Redistribution is Moronic and Regressive
Dick McDonald www.riseupamerica.us

In the article Capitalism’s Fourth Transformation I didn’t clearly make the point that redistribution of income through taxation is not only moronic but regressive. The supply-side policy dubbed "trickle down" – the Third Transformation - was not a policy to make the rich wealthy enough to trickle down wealth on the poor, it was a policy to make the poor richer period. Let me explain.

As a newly-minted CPA in the Los Angeles office of an enormous international accounting firm, I hit it out of the park in my very first training session. As a reward I was assigned primary responsibility for preparing two tax returns – Jimmy Stewart, the richest actor on the planet, and then J, Paul Getty, the richest man on the planet.

In those years Federal income tax rates topped at 91% for incomes over $50,000 and California topped at 11%. As California tax was deductible on the Fedral return, the overall income tax rate was about 94% - an almost inconceivable fact to counter today. Those like Getty and Stewart who invested in oil and gas took non-economic tax losses and avoided the "taxman" whereas ordinary Americans couldn’t

Now ask yourself a simple question. If you had after-tax wealth in those years and a promoter came up to you and asked you to invest and risk your wealth on his sure-shot venture your reasoning would go something like this. If this man is right I can make a $1,000,000 but I would owe those socialists in Washington $930,000 of that profit. Why risk investing a million to make a measly $70,000 and possibly lose a million if it didn’t work out.

This was the thinking of the rich in the 1950’s, 1960’s and 1970’s – why take a risk the reward for which is filling the coffers of the socialists in Washington DC. As a natural result, the American economy ran at a snails pace compared to what it could have.

Then came little Jimmy Carter and his socialist policies that ushered in the "Era of Limits", the "Misery Index" and 21% interest rates. Calling Jimmy and his Democrat herd economically dysfunctional would be too flattering – the man had a black cloud permanently circling his head as did his party.

The country canned Jimmy and elected Mr. Shining City on the Hill leaving a gaping hole through which Jack Kemp and the Milton Friedman brigade jumped reducing the top Federal income tax rate from 70% to 28%. And what hole was that? The hole was simply that socialism does not reward taking risks and high tax rates and the Carter Administration proved that in spades.

How could we create a shining city on the hill if a capitalist economy kept penalizing the risk takers? The Democrats of 1982 had no other choice – socialism was choking the American economy with TAX REDISTRIBUTION – DEMOCRATS ACCEDED THE POINT AND VOTED TO LOWER THE RATES.

What I and every tax accountant in the country had wanted for years were lower rates to stimulate investment, The investment would create businesses and jobs and the resultant economic activity would lift all boats. It wasn’t brain surgery – it was economics everyone should have learned in the sandbox.

The result of that dramatic reduction in tax rates has been the longest period of sustained economic growth in the history of the planet. Today America has almost 500 billionaires and millions of millionaires. Prior to that change, there were hardly any of either. Freeing the American people from punitive taxation allowed them to create a nation of haves and fewer have-nots.

The movement to reduce the tax load of the American people has been hugely successful. We have the richest poor people in the world and the richest rich people. Allowed to build their wealth and avoid punitive taxation and suffocating regulations, Americans have thrived economically.

Unfortunately there has been an unequal distribution of that wealth. Those in the economy that saved and invested their money thrived while those that spent their money and never invested stayed at a lower economic level. And today, in 2008, we are faced with many in the population unhappy that they have not participated in this great era of wealth creation and accumulation.

As it is in all matters, those people are looking for a savior to rectify this imbalance – someone who can right the ship so to speak. Into this void stepped Mr. Barack Obama to decimate the hopes of one Hillary Rodham Clinton by promising to penalize the rich and redistribute those spoils to the poor and middle-class. His pitch is quite simple, he is only going to tax the top 1% of the population which on the surface sounds fair until one realizes that he is proposing to increase the tax load of America by 20%.

The moronic and regressive program spelled out on his website is nothing more than advanced socialism. He proposes to take funds used to create businesses and jobs away from the very segment of society that creates those businesses and jobs and give it to people that will merely spend their money and never save or invest it.

In this process he will reverse the economic miracle of the last 25 years and start America back down to the era of limits and the need for a misery index. By encouraging consumption and penalizing investment he fails economics 101. Our Founders created a country that didn’t tax incomes or wealth.

For the last 25 years we have benefited by the rebirth of our Founders principles. Unfortunately the American public may choose the moronic and regressive path back down the mountain to stagnation by buying the tune the socialist Obama is playing. If the mood of the country doesn’t change it is in for a bumpy ride with little or no new investment in our capital markets. The contraction of the economy and the lessening fortunes of the people will surely follow.