The Yahoo! Finance web series the Daily Ticker today consisted of an interview with Gerald O’Driscoll, former Vice President and economic advisor at the Dallas Federal Reserve, and a senior fellow at Cato Institute. He was asked whether there was anything that either the Fed or Washington could do to spur job creation, and naturally O’Driscoll quickly turned to criticizing President Obama’s tax policies, describing the raising of marginal tax rates on millionaires and billionaires as economically destructive.
The interviewer reminded O’Driscoll of the counter-arguments that would come from the presidential administration and its supporters, then asked: “Do you make a distinction between taxes whether they’re aimed at individuals or corporations, or is it – bottom line – raising taxes on anybody is bad for the economy?”
I think that question presented O’Driscoll with a pretty clear choice: is the problem simply taxation in general within a weak economy, or is it taxation of businesses? Yet O’Driscoll appears to have avoided that simple choice and opted to advance an entirely different perspective.
He began, “Well I would say that raising taxes on the…” and then paused at length, searching for the right synonym for “wealthiest Americans.” I found that pause very telling. He knew about whom he was talking, but he needed to phrase it in a way that served his ends. Using the phrase “the rich” is perfectly clear to every viewer, but using the phrase “the source of savings and investment” obfuscates what we’re talking about and makes it harder to attach an image to the subject, but easier to affix it to a concept. So that was the phrase that O’Driscoll settled on, saying that raising taxes on the source of savings and investment is bad for the economy.
Now, did you notice how that avoids the simple one-or-the-other choice that he was given with the question? For simplicity, let’s drop the more pleasant synonym and just acknowledge that he’s talking about the rich. So when he’s asked whether it’s bad, in a weak economy, to raise taxes full-stop, O’Driscoll’s answer is really no, it’s bad to raise taxes on the rich in particular. Theoretically, his point of view leaves open the possibility of raising taxes on the poorest American’s without expectation of consequence. Of course, this is something that several Republicans have actually advocated, but it’s quite amazing to see that such callous initiatives have a theoretical underpinning.
O’Driscoll continues by rebuking the president for ostensibly failing to understand that most business are not C Corporations and thus are not taxed separately from their owners, “So when you raise taxes on individuals, you’re raising taxes on the business, and hence… you’re inhibiting job creation.”
I almost admire how the language of this quotation allows O’Driscoll to exclusively designate millionaire business owners as “individuals.” Raising taxes on lower or middle class workers doesn’t raise taxes on business. Even raising taxes on millionaires who primarily earn their income from things like investments in businesses they don’t own is not equivalent to raising taxes on businesses. Do neither of these groups count towards the discussion? That seems suspiciously convenient for O’Driscoll’s argument.
Essentially, that argument seems to be that it’s destructive to raise taxes on extremely wealthy individuals, because they might use some of their own wealth to invest in the businesses they own or from which they profit. Meanwhile, by this line of thinking, there is no particular problem with raising taxes on people who will definitely use a portion of their slight income to purchase things like food, clothing, and gas.
I admit that my understanding of economics is rather rudimentary, but it seems to me that a sure-fire way to create jobs is by raising demands for goods and services, thus increasing the size of the workforce required to supply that demand. Unless I’m wrong about that, it’s pretty asinine to suggest that allowing the wealthy to hoard their money while thinking nothing of depriving the poor of theirs is the best way to stimulate the economy. Sure, business owners need personal wealth to invest in their industries. But why on Earth would they do so if demand for what they’re offering remains flat.
By contrast, if a wealthy American is legitimately interested in earning the highest margins from his business, he would be a fool not to make investments to match growing demand, unless of course his wealth has been taxed out of existence. But I hardly think anybody’s proposing that, and I certainly don’t think that paying a thirty-five percent marginal rate would cripple a billionaire’s investment capabilities.