Written by C J Primlani   

Our politicians and (wealthy) TV pundits repeatedly tell us that tax cuts and rewarding the rich will cure the economy. In all these years that we have adopted this policy it has not happened. Are we going to continue to believe them?

I am going to compose a story I hope you will enjoy reading.

I made a deal, and for fulfilling this obligation I was paid $100 (I shall use $100 as a base). I enjoyed the use of this newly earned wealth which I spent passing the $100 to A, who in turn dealt with B. This $100 then passed on to C then D and kept moving reaching Z+. Amazing the same $100 pleased so many.

That is what I envisioned; I have yet to close the deal.

“Well Mr. Uncle Sam, I am ready to proceed with the arrangement as proposed and tentatively agreed upon.”

Mr. Sam responds,” It is a beneficial project with good value for the expenditure. However, Congress just passed a tax cut, reducing our revenue, so we have to drop this and many other projects.”

I am devastated. I needed that money, holding back my tears I said, “Do you realize Mr. Sam I am going to be short of money. I will not be able to make my mortgage payment, and very soon I will be behind on my car payment.”

Sam responded, “Oh I do realize that, but sympathy on my part will not generate the funds needed. I will be shedding far more tears than you will. I am also thinking of A and B and all those through Z+ who will also be deprived of the money you would have helped circulate. My sadness far exceeds the sadness of you and all your potential beneficiaries combined, because I will not be collecting taxes on the $100 (basis) that you now will not earn. I will be deprived of all the taxes I would have collected from A and B and all those through Z+. It is an irony the tax cut will take your tax to zero. Too bad your income will also be zero. Yours is only one of many projects that I have to cancel. This will add to my deficit in a very big way. We all know that the bulk of tax savings will wind up in pockets of the rich. The politicians claim that the money will trickle down. I suggest you try to sell your project to one of them.”

“Mr. Rich, if you will not buy my proposal, please give me a job. We have been told that people with money, because they have the money, will hire.”

“Sorry I must laugh, though I sympathize with your plight. I need an incentive to hire. I hire employees to help me make money. Currently the consumer demand is low. In my opinion the recent tax cut will put most of the money in the hands of the super rich, whose spending needs have already been met, and who will not spend it. This will decrease the money circulation, further reducing the consumer demand. Unemployment will increase, diminishing even more, the consumer’s ability to spend. There are other rich people I suggest you try elsewhere.”

“Mr. Wealthy, please give me a job. Congress tells us the newly passed tax cuts will enable you to employ people.”

“I could do that. Are you willing to relocate to China and accept the wages we pay there?” I have shut down factories in this country where the cost of labor is high, and relocated them in China.”

Mr. Wealthy smiles “I have invested heavily in our trade association. They have put together a massive lobby to convince Congress to expand trade agreements. Congress has done so and tells us it is good for the nation. I believe it. Add to my cost savings, the Chinese are far more relaxed on safety and environmental standards. I love our Congress and I love you people. With less money in your pocket you seek out the cheaper ‘made in China’ products. Some American manufacturers cannot compete and take action that results in poorer consumers, who now also seek the cheaper Chinese goods!

“You should seriously consider applying for the China position. We have successfully reduced jobs available in the U S, while Congress maintains a loose control on immigration resulting in more people competing for fewer jobs. This squeezes employee compensation and almost destroys union bargaining power.”

In my desperation I have to compete with the illegal immigrants. “Mr. Farmer, they tell me there are jobs that Americans will not do, so you hire immigrants. I am an American, and I need the work. I will accept any job at your rate.”

“You being an American makes it a problem. I pay the immigrants under the table, and it would be risky for me to do it in your case.”

I am stunned by his blatant response. “You know it is illegal to hire undocumented immigrants.”

“I know. Our strong lobby keeps Congress from enforcing that law. Then thanks to you and your fellow Americans, for demanding a fence. This gives Congress an out. They are following up on the ‘deng’ fence. I am amused: they have built a portion of it. So what is to stop immigrants walking around it? If after a tremendous expense and time a fence is completed at both the southern and northern borders, what would stop them from climbing over it or tunneling under it: better yet they could blow holes through it in more places faster than we could repair them. Then of course there are the extremely long coast lines. If someday the economy improves beyond our southern border, the immigrants wanting to return home may be fenced in the wrong direction. In the mean time we are over supplied with working people, and this suits us employers. We can keep wages suppressed.”

