Larry Beinhart is author of "Wag the Dog" "The Librarian", and more recently a novel, "Salvation Boulevard." He is also the author of three recent works on how raising taxes on the wealthiest Americans actually stimulates growth and how cutting taxes on the wealthiest Americans leads to a boom, bubble, and bust. These three works in order are: "Tax Cuts: The B.S. and the Facts", "Tax Cuts: Theology, Facts & Totally F**Ked" and Time for Tax Hikes.

Thom Hartmann interviews Larry Beinhart, 13 January 2009

[Thom Hartmann]: And welcome back. Six minutes past the hour. Tom Hartmann here with you.

Larry Beinhart's on the line with us. He has been writing these and researching and coming up with this just brilliant stuff. Larry is the author of "Wag the Dog," "The Librarian," "Fog Facts: Searching for Truth in the Land of Spin," all available at nationbooks.org and of course at bookstores and fine locations all across the planet. His new novel is "Salvation Boulevard," his website, Larrybeinhart.com.

Larry, welcome to the show.

[Larry Beinhart]: Thom ! What a great introduction. Thank you.

[Thom Hartmann]: I am just blown away by, first of all by the fact that you're about the only guy out here who's doing this homework which is, this is, you know, I don't mean this as a put down, it's not rocket science to figure this stuff out, but you've figured it out and it was conventional wisdom in the 1950s. It was conventional wisdom in the 1960s. It was conventional wisdom in the early 1970s. And over the last 40 years we have all forgotten. The headline in your article "Why You Should Be Screaming for Higher Taxes." Give us the elevator speech, Larry Beinhart.

[Larry Beinhart]: Okay. Yeah, and when we're talking about screaming for higher taxes, we're screaming for higher taxes on other people.

[Thom Hartmann]: Yeah. On the rich basically. And on corporations.

[Larry Beinhart]: Basically at the top end. And there's a direct correlation between high tax rates and economic growth. When we have had our highest tax rates, or when we have higher tax rates, we have a lot of economic growth. And the period of our greatest growth of course is World War II and the post-World War II years when the top marginal tax rate varied between 88 and 92%, which is almost impossible to conceive of nowadays.

[Thom Hartmann]: Right.

[Larry Beinhart]: Okay. People were being taxed at 92% of their income above a certain point.

[Thom Hartmann]: Yeah, well, it would be the equivalent of about $3.2 million in today's money.

[Larry Beinhart]: Yeah, something like that.

[Thom Hartmann]: And the consequence of that was that, number one, I can't think of any and I can't remember any dynastic families that emerged during that time period. There were no multibillionaires who suddenly -- no John Rockefellers, no Andrew Carnegies, no Bill Gates's, no Phil Knights, no dynastic billionaires who emerged because, you know, 92% tax after 3.2 million bucks, people just became content with 3.2 million bucks, number one.

Number two, you had plenty of money to pay the middle class good living wages to do the work that was actually creating that wealth. And number three, we did not have bubbles, we did not have crashes, and we had an economy that will like the little engine that could -- just nice and steady and strong -- just moved right along for almost 40 years until Ronald Reagan came along with his wrecking ball.

[Larry Beinhart]: Right. Yes, that's a very good summary. Actually, there's also a direct correlation between large tax cuts and a sequence of boom, bubble, and crash. We've had, basically three times we've had large tax cuts, once in the early 1920s coming out of World War I. We had a tax rate of around 70% and then they took it down to in the 20s.

[Thom Hartmann]: Right.

[Larry Beinhart]: And that launched the boom of the 20s and the crash of 29. And then we had the Reagan tax cut which brings us to the crash of 87. And the crashes are fairly similar in that they include lots of bank failures. The difference in the 87 one is that we had a bailout. A huge bailout. And then of course we have this crash with the Bush tax cuts.

[Thom Hartmann]: Right.

[Larry Beinhart]: It's the exact same sequence. And I don't understand why nobody else is making a correlation.

[Thom Hartmann]: Would it be reasonable to guess or to assume or even to assert, Larry Beinhart, that the reason why, when you have tax cuts on the very rich you have bubble, boom, bust economies, is that there is a certain reasonable limit at which people can ingest? You know, it's like trying to drink out of a fire hose. I mean, there's a limit at how fast you can drink, how much water you can put into your body, that there's a limit to how much cash somebody can take and appropriately set aside for investment and so what happens is when you have these huge tax cuts so that the rich get very, very rich, very, very fast, they're looking for a fast rate of return and they start stashing that money in everything from commodities to stocks and bonds and all of that inflates the market for those things which creates the bubble.

