Increase Taxes to Boost Wages

Counter to what one would expect, raising taxes will boost wages and help repair the Great Divergence.
From Thom Hartmann's new book, "Rebooting the American Dream":

"High top marginal tax rates—generally well above 60 percent—on rich people actually stabilize the economy, prevent economic bubbles from forming, prevent the subsequent economic crashes, and lead to steady and sustained economic growth as well as steady and sustained wage growth for working people.3

On the other hand, when top marginal rates drop below 50 percent, the opposite happens.

As Beinhart noted, the massive Republican tax cuts of the 1920s (from 73 to 25 percent) led directly to the Roaring Twenties’ real estate and stock market bubbles, a temporary boom, and then the crash and Republican Great Depression that started in 1929.

Then, from the 1930s to the 1980s, rates on the very rich went back up into the 70 to 90 percent range. As a result, the economy grew steadily, and for the first time in the history of our nation we went 50 years without a crash or major bank failure. It was also during this period that the American worker’s wages increased enough to produce the strongest middle class this nation has ever seen.

Then came Reaganomics."...

More counter intuitive thought, from a guy at Cato, no less:

Shrink the Government by Raising Taxes:

"Running the numbers through a fine-toothed comb, Cato’s Niskanen was even able to determine the exact tipping point for taxes and demand for government services: 19 percent of GDP. Whenever taxes were above that point (FDR to Carter and during the Clinton years), government grew more slowly than the rest of the economy or even shrank. Whenever taxes were below 19 percent of GDP, government grew in size and spending (usually military but others as well) like a fat man at a pie-eating contest.

“I would like to be proven wrong,” Niskanen told Atlantic Monthly writer Jonathan Rauch. And Rauch noted, “The way to limit the growth of government is to force politicians, and therefore voters, to pay for all the government they use—not to give them a discount.” And that means raising taxes to a point above 19 percent of GDP. “Voters will not shrink Big Government until they feel the pinch of its true cost,” Rauch wrote."

The whole article is worth a read for those of us brought to reality by the Simpson/Bowles numbers. Speaking of, have you tried to balance the budget? This NY Times interactive thingamadoochie was fun to play with.... I was successful, and you can be too!