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"If you feed enough oats to the horse,
some will pass through to feed the sparrows"
(John
Kenneth Galbraith).
Introduction to the site Rossaepfel-Theorie.de
The title for the text of this site
is on English: "Tax Cuts for Top Earners or Internet
Research for Newcomers". The main argument is "Job
Destruction by Income Redistribution to the Top",
directed against the
Trickle-down-Theory or "Horse and Sparrows
Economics", as characterized by
John Kenneth Galbraith. In German this is also
called Rossäpfel-Theorie, which is the title of this
website. The center
of this "theory" is the distribution and redistribution
of the
national product to the top "earners". This policy
and opinion making is the criterion of "modern" "Neoliberalism"
so that this word and its derivations are basic for the
whole analysis. The expression is regularly used in this
meaning and not used in other meanings, although there
are other historical meanings, stressed especially by neoliberals.
This text is centered on the situation in Germany, but it
is not limited to it because it aims to a comparison of
quite similar pressures world wide and to show the fatal
examples of
Reagan, Thatcher, and Bush that German opinion
makers selfishly embraced. However, the enormous cuts of
the top tax rate by Reagan from about 70 percent in 1981
to about 30 percent in 1990 (cf. „Top
Federal Income Tax Rates on Regular Income and Capital
Gains since 1916") have not yet been reached,
but the
"Christian" Democrats and the
"Free Liberals" proposed already 36 or 35 percent,
and the "Visionary" of
Angela Merkel,
Paul Kirchhof, proposed a maximum of 25 percent.
The headline of Chapter 1 puts the questions: "What do
US Economists say to Tax Cuts for Top Earners and
Opinion Makers? What are the results of the
Trickle-down-Theory?" (German: "Rossäpfel-Theorie").
Chapter 18 has the headline: "Who cares for the misery
in the Third World?" The other Chapters are not yet
published.
The headline of chapter 1 refers to the advertisement of
more than 400 US-Economists, including several Nobel
Prize Winners, against the tax cuts by
George W. Bush and his Republicans. This
Advertisement was published in the New York Times on
February 11th, 2003 (cf. "Nobel
Laureates, 450 other economists fault tax cuts plan",
March 2003). It also brings hope, as to the
possibilities of human character, that even some US
billionaires like
George Soros and
Warren Buffett are opposed to tax cuts for top
"earners". With regard to the tax cuts of the Bush
administration, Warren Buffett said:
"Owning 31 per cent of Berkshire, I
would receive $US310 million ($A474.8 million) in
additional income, owe not another dime in federal tax
and see my tax rate plunge to three per cent," he wrote.
"And our receptionist? She'd still be paying about 30
per cent, which means she would be contributing about 10
times the proportion of her income that I would to such
government pursuits as fighting terrorism, waging wars
and supporting the elderly," he said.
And George Soros ascertained, against
the cheating "incentive" argument pushed forward by the
"Grand Old Party":
"However, this move is not designed
to have much effect now. It is meant to have an effect
over an extended period and is basically using the
recession to redistribute income to the wealthy," Soros
told CNBC financial news television.
"I think that is really not a very effective way of
using a deficit. I think we do need right now both a
stimulative monetary policy and a temporary deficit, not
a permanent one."
(Cf. "Billionaires
bash Bush tax plan", AFP, May 21, 2003). Soros and
Buffett are no pure positive examples in all other
respects, although Soros is a great patron of science
and education in Eastern Europe and a generous supporter
of US Democrats, whilst Buffett is in part an advisor to
the Republican
Arnold Schwarzenegger.
The theoretical arguments of this website against "Job
Destruction by Income Redistribution to the Top" relate,
among others, to the essay of Peter Orszag and Joseph
Stiglitz: „Budget
Cuts vs. Tax Increases at the State Level: Is One
More Counter-Productive than the Other During a
Recession?", , saying e.g.:
„For example, if taxes increase by $
1, consumption may fall by 90 cents …" und „Within the
sphere of changes to taxes and transfer programs, the
impact on the economy depends primarily on the
propensity to consume …"
(Cf. also
Peter Orszag und
Joseph Stiglitz: „Tax
Cuts are not automatically the best Stimulus: A
Response to Glenn Hubbard",
Center on Budget and Policy
Priorities Report, Washington, Nov. 27, 2001).
