congress members now tell us, Democrats & Republicans alike, that raising taxes damages economic growth -- this is not something the government does during a downturn.  Huh?  What exactly then was Roosevelt doing in the 1930's?  Suppose we raised the top tax rate to 50% for all incomes over $1 million per year. It would raise a lot of money; is anyone seriously suggesting that the increase of 15% would cause those big earners to stop making money?  Lebron James and A-Rod would hang it up?  Those Fortune 500 CEO's whose incomes average $400 million per year - not worth it anymore?

Yet it's politically unthinkable, isn't it?  So here's something else that is unthinkable: that this "stimulus" plan is going to work.  It can't.  It violates some fundamental thermodynamic rule of money.  If the citizens of this country are not willing to pull together collectively and put each other to work by paying for the government projects contemplated by the Recovery Act, then it's hopeless.  We have to do our own internal redistribution of income and wealth in order for the country to avert catastrophe.  If we are not willing to do that, then the plan will fail.  You cannot borrow your way out of a problem caused in the first instance by excessive borrowing and income inequality.  And beyond that, do we honestly believe that all the foreign creditors who will be asked to finance this enormous outlay at essentially zero return on their investment will not notice that we're not paying for any of it?  That we're reducing our own burdens as our "contribution?"

I'm afraid this one takes the idea of American Exceptionalism way past the breaking point. This is a looming disaster.  We're the ones we've been waiting for?  Will there be another bus along in a minute?