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The Trump Bubble

By       Message Mike Whitney       (Page 1 of 2 pages)     Permalink    (# of views)   1 comment

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Donald Trump has a plan for dealing with the stock market bubble. Make it bigger.

Before the election candidate Trump blasted Federal Reserve chairman Janet Yellen for keeping interest rates too low for too long to keep the economy humming along while Obama was still in office. The president elect accused Yellen of being politically motivated, suggesting that the Fed's policies had put the country at risk of another stock market Crash like 2008.

"If rates go up, you're going to see something that's not pretty," Trump told Fox News in an interview in September. "It's all a big bubble."

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Yellen of course denied Trump's claims saying, "We do not discuss politics at our meetings, and we do not take politics into account in our decisions."

As we shall see later in this article, Yellen was lying about the political role the Fed plays in setting policy, in fact, last week's FOMC statement clearly establishes the Fed as basically a political institution that implements an agenda that serves a very small group of powerful constituents, the 1 percent. If serving the interests of one group over all of the others is not politics, than what is it?

The problem we have with Trump is not his critique of the market or the Fed. The problem is his remedy which can be sussed out by reviewing his economic plan. Trump wants to slash personal and corporate taxes in order to put more money into the economy to increase business investment, boost hiring, and rev up growth. Regrettably, his tax plan achieves none of these.

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First of all, slashing taxes for the wealthy does not boost growth. We know that. It doesn't work. Period. Check out this blurb from an article on CNBC:

"A study from the Congressional Research Service -- the non-partisan research office for Congress -- shows that 'there is little evidence over the past 65 years that tax cuts for the highest earners are associated with savings, investment or productivity growth.'"

In fact, the study found that higher tax rates for the wealthy are statistically associated with higher levels of growth...

The CRS study looked at tax rates and economic growth since 1945. The top tax rate in 1945 was above 90 percent, and fell to 70 percent in the 1960s and to a low of 28 percent in 1986.

The top current rate is 35 percent. The tax rate for capital gains was 25 percent in the 1940s and 1950s, then went up to 35 percent in the 1970s, before coming down to 15 percent today -- the lowest rate in more than 65 years.

Lowering these rates for the wealthy, the study found, isn't aligned with significant improvement in any of the areas it examined...

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There is one part of the economy, however, that is changed by tax cuts for the rich: inequality...

"The share of total income going to the top 0.1 percent hovered around 4 percent during the 1950s, 1960s and 1970s, then rose to 12 percent by the mid-2000s. During this period, the average tax rate paid by the 0.1 percent fell from more than 40 percent to below 25 percent." ("Study: Tax Cuts for the Rich Don't Spur Growth," CNBC)

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Mike is a freelance writer living in Washington state.

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