In Germany there are, besides the Union of
The Left Party (LINKSPARTEI) with the
WASG, also some scarcely audible voices of
economists supporting the ideas of Orszag and Stiglitz
as well as of the more than 400 economists. Among these
German economist is
Heiner Flassbeck
with his article: „Steuersenkung
– Ein Geschenk des Himmels?", in: Wirtschaft
und Markt, Das ostdeutsche Wirtschaftsmagazin, 8/2003,
p. 1 et seqq., which can be downloaded and translated
from his website
flassbeck.de.
Completing the argument of Orszag and
Stiglitz, he asserts in that article (translated here):
If the state takes the money from
households with low income and with a low savings rate,
i.e. households being on welfare or jobless assistance,
it will lead to a dropping of business profits because
the total demand declines.
Further reference is made here to the
Haavelmo Theorem, named so after the Norwegian
economist
Trygve Haavelmo. It concerns the effect of
increasing top income tax rates when the additional tax
revenue is spent as an incentive for low income demand
(and also for material assets in job creating
enterprises). This means no contradiction to the
objections, also made by many neoliberals, against an
increase of the value added tax, because this tax is
shifted to consumers and really cuts the demand of
mass-consumption. These objections are made, especially
now by the consumer based industry in Germany, because
of the very weak demand by consumers - combined,
however, with excellent results in exportation. But the
exportation creates perhaps more jobs abroad than in
Germany because an increasing portion of the components
for German exports is imported from countries with low
wages and dumping-taxes. These subsidized low income
taxes can be sustained due to the EU aid for the
dumpers, paid with taxes of the future unemployed
workers in the paying countries. On the other hand,
there are also big shareholders in Germany and abroad
taking considerable profit from this job exportation.
Even the average consumer and worker in Western Europe
can have some advantages, which, however, don't require
dumping tax subsidies on his charge. With these
subsidies, there is now e.g. a flat tax of 19% in
Slovakia on private and corporate incomes and even as
value added tax. Supporters of subsidies in such cases
argue with their own definition of tax subsidies saying
that these baits are only illegitimate if they are not
the same for foreign and native taxpayers. So they veil
the fact that also native profiteers have their
advantage of tax subsidies, whilst poor native people
have now to pay 19% value added tax and 19% income tax
on their small income exceeding certain amounts. The
president of Slovakia, Rudolf Schuster, criticized that
only those 11 percent of Slovaks will
profit from the new tax who earn at least 25.000 Crowns
(610 Euro), which is the double of the average wage of
Slovaks. But 78 parliamentarians outvoted the president.
(Cf. "Bratislava – Parlament billigt
Flat Tax und Rentenumbau",
mdr.de, 1.1.04, now only in the Cache.) These guys
surely belong to the 11 percent profiteers, and they
thus confirm the statements on similar opinion makers in
Germany and in other countries as pointed out on this
site. The classical example of subsidy transformation,
guiding new dumpers, is Ireland where the magnificent
dumping taxes are still subsidized by the EU, although
this country has meanwhile a higher domestic product per
capita than the main net payers of these subsidies.
Moreover, there are a couple of small countries that got
very rich mainly by capital income tax parasitism at the
expense of others. But the blame is on the politicians
and neoliberal opinion makers of these others who
tolerate that.
But there is also the problem of "Tax base competition
opposed to harmonisation", as Bruno S. Sergi calls it in
his editorial: "Slashing
tax on corporate profits. Does it help entrepreneurship?",
ISSN 1648-4460, Vilnius, 2005, page 21-35. On page 30 he
writes:
Nevertheless, key issues are in regard to "tax dumping"
and if the EU is financing Eastern European tax cuts.
