Wednesday, August 17, 2016

A Sufficiently Progressive Tax Code

To the question, "How does one know if a sufficiently progressive tax code has been achieved?", a place to start may be with an examination of saving rates among various income groups. 

Currently, high income earners save at the rate of approximately 25% and median income earners save at a rate of less than 10%.  Excess savings is a drag on the economy.  A strategy to create a sufficiently progressive tax code requires removing excessive saving from the economy.  A sufficiently progressive tax code (in the current environment) will raise the tax rate on high income earners and lower the tax rate on median income earners until the historical data shows a parity among the rates of saving for these two income groups.  Once this is achieved (perhaps a saving rate of 12% for each of these two groups), excessive saving will have been driven out of the economy.

Saving rate parity among high and median income earners will signal a sufficiently progressive tax code.  A sufficiently progressive tax code will help to grow the economy by putting more money into the hands of those who would spend it.  This will create a higher demand for goods and services.  Greater aggregate demand will grow the economy and will create more jobs and, over time, higher wages.
"I am indeed rich, since my income is superior to my expenses, and my expense is equal to my wishes."  Edward Gibbon, English historian (1737 - 1794)   3/17/2014

Tuesday, August 16, 2016

Middle-out economics

Trickle-down economics has failed to produce an economy that works for all.  The strategy to make the wealthy even more wealthy in hopes of creating jobs has only made the wealthy even more wealthy.  It has not impacted the median income earner or to any significant degree the unemployment rate.

We need a new strategy to grow the economy.  With 70% of the U.S. economy dependent on consumer spending, a strategy to put money into the hands of those who would spend it is called for.  The top 1%, who enjoy great buying power, simply cannot spend their money fast enough.  A saving rate of 25% is evidence of this. 

We need to embrace the principles of 'middle-out economics' which identifies the middle class as the true job creators.  Only the middle class can spend at the rate necessary to grow the economy.  To grow the economy it will be necessary to put more money into the hands of those who would spend it by enacting a more progressive tax code.  It will be necessary to raise taxes on high income earners, and lower taxes on median income earners.  This revenue neutral and more progressive tax code will put money into the hands of median wage earners who will spend it.  With increased spending, a greater demand for products and services will result, which will help to grow the economy.  A growing economy will allow for greater employment opportunities.  3/17/2014

Sunday, August 14, 2016

Trickle-down vs. Middle-out

The term "trickle-down" is more useful in teaching an economic principle than "supply-side" in its ability to encapsulate a message.  So too with "middle-out".  This term is more useful than demand-side in its ability to offer direction.  These terms are simply more useful in describing policy or strategies than supply-side or demand-side in that they suggest a starting point.  It would be useful to those discussing an economic principle, to make the term "middle-out economics" as recognizable as "trickle-down economics".