[Larry Beinhart]: Yeah. I mean, that's a fair description of it. It's excess liquidity and also part of what happens when you have a low tax rate is an incentive to try to turn money around as fast as possible.

[Thom Hartmann]: How was that associated with a low tax rate?

[Larry Beinhart]: Well, if you're being taxed on profits, right, which essentially a high tax rate is, you're taxed on how much money you're earning, I mean, you're taking out. Okay. So if that tax rate is low, then the quicker you can make your profit and then reinvest it, make another quick profit again, the more money you make.

[Thom Hartmann]: Right. So a low tax rate encourages churn.

[Larry Beinhart]: If at the moment that you take it out suddenly somewhere between 50 and 90% of it disappears...

[Thom Hartmann]: To taxes.

[Larry Beinhart]: Wait a minute, wait a minute. Let me think twice before I take this money out.

[Thom Hartmann]: Right.

[Larry Beinhart]: Okay. Let's see if by keeping the money in here we can build a bigger company.

[Thom Hartmann]: Right.

[Larry Beinhart]: So on paper and in terms of your overall wealth you are in fact growing wealthier but you don't have the cash. So there's a disincentive to take it out. Then what happens is if there's an incentive to take it out and to turn it over quickly, you're looking for quick turnaround things. And then you go into places where you're gambling.

[Thom Hartmann]: Yeah.

[Larry Beinhart]: It used to be common wisdom that the stock market was Las Vegas built large and then we began to convince ourselves that wasn't the case. That putting your money in the stock market was, according to George Bush, more secure than Social Security.

[Thom Hartmann]: Right.

[Larry Beinhart]: And it's not true. You're gambling and suddenly when a lot of money comes to the table

[Thom Hartmann]: The stakes go up.

[Larry Beinhart]: And you're not investing in a bigger piece of property, you're not investing in more production, in more productive capacity, in new industries -- you're betting, you're investing in people investing.

[Thom Hartmann]: Right. When the value of GM stock goes up, that doesn't mean that GM gets any more money. It means that the last guy who owned the stock got more money.

[Larry Beinhart]: That's right.

[Thom Hartmann]: Or you get more money, or whatever.

Larry, you've done this brilliantly with looking over the last hundred years at personal income -- or back to 1913 -- at personal income tax rates. Warren Buffett in his annual report for Berkshire Hathaway, two years ago, I believe it was, maybe three years ago, noted, and I'm quoting now from Berkshire Hathaway Annual Report, "Corporate Taxes are at their lowest level since 1934: 7.4% of all federal tax receipts down from 32% in 1952." In other words, currently 7% of revenue going to the federal government is from corporate taxes. In 1952 it was it was a third, it was 32%. Have you done the research to determine whether there is a identical correlation for corporate tax rates?

[Larry Beinhart]: No. I haven't and I haven't done it for capital gains, all of which I think go into the mix.

[Thom Hartmann]: Yeah, and I'm guessing they're all going to work out the same way.

[Larry Beinhart]: Right. You know, I'm not an economist. I was just listening to all of our politicians saying, "tax cuts, tax cuts, tax cuts." In fact I heard it again today. And Tom Herbert's column in the New York Times started out with, "You don't want to have tax cuts that are going to slow down--you don't want business tax hikes that are going to slow down the recovery."

[Thom Hartmann]: Right. Which is so wrong.

[Larry Beinhart]: OK, which is, exactly, I mean, you know, and this is a big forum and Tom Herbert's generally a really good liberal guy.

[Thom Hartmann]: Yeah, Bob Herbert. Yeah.

[Larry Beinhart]: Yeah. Right. Sorry.

[Thom Hartmann]: Yeah. You're absolutely right. I mean this meme, this thought virus, which, as I said, was relatively unknown before the 1980s. As a consequence of these giant think tanks, the Heritage Foundation, the American Enterprise Institute, the Cato Institute, and all of these libertarians and Republicans and, you know, four generations, or two generations, four decades now of the very rich basically buying public opinion have come to be believed to be conventional, you know, to be true, that if you cut taxes you stimulate the economy and, in fact, it's the opposite.

[Larry Beinhart]: Right. Yes. The historical record is exactly the opposite. You can date the point of recovery in all of our economic recoveries at the point where there was a tax rise.

[Thom Hartmann]: So if you want to stimulate the economy, if you want the economy to come back, scream for higher taxes, both personal and corporate. There you go. Larry Beinhart, his new book "Salvation Boulevard." Brilliant writer. Brilliant thinker. Larrybeinhart.com his website. Larry, thanks for being with us today.

[Larry Beinhart]: Thanks a lot.

[Thom Hartmann]: Keep up the great work. Keep spreading the word. I will too.

16 minutes past the hour.

Transcribed by Caleb Burns.