Undeniably, Central Europe has lower corporate tax rates
and tax burdens on corporate profits are approximately
15-20 per cent in the East, compared to tax rates in
western Europe states that can be twice as high, and the
East proffers several investment incentives too. All the
same, this reveals nothing about the effective tax
burden and how the tax base is formed (i.e. a company's
debt, machinery depreciation, etc.) …
Under a different angle, it results only partially-true
that Europe is financing Eastern European tax cuts
through its common budget.
This argument, remains for attention
if top earners in welfare states and their opinion
makers gather all somehow detectable arguments for the
flat tax and stressing - above all - their threat to
leave their country. But it does hardly concern the
clearly fixable "tax base" of opinion makers, and
there are tax havens with still smaller taxes than 19
percent. Moreover, those top earners who don't have any
problems with giving up their citizenship are already
gone. The parasitism of tax havens for unearned
capital incomes requires, however, a collective and
rigorous action of the victim countries against those
havens and a high public pressure on the opinion makers
of the victim countries to treat this subject seriously
against capital pressure groups.
For the "tax base" of the job creating enterprises,
the financing of the social security contributions by
higher income tax rates, as in Scandinavia, will be more
helpful than income tax cuts (see above). As to the
neoliberal opinion makers, it would be very helpful to
truth, income distribution, and growth if they would fly
from their country to tax havens. (Cf. also Bruno S.
Sergi: The Balkan jumps on the tax rivalry bandwagon,
South-East Europe Revue, 1/2005, pp. 7-18, under
boeckler.de.) For politicians and opinion making
enterprises the "earned" income increases very often
with the individual "performance" in brainwashing of the
people or with surpassing each other in ballyhoo.
The argumentation of this site insists on the effect of
one more Dollar scarcely consumed at the top of the cash
up scale and redistributed down to people consuming it
at almost 100 percent, as Orszag and Stiglitz describe
it. For Germany it does not only mean direct transfers
to the poor, because the money can have a double effect
in reducing the burden charged on low and middle wages
by social security contributions. These contributions
amount to more than 40 percent of the gross wages and
are at almost equal shares paid by employers and
employees. Especially neoliberals argue that the high
rate of unemployment in Germany is largely due to these
high burdens of employers. On the other hand, the
weakness of consumption in Germany is partly due to that
high deduction of the other 20 percent from gross wages
at the expense of employees - besides the wage
withholding income tax.
Tax cuts for low wage employees do not significantly
increase their consuming power, because the state is,
constitutionally, not allowed to collect income taxes
for the subsistence level, and the tax rate for the
exceeding part of small incomes lies under 20%. But
social security payers are fully charged from the first
earned Euro with these 20% (besides the value added tax
and other consumption taxes). The Dollar of Orszag and
Stiglitz, redistributed from the top to the bottom, will
consequently have its double effect, strengthening the
labour market and consumption demand, when being shared
between employers and employees. Most employers can
recognize that this sharing will give them full
compensation for the higher income tax they should have
to pay and that the additional consumer demand will
stimulate their business.
Better paid employees would pay more income tax but less
security tax. Top earners, however, such as prominent
leading journalists and other opinion makers, do
actually not pay any security tax for income parts
exceeding certain limits, but they pay the top income
tax rate of 44.3 percent for the part of their income
reaching the top bracket. On the other hand, they will
use a far smaller part of their net income for
consumption. Nevertheless the neoliberal opinion makers
are mostly opposed to the above solution to reduce
joblessness. They do not support a New Age of Economic
Enlightenment correcting their pseudo enlightening TINA
formula of Margaret Thatcher: "There Is
No Alternative". In fact they refuse an
adequate secondary redistribution of social income to
correct their totally inadequate share in primary
distribution for their disinformation job - as
Voodoo-Priests and greedy attendants. Therefore, they
say that we need further cuts of their top income tax
rate as an incentive to "investors". Using such
arguments, they achieved in Germany already the tax cut
of this rate from 55.9 to 44.3 percent and advanced the
bankruptcy of the state, the deprivation of the working
poor, the decline of social issues, etc.