Mr. Farmer continues, “You seem like a determined person. Become an entrepreneur. Get some money from a bank. The banks have a lot of money.”

“Mr. Money Bank, you have my well thought out business plan. Will you loan me the money?”

“Your plans are impressive, but the risk is too high. Consumer demand is not sufficient, and the tax cuts will reduce it further as we have seen historically. Reagan cut taxes in 1981. Recession followed. Then he raised the taxes and the economy improved. Bush cut the taxes and the economy tanked. He followed with another tax cut, and he left us in the mess we are still struggling to recover from.”

Here is some interesting history:
By Larry Beinhart
Created Mar 1 2011 - 10:35am
The current economy is routinely and universally referred to as the worst recession since the Great Depression.
It makes sense, therefore, to look back at government tax and spending policies during the Depression and what the results were.
1932 -- Hoover raises [1] the t op tax rate from to 25 to 63 percent.
1933 -- Roosevelt comes into office. He begins spending at the same time that new tax hike comes into effect. The Depression bottoms out.
1934 -- Recovery begins [2]. The GNP rises 7.7 percent, unemployment falls to 21.7 percent.
1935 -- New government spending [3] on public works and rural electrification. A push to strengthen labor and raise wages. New taxes through the creation of Social Security.
The GNP grows [4] another 8.1 percent, and unemployment continues to fall.
1936 -- The top tax rate is raised [5] again. This time to 79 percent.
GNP grows a record 14.1 percent; unemployment falls even further.
1937 -- Roosevelt is afraid of deficits! He cuts spending [6] for 1937.
There's a new recession. It continues for a year.
1939 -- The U.S. borrows [7], resumes deficit spending, this time on a military build-up. The recession ends.
1941 -- America enters World War II.
In economic terms, it's the New Deal on steroids. The top tax rate goes up to 91 percent [8]. Nonetheless, government spending is so high that by 1945 the deficit is 123 percent of GDP [9]. Unemployment is ended by employing 16 million people directly in the armed forces and millions more are employed producing war material and supporting the military.
The Great Depression is finally over.
When taxes were raised the economy improved. Every time. Deficits had no negative effect on the economy. Indeed, when deficits were at their highest, the economy boomed.
After spending was cut -- to balance the budget -- a recession immediately followed. When taxes were raised and government spending resumed -- with deficits -- that recession ended.
When taxes were raised again, and government spending went sky high, the Great Depression finally ended.
So here we are. We refused to raise taxes. The recession continues. Now, we're going to cut spending.


In desperation I responded, “You banks are holding up much of the national wealth. You could initiate the money circulation that would boost the economy.”

Mr. Bank responds, “You put the onus on the banks. We are small potatoes compared to the federal government. The federal budget is over three and half trillion. Economic stimulation by the government is enormous. Try this exercise: assume the government starting this moment stops all spending. About four million government employees cease to receive their pay checks. Institutions that government supports come to a halt causing layoffs of millions more. Businesses contracted by the government will lose their profits and of course large numbers added to the unemployed. Social services will close down. No Medicare payments, no social security checks etc. All this money taken out of circulation will destroy the economy. Many corporations will shut down, compounding the unemployment.

“Secondly, the rich talking heads like the present conditions and do not want government to intervene. Our talking heads to promote their personal agenda have successfully demonized the government. Our falsely demonized government has a history of outstanding achievements. Let me point to this example: soon after the Second World War the government guaranteed home mortgages to creditworthy home buyers. The banks loan business ballooned. For the huge purchase of a home the buyer borrowed money from future earnings, stretching to as far as 30 years and put it into immediate circulation. This was multiplied by buyers across the country expanding the housing market. This in turn boosted the many industries that participate in the construction of a home.”

“Wall street has destroyed the housing industry,” I reacted. “What else can the government do?”

“Another astounding achievement to the government’s credit, they put men on the moon and doing so they circulated money through the economy in a big way. During that period, the ‘60s we had the best economy the world had ever seen to that date. Currently we have a serious energy problem. If we would tackle this problem as we did the space race, we would make ourselves energy independent and burst out of the recession. However, this will not happen. The lobby against it is too strong.”

I reflect, “You are advocating the government spend money it does not have. If families budget their expenses based on their earnings, should not the government do the same?”

