DISCLAIMER: I am not a CPA. However, that doesn’t mean I don’t understand how the economy works, or that I don’t know how to fix it.
The economy is like a machine. It has a bunch of component parts that together, in their proper arrangement and fine tuning, allows the machine to operate. So why is our “machine” sputtering like a car running on fumes? Because it IS running on fumes.
All machines have to have a power source; a “fuel” that powers the engine and turns the gears. That “fuel”, in the case of the economy, is demand….demand for goods and services…and the money to demand them. Demand for goods and services drives factories to produce and companies to provide, creating a need for more jobs to meet that demand. And when more people have jobs, and money to spend, demand increases, thereby revving up the machine toward maximum speed.
The problem with our economy is that the fuel is weak. It has been watered down by greed at the top of our economic system that sucks up 95% of the nation’s wealth into the hands of the top 5%. And a person at the top does not generate that much more demand on the economy than a person at the low end of the economy. Pretty much the cost of basic subsistence doesn’t vary that much.
So what do the wealthy do with all that surplus wealth? They invest it, not in new business, but in tax shelters and savings accounts. And that takes all that money they hold in savings out of the economy. Our giant economic engine is sputtering along on a fuel mix that is only 5% combustible.
So how do we fix the problem? Well, first thing we have to do is get the water out of the fuel; get the greed out of our system, or use their greed as an incentive to get the wealthy to put their money back into the economy. One way to do this is to tax the earnings income and interest income of the wealthy –those making $250K and more — at a higher rate. The revenue from higher taxes on the wealthy can then be redistributed to those who haven’t the money to create demand –the poor, the infirm, the elderly –and to incentive programs that create new demand and new markets for demand. And there are many ways, many tax credits and liens we can use to induce corporations and companies to more fairly distribute their profit shares among all their employees, so as to increase their collective power to demand, or to use their wealth to create more jobs rather than savings.
Another way is to increase the minimum wage and penalize employers who could hire full time employees but don’t. The more workers earn, the more money they have to spend, thus increasing demand on the system for products and services.
And … we need to regrow the middle class. A large middle class ensures that the majority of the wealth of the nation stays with the largest block of demand generators. And as the majority of the wealth of this country gets back into the hands of the majority of its people, the economy will heal and run like a well tuned machine again.
Demand fuels the economy.