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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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