Debt Ceiling Crisis

So the debt ceiling crisis is still looming. Seems clear that we will have to make cuts in things we like because we have been borrowing to pay for them for too long. Also seems inevitable that we will have to raise taxes, on every one eventually, but the wealthy first. Unfortunately, it seems only the first if likely to happen anytime soon.

The conservative logic says that you can't raise taxes on the wealthy because they use their money to create jobs.  Where are those jobs?  9.2% unemployment. Where are they putting their money? Dow Jones is over 12,000. Seems they are putting their money in the stock market.

The wealthy do not spend their money in ways that create significant jobs. There aren't enough wealthy for their consumption of common goods to impact the economy and job creation. Moreover, the luxury items the wealthy purchase do not require significant labor pools to manufacture. A simple thought experiment: How many workers does it take to manufacture a $5000 handbag?  Now how many workers does it take to manufacture 100 $50 bags?

One recurrent conservative meme is that every dollar in taxes is a dollar that is taken out of the economy.  That makes no sense. The money collected as taxes goes back into the economy to pay the salaries of government workers, government contracts, constructions projects, unemployment benefits, etc.. Money that the very wealthy keep from lower taxes it more likely to go into the stock market than the economy.

Money put into the stock market is speculative investment. By and large, it does not create jobs (except for stock brokers). So, money that might be used for taxes, and put back into the economy is instead being put in the stock market. Speculative investors hope to make a profit and pay a lower tax rate than they would with earned income from productive investment.

We need to structure taxes to encourage productive rather than speculative investment. Productive investment, like venture capital, creates jobs. The money is used to hire people, rent office space, purchase equipment and machinery. But venture capital investment peaked in 2000. Shortly after that capital gains taxes were lowered. It made more sense for people with money to invest to stick it in speculative investments. The stock market. Money invested in the stock market doesn't create jobs (unless it is in new stock offerings used to expand companies - bonds do put money into the economy).

We'll need to cut spending and raise taxes, because we don't just need to balance the budget, we eventually need to start paying back the money we have borrowed. Unfortunately, I doubt any of that will happen until it is too late to really help.