Mr. Banks responded emphatically, “There is a big difference in the handling of your family finances and that of the government. You see a price tag of $100 and decide to purchase, but the cashier demands more than the $100 dollars after adding the sales tax. Now when the government purchases, the government could offer to pay $80 as tax money has to be paid on the profit. But the government is smart, pays the $100 and accepts an IOU to be paid April 15. This $100 now passes on to B and then C and on and on to Z+ and each of them will owe taxes. The government makes a huge profit on the initial expenditure.

The government stimulation is fantastic. It pays for itself, yielding a profit. It circulates money extensively and when consumers have money to spend, businesses expand employing more people and increasing consumers. The economy spirals upwards. The President is for the stimulation, but a few senators block the program.”

I am exasperated, “It seems hopeless for me. None of the rich business people will help me.”

“Try a philanthropist.”

“Mr. Generous, I have looked extensively for work but have not succeeded. Maybe you can help me.”

“My foundation funds noble causes. We build schools in third world countries; we build water systems for communities, we set up medical clinics. We just do not help individuals. However, I feel very sorry for the many unemployed, under employed and those working for lower wages, and or lower benefits.”

I gasp. “Seems like the rich use their money to buy the best lobby they can buy and they in turn put together a Congress that favors the rich at the cost of the working people.”

Mr. Generous ponders. “You working people outnumber the rich. Why do you vote against your interest? You could have a Congress of your choosing.”

I react, “Here again their money beats us. They reward the talking heads, who spin information to confuse us. They repeat false information often enough that we believe them. They have divided us. The parties are so involved fighting each other that we do not notice that the rich are sucking up all the cream.”

“You are catching on,” Mr. Generous points out. “The politician will side with you on the issue that concerns you, but after capturing your vote sides with private interests for the big bucks they wave in front of them. It is money that decides the elections, and it is money that determines the legislation. Voters should unify on ignoring issues. Once again the issues are tools for the politicians. Ask your candidate how much money they have collected, and from whom, and then inform him or her in a loud voice for all to hear, ‘Your vote goes to the one with the least money.’”

I am confused, “If we could put in place a friendly Congress, how would it help us economically?”

“Then you make your demands. If you voters unite, you would make a large and strong lobby no other could compete. I mentioned the energy project. Demand the Government take on a massive infrastructure program. Here are some more ideas:

“Redo the tax code so that the average person pays considerably less. These are people who have needs and will spend and therefore help circulate money. Make up the revenue difference by increasing the taxes on the rich. They are so wealthy it would not change their life style one bit.

“Should the rich pay more? Definitely! Their demand for services is very high. Example: our massive defense budget prevents a foreign power from conquering us and confiscating our homes. I have seven homes each worth over a million dollars.

“Our massive military and economic aid is used to protect “the American interest” around the world. You are an American, but it is not your interest. It is the business, the influence and money of the very rich that we are protecting.

“Another example of how tax money is consumed by the rich: an employee needs a road to travel to the work place, the rich employer needs many roads for all employees to get to work and maintain the business. More roads are needed yet so raw materials can be shipped in, and again still more roads to ship finished products to customers. Taxes are necessary to build roads.

“In general, most of the tax money is spent either to help the rich or winds up in their pockets. Why the rich get bent out of shape when a program helps the poor is not understandable. Who gains from the increased spending and consumption by the middleclass? The rich, of course; they sell the goods and services.

“Much research funds are given to large corporations. The research that may be conducted anyway is now transferred to the bottom line and distributed as dividends to the very rich. We Americans are innovators and we should take advantage of that by diverting funds to small garage type operations. The money will be spent and there is a sound history of grand successes from this sector growing into big businesses, creating numerous jobs.

“The big banks destroyed our housing market, creating a wide chasm for the world’s economy to fall into, and they themselves were collapsing. The situation was salvaged by tax payer money. Housing remains shattered dragging the economy. We now blame the home owner for buying beyond their means, many of whom made justifiable commitments before the destruction of the economy. The banks and their agents doled out mortgage money based on falsified documents so that they could generate disguised securities. Now, the onus should be put on the banks to reduce in a big way the foreclosures that are competing and depressing the housing market. By edict, the foreclosure process should lean heavily in favor the home owner staying in their homes and thereby reduce the massive oversupply of houses.

“The next idea is my favorite: the top bracket the super rich earn should be taxed at 91%! After all the money they make and keep before reaching that slab, conceptually they will not feel the difference. Then offered a tax write off on expanding or starting a business within our boundaries, these smart people will take good advantage of that; pay only $9 per $100 cost, while Mr. Sam will pay $91 to their benefit. This will create jobs and boost money circulation: trickle down really working!

C J Primlani