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Jeremy Grantham: It’s Time to Tax the Rich

Monday, 06 February 2012 07:35 AM

Jeremy Grantham, chief investment strategist at GMO, says it's time to tax the rich.

“For the time being, in the U.S. our corporate and governmental system backed surprisingly by the Supreme Court has become a plutocracy, designed to prolong, protect and intensify the wealth and influence of those who already have the wealth and influence,” Grantham writes in the Financial Times.

To mitigate this pressure on labor, developed societies could adjust the tax structure, Grantham suggests.

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“In the U.S. they did, but it was done perversely, doubling up on the benefits to the rich by lowering their share of taxes,” he says.

“Forty years of no pay increase in the U.S. after inflation for the average hour worked should, after all, have that effect.”

In general, Grantham notes, corporations don't often volunteer to respect the long-term well-being of their workers, their neighborhoods or the environment except when it either pays them to – positioning ahead of consumer demands and establishing an image of good citizenship can be very good business – or when regulation requires it.

Moreover, globalization, especially the Chinese, and other factors such as flooding to city manufacturers have tended to push down labor’s price in developed markets and raise the returns to corporations.

“Individual capitalists within companies, particularly in Europe, can and do show concern for other stakeholders including society at large and sometimes, perish the thought, even the well-being of the planet itself,” says Grantham.

“But, overwhelmingly, it is the corporate officers that come first.”

Forbes reports that during a recent speech, President Barack Obama implied that the Bush tax cuts went disproportionately to upper-income earners and starved the government of revenue that it otherwise could have used to create jobs and improve the economy, the fact is that those cuts went disproportionately to people earning less than $250,000 a year.

As a group, the 8,274 tax returns reporting Adjusted Gross Income of $10 million or more paid an average effective tax rate of 22.6 percent in 2009, down from 25.4 percent in 2000.

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Monday, 06 February 2012 07:35 AM
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