Tax Rates Impact Economic Performance, But Other Policies Also Matter

On September 17, 2012, Don Mitchell writes on International Liberty that we need fundamental tax reform, in part because he believes in fairness and wants to reduce corruption.

But I also think the flat tax will boost the economy’s performance, largely because lower tax rates are the key to good tax policy.

There are four basic reasons that I cite when explaining why lower rates improve growth.

  1. They lower the price of work and production compared to leisure.
  2. They lower the price of saving and investment relative to consumption.
  3. They increase the incentive to use resources efficiently rather than seek out loopholes.
  4. They attract jobs and investment from other nations.

All the above is true. Mitchell failed to point out that as lower tax rates and thus savings are channeled into productive capital investment, that the system is rigged to favor those with “past” savings and the ability to retain earnings of business corporation owners and incur debt to further invest in productive capital with the result that the already wealthy class further accumulates more wealth ownership and thus more income. Of course, the operating principal is that the investments pay for themselves and generate earnings to retire any debt incurred. This is the principal reason that income inequality is widening exponentially.

The argument flaunted by many politicians and economists that tax savings will be diverted to investment and JOB CREATION, and thus, “full employment” is flawed. It is based on empowering people that benefit from the “job creators” who will put monies otherwise paid to taxes to create opportunities to “work harder” and thus “employment” as in a job. It flies in the face of exponential and tectonic shifts in the technologies of production, which is destroying or degrading jobs and the need for labor workers to produce society’s products and services. Instead, the non-human factor of production––productive capital––generally productive land, structures, human-intelligent machines, superautomation, robotics, digital computerized operations, etc. is now the significant input in the process of producing society’s products and services. This trend will continue at an exponential rate.

While tax and investment stimulus incentives are excellent tools to strengthen economic growth, without the requirement that productive capital ownership is broadened simultaneously, the result will continue to further concentrate productive capital ownership among those who already own, and further create dependency on redistribution policies and programs to sustain purchasing power on the part of the 99 percent of the population who are dependent on their labor worker earnings or welfare to sustain their livelihood. By stimulating economic growth tied to broadened productive capital ownership the benefits are two-fold: one is that over time the 99 percenters will be enabled to acquire productive capital assets that are paid for out of the future earnings of the investments and gain greater access to job opportunities that a growth economy generates.

The question that requires an answer is now timely before us. It was first posed by Louis Kelso in the 1950s but has never been thoroughly discussed on the national stage. Nor has there been the proper education of our citizenry that addresses what economic justice is and what ownership is. Therefore, by ignoring such issues of economic justice and ownership, our leaders are ignoring the concentration of power through ownership of productive capital, with the result of denying the 99 percenters equal opportunity to become capital owners. The question, as posed by Kelso is: “how are all individuals to be adequately productive when a tiny minority (capital workers) produce a major share and the vast majority (labor workers), a minor share of total goods and service,” and thus, “how do we get from a world in which the most productive factor—physical capital—is owned by a handful of people, to a world where the same factor is owned by a majority—and ultimately 100 percent—of the consumers, while respecting all the constitutional rights of present capital owners?”

Please see my article “Democratic Capitalism And Binary Economics: Solutions For A Troubled Nation and Economy” at or follow me on Facebook at and

Also follow the Center for Economic and Social Justice at and Join the OWN Team to advocate OWNERSHIP CREATION at

Also see The Kelso Institute at

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