The Conservative Myth: Reduce Taxes for the Rich will Stimulate Economy Recovery

By Frank Geefay

Political conservatives claim that keeping taxes low for the rich will save the economy because they will have more money to help boost economic growth.

The facts just don’t support their claims. Yes the rich do run large corporations and retail businesses but these in themselves do not contribute to economic growth. Let me explain.

Without consumers businesses will have no one to buy their products and will fail. Consumer spending is the key to economic growth. It creates the demand for goods and services so essential for business growth that stimulates job creation, which in turn pumps more money back into the economy.

The 10 percent poor may have just enough to buy the necessities of life. The middle class spends most of their excess income on a home and goods and services that improve their quality of life. The rich 1 percent such as multimillionaire Mitt Romney have more excesses income than they can spend so they invest heavily into investments that increase their wealth and incur lower taxes from tax loopholes.

How many cars do you see on the roads that cost over $150,000 vs. cars that cost less than half as much? How many mansions do you see vs. ordinary houses? How many of the rich 1 percent do you see shopping at Costco, Fry’s, Walmart or Seven-11 vs. middle class shoppers? The list goes on and on. Our consumer economy is driven almost entirely by the middle class.

Middle class consumers stimulate the growth of businesses. The more consumers there are the more businesses will flourish from increased sales. As the consumer market flourishes, so will hiring to meet increased demands. Consequently: the wealthy will become richer because their investments and businesses are thriving; governments will do well because they are collecting more income and sales tax revenues from increased working wage earners and the richer rich; the middle class will be employed and have more money to spend on consumables to realize the American dream; and the poor will get more aid from the government. Everyone wins from a healthy, more robust, and affluent middle class.

So what will it take for the middle class to become affluent?  Lower unemployment, lower taxes, higher salaries, better benefits, and no foreclosures, exactly the same as the wealthy 1 percent now enjoy. Henry Ford realized this more than eight decades ago.

The middle class currently bears the brunt of high unemployment, higher taxes, lower wages, forfeiture of benefits, and continuing foreclosures. So it is clear that the continuing sluggish economic recovery is largely due to an unhealthy consumer driven middle class. It is in the interest of even the rich to keep the middle class robust and spending.

Need further proof?  Then ask yourself: Why are the 1 percent richer than ever, still paying lower taxes from Bush’s taxes relief bill, and making record salaries, benefits, and bonuses, yet the economy has only marginally recovered for everyone else?  If the conservatives have it right shouldn’t we 99 percent be well on our way to full economic recovery by now like the rich 1 percent?

Their argument is fatally flawed.

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