On the other hand, there are the Scandinavian countries
without tax parasitism, but with social conscience,
where unemployment rate is only half of that in Germany
and where the top tax rates attain almost the rates of
the US before Ronald Reagan (cf. above). For instance in
Denmark the income tax rate goes up to 59 percent, and
the social security burden of employers and employees is
almost zero, thus enhancing the consumption demand and
the job offer.
More jobs are hardly offered by those profiteers and
pure "financial investors". There is an excess of this
kind of capital worldwide, boosting prices of real
estate, stock securities and other shares, oil, etc. The
largest number of jobs is offered the by real investors
who earn much less than these opinion makers and who,
therefore, would have much more advantage by sharing
their additional wage burden with those profiteers than
by cutting the top income tax rate. Anyhow, most of
these real investors do not reach this tax rate with
their income. The neoliberal opinion makers and other
top earners, however, only store their non-consumed and
useless money in financial "investments", spread all
over the world or in tax havens. This money is scarcely
leading to any job creating demand in Germany. Many of
these "investors" prefer "investments" paid by tax
avoidance and just made for this purpose.
At this point the topic "Job Destruction by Income
Redistribution to the Top" turns largely to an analysis
of media power and opinion making dominated by
selfishness of commentators and by media capital. This
brainwashing of the people is shown by a puzzle of many
quotations taken from these groups and from other
sources, but the author maintains, as an economist, as
well his economic argumentation.
The blame does not concern the intelligible acceptance
of windfall profits without protest or the joyful grasp
to opulent tax reliefs for opinion makers and other top
earners, but it refers to their brainwashing in order to
get these advantages. These opinion makers may know very
well, not only from the advertisements of the
economists, which harm is caused by their tax cuts, but
they "nevertheless spread false or misleading
information to suggest to the public that doubts
remained about the issue". So there is no excuse, given
''such extreme and outrageous circumstances'' (cited
from "Upheld:
$79.5 million for family of Oregon Smoker", THE
REGISTER-GUARD/AP, Oregon, February 3, 2006; cf. "Philip
Morris will appeal court ruling on award",
dhonline.com, Feb. 3, 2006).
Of course, the "circumstances" in this case affect
millions of artificially impoverished people. Those
circumstances are, therefore, much more "outrageous"
than for one deliberate chain-smoker who also can be
aware by lots of unperverted information about the
dangers of smoking.
An excellent quantifying exemplary study on brainwashing
is published by Steven Kull u.a.:
Misperceptions, the Media and the Iraq War, Program
on International Policy Attitudes (PIPA), University of
Maryland und Knowledge Networks, Menlo Park, California,
2.10.2003. It shows the fatal role played by Fox-TV of
Bush friend Rupert Murdoch. More generally, it can help
a lot to understand the media influence on cutting top
tax rates, as it is practiced also by neoliberal opinion
makers in Germany.
The main issue of this text is, however, not to stress
moral rules, because history shows that mainstream
opinion makers mostly pervert them to their own
advantage and to the detriment of their victims. The
blame is, therefore, not principally addressed to the
simple-minded profiteers, but to their victims who
support them as they did throughout history - now by
their votes or abstinence in elections. As they are also
victims of brainwashing, this blame cannot be very
rigorous, but it leads at least to the discussion of
Immanuel Kant's dictum:
Enlightenment is man's emergence from
his self-imposed immaturity. Immaturity is the inability
to use one's understanding without guidance from
another. This immaturity is self-imposed when its cause
lies not in lack of understanding, but in lack of
resolve and courage to use it without guidance from
another.
Cf. his essay "An Answer to the
Question: What is Enlightenment?" (1784), and the very
good translation under
english.upenn.edu.
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