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BILL MOYERS: Did trickle-down ever work?

DAVID STOCKMAN: Well I think it's an unfortunate metaphor because it has more of a untoward kind of implication than really exists. I think the idea that if you can mobilize a lot of entrepreneurial energy, if you can mobilize constructive risk-taking, and investment, and technology creation, and new enterprise formation, all of those will re-down to the benefit of the economy. And, and to the extent that we have a growing and dynamic economy, everybody will benefit. Now that doesn't mean it's a only thing you should do or that you should sacrifice everything else in order to encourage entrepreneurs and technological progress. So in and of itself trickle down can't be the governing philosophy.

BILL MOYERS: But it's being trotted out today to you know, because people say well, you can't raise taxes on the job creators?

DAVID STOCKMAN: Well, look. Everybody you know, as I think Oliver Wendell Holmes said, "Taxes are the price we pay for civilization." Okay, we it's not a question of taxes or no taxes on job creators or anyone else. It's a question of what are the least harmful ways to raise the revenue that we need to pay our bills once a democratic consensus is agreed on what government is doing. And therefore the wealthy have to pay their share or more of the taxes. And if that does, on the margin, discourage someone it's unavoidable. I mean, taxes will have a negative effect to some degree. But again they're the price of civilization. They're how could anyone believe you can fund the government on bonds alone, borrow your way to eternity. It's not possible. So if you think about it then this current Republican campaign that you don't dare to raise taxes on the job creator, it's just political rhetoric. In 1982 even Ronald Reagan saw that we needed to raise taxes when the deficit exploded. And the original tax cut at '81 was too big. So he raised taxes in 1982 by the equivalent of $150 billion a year in today's economy. He signed that bill. The, at that point there was 10 percent unemployment. The economy was just on the very edge of coming out of a very bad recession. We didn't say at the White House we can't do this because it's going to impact some job creator. We said we have to do it because on balance it's going to hurt the economy to continue to borrow at these rates. It's not responsible. It's not sustainable. And so therefore there's a tradeoff. But it's one that you have to accept. Now Ronald Reagan said this in 1982, and then again in '83, and then again in 1984. And where the Republicans come off today sort of reinventing a kind of a revisionist history of the 1980's is beyond me. What they're saying today is foolish. It's irresponsible. How can anyone believe, with the kind of deficit that we have, a trillion dollars year after year after year, that we can keep taxes as low as they are. It would be nice if we could. But they haven't been willing to cut spending.

BILL MOYERS: Now I think people today would be shocked to know that when you and I were young men in Washington that the richest Americans paid a marginal tax rate of 70 percent, right? And then it was cut to 50 percent?

DAVID STOCKMAN: Well, I think, you know, the more interesting issue is that the capital gains tax today is 15 percent. Now I say that is the problem, the differentially low rate. In other words if you're a wage worker if you're selling your labor, you're going to pay payroll tax and on that the full income tax rate. And even if you're right at the mean or median you're going to pay 35 percent all in on federal taxes. If you're speculating-- or investing-- millions or even billions of dollars and you are able to transform your income so it qualifies as a capital gain, you pay 15 percent. And that's part of the reason why our tax system has gotten so out of kilter. That's part of the reason why most of the gains from this bubble we've had in the last two or three decades have gone to the top. And it is the fundamental reason why the current tax code generates so little revenue and so much resentment on the part of the average taxpayer.

BILL MOYERS: Then why do we have it? In a democratic society where we're supposed to be able politically to address the broad concerns of the great middle, the middle class, why do we have such a discriminatory tax system?

DAVID STOCKMAN: Because of crony capitalism, the crony capitalist ethos dominates both parties. I haven't seen Obama really attack the low rate on capital gains which you would think a Democratic administration might do. He hasn't even been able to drive through eliminating the capital gains low rate, 15 percent, for the carried interest of a few thousand hedge fund managers and private equity-- fund-- operators. That is the worst abuse of all, a 15 percent rate if you're running, you know, a multi-billion dollar hedge fund and you're getting a 20 percent share of the carry. It's really pretty shameful. And yet the Congress as it's constituted today, the White House as even populist as it sounds, is unable to even get rid of that carried interest 15 percent rate for the top it's not even one percent. This is the top one-tenth of one percent.

David Stockman on the Folly of Anti-Tax Crusades

February 10, 2012

David Stockman, former Budget Director under President Ronald Reagan and chief architect of Reagan’s supply-side, or “trickle-down,” economic policies, says today’s Republicans have taken their anti-tax campaign too far.

“Taxes are the price we pay for civilization,” Stockman says, borrowing a quotation from Supreme Court Justice Oliver Wendell Holmes. “What they’re saying today is foolish, it’s irresponsible. How can anyone believe with the kind of deficit that we have — a trillion dollars, year after year after year — that we can keep taxes as low as they are?”

Watch Bill’s full interview with Stockman.

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  • NewsboyAmerica

    David Stockman was the OMB Director for Ronald Reagan and he an expert on Reagan economic policies. I was studying accounting in college when he served for the Reagan Administration. Sadly, today’s ‘new republican’ party has completely ignored this man.

  • fedupwithpoliticians

    That makes David Stockman, Paul O’Neill, Bruce Bartlett, Pierson and Hacker, and Joe Scarborough that all say this Republican party is not the Republican party of Reagan. Bruce Bartlett goes farther and says it is “nuts”. See Winner-Take-All Politics page 267 Bruce Bartlett —– declared that the Republican
    philosophy had become “distorted into something that is, frankly nuts”—- 

  • James!

    Funny how when one is surrounded by cash, the out-spoken paupers are unseen.  Warddrobe provided by: David Stockman.

  • Ve744

    Let’s continue with Bartlett’s quote with “The GOP no longer bears any resemblance to the party of Ronald Regan and is dominated by extemists unable to see how badly their party was alienating moderates and independents”

  • Anonymous

    when will the  people stop lionizing R Reagan????   he was a disaster for the usa in almost all aspects from the iran-contra affair to the declaration that the govt cannot solve the problem because it is the problem!!!
    that he is considered the architect of the fall of the berlin wall is a travesty of real history.
    Jimmy Carter tried to lead us into the real world and was excoriated to the extreme.
    we are paying the price for listening to the smarmy feel-good twaddle of Reagan.

  • Jerry mcneil

    Please please please, take the time to see the Oscar Winning Film, “Inside Job” One will like most of us see that this country is under fire from within, watch the $ and your investment slide down the slope, OR,  Do something about it!!!  VOTE!!!

  • Anonymous

    Do most of you REALLY “hear” what Stockman is a saying?
    Some of you are still unfortunately caught in your ideology of party affiliations. This subject crosses over the parties. Reagan raises such ire over the Liberals that one can not even see the forest.  Reagan RAISED taxes. He made the difficult choices to solve the problem. This is exactly what has to be done today.  Who can lead?

  • The J

    Smart tax policy is important, but he’s wrong to say that taxes “fund” the gov’t; they dont. The gov’t is the currency *issuer* after all. When it taxes people it’s collecting money it’s already spent into existence. Taxes simply destroy some of that money.

    Nor does the gov’t need to issue debt – the US could get by just fine if it decided never to sell another bond. The result would just be permanent near-0% rate on fed funds.

    Taxes do 2 things primarily: Create demand for the dollar and support public policy (discourage pollution, encourage education, whatever).