Economic History Shows Clearly That Tax Cuts for Rich Hurt the Economy

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Tax cuts for the wealthy function to reduce economic growth in two specific ways:

First, they amplify the tendency of income and wealth to concentrate in a small segment of the population. Throughout the entire period of Republican rule, all of the economic growth was siphoned off to the top two percent. Real wages stagnated, and continued growth in the Gross Domestic Product was fueled -- for a time -- by an expanding credit bubble that ultimately burst.

The problem is that to be sustained over time, economic growth must be widely shared. Otherwise, demand for new products and services stagnates; there is no incentive for businesses to invest, and economic growth itself stalls.

Fundamentally, economic growth is about the development of processes and technologies that increase productivity. But these do not occur when wealth is concentrated and labor prices are cheap. They occur when new growth is shared and wages are high.

A high-wage economy leads to major long-term economic dividends because:

• It incentivizes companies to invest in higher-productivity technologies that increase overall productivity and provide real economic growth.

• It creates customers with spending power to drive economic growth. There is a natural tendency of market economies to use low-cost labor and increase profits. That's good for each company's bottom line, but it kills off the goose that lays the golden egg by reducing the buying power of its ultimate customers -- the people who work for all the companies in the economy combined.

Cutting taxes for the wealthy simply transfers more and more wealth into the hands of fewer and fewer people and helps fuel an economic imbalance that causes an economy to stall.

Second, tax cuts for the rich starve the public sector of funds that are necessary to assure long-term growth. Tax-cut activist Grover Norquist was quite explicit when he championed the Bush tax cuts that he intended to deprive government of resources so it could be "drowned in a bathtub."

Historically, tax cuts for the rich have been used -- quite intentionally -- to create deficits that make it politically difficult for government to do three things that are critical to sustaining growth over the long run:

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