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What causes these economic downturns? Larry Beinhart, economic/political commentator and writer, believes they are caused by tax rates that are too low. Whenever top tax rates were above 50 percent, economies performed better as a whole, and they performed best when the top tax rate was between 75 and 80 percent, he said.
When the top tax rate was 35 percent or lower, economic and job growth was weak. During the 1920s, the top tax rate was cut from 73 percent to 25 percent and that encouraged stock market speculation that led to the Great Stock Market Crash of 1929, and it was followed by the Great Depression, Beinhart said.
Whenever top tax rates were 60 percent or higher, wealthy investors put their money into their businesses, rather than give it to the government. However, when top tax rates were 35% or less, the rich had a lot of ‘hot’ money to speculate in the stock market.
The top income tax rate was 35 percent and the capital gains tax rate was just 15 percent when the stock market crash of 2007-08 hit, and it was followed by the Great Recession, Beinhart said. Unfortunately, it is low- and middle-income workers that suffer the most by these economic events. But government is also deprived of necessary tax revenue to support a strong social safety net.
Now guess who is proposing cutting the top marginal income tax rate to 35 percent for the rich and to 15 percent for corporations? Will the stock market crash? Will it be followed by recession or a depression? We’ll soon find out.
David L. Faust,