It’s time for a little dose of reality. We are daily bombarded with rants from both sides of the political spectrum as we try to sift through the information concerning how the deficit in this country got out of control. To have any sort of perspective on the problem we need to go back to 2001 when Bill Clinton was leaving office. At that time the Congressional Budget Office estimated that the US budget would actually run a surplus of some 800 billion dollars a year for the years 2009-2011. What has actually happened is that we are now running an annual deficit of some 1.2 Trillion dollars a year for those years. This difference in these two amounts is a 2 trillion dollar headache for the United States and one that the current crop of politicians on both sides are steadily proving themselves incapable of understanding, much less rectifying the situation. What happened? How could the Congressional Budget Office have been so far off in their estimate?
Republicans would have us believe that the Obama administration with its socialist tendencies and out of control spending habits has destroyed our economy. Democrats would have us believe that tax cuts for the richest Americans and lobbying efforts by the largest American corporations have decimated the ability of the US to raise revenue needed to pay our bills. As is usually the truth in politics, there is a grain of truth in both explanations but neither of them addresses the real problem, which is that our economy is suffering from of one of the worst economic disasters in the history of financial disasters. I have already addressed these issues on several posts (What Really Happened, Magic Beans, A Swing to the Right, Tax Philosophy ) so I won’t bother to go into them in a great deal of detail again but we have to understand the problem before we can come up with a solution and the soapbox prima donnas on both sides of the aisle are either incapable of understanding the issue or unwilling to deal with the reality that we are in serious trouble here and it is not going to be easy to put the pin back in the grenade.
Let’s take a look at where the deficit numbers come from, the discrepancy between what the CBO predicted and what we actually have taking place right now. The largest part of the difference came from two unexpected economic downturns. The first happened in 2001 and was a small recession compared to the second one but it was a downturn and it affected projections of both spending and revenue. When the economy goes down and unemployment goes up two things happen at the same time. The money the government takes in from tax revenues drops and the money it pays out in social programs goes up. Unemployment payments, welfare payments, Medicaid payments, and all forms of social services bear the brunt of the fact that people who aren’t working become dependent on social programs to survive. At the same time, tax revenue that isn’t being generated from these same people goes down. It is a double edged sword; one made worse by the fact that most Americans health insurance is through their employer so when they lose their job they lose their health insurance as well and the government then gets to foot the bill for their medical expenses. The second economic downturn which started in 2007 right before the election that put Obama in office was much more severe and much more damaging to both the US economy and the budget deficits because of both the longevity of the downturn and the universal severity of the problem.
Clearly, Obama can hardly be blamed for the economy he inherited no matter what the conservative right would have us to believe. It happened before he was elected and he is still trying to deal with the effects of this problem. We can argue whether he has dealt effectively with the problem but it is incontrovertible fact that the problem itself is one that he inherited from George W. Bush and the Congress in place while he was in office. How much of the current deficit problem is directly attributable to this economic downturn is a matter of some disagreement but most economists agree that it is by far the largest part of the current deficit issue; in the range of some 37% of the 2 trillion dollar deficit miscalculation of the CBO. This means that some 740 billion of the difference between the CBO’s estimates and reality is a direct result of the economic downturns that occurred before Obama’s election.
Another large chunk of the problem came from two programs that George W. Bush pushed through Congress. You remember him and his buddy Cheney who confidently boasted that Reagan had already proved that deficits don’t matter. While this is obviously a remark made in total ignorance of economic reality, it is part of the the same fable that Republicans have been telling since Reagan was in office. According to the Republican mantra that has been around since Reagan the answer is cutting taxes no matter what the question might be. Cutting taxes stimulates the economy which allows it to produce more revenue according to Reagan’s idea of economics which the first Bush president accurately described in a debate as “Voodoo Economics”. Unfortunately, he neglected to explain this fact to his son who believes to this day that what we need are more tax cuts for the wealthiest Americans. The truth is that the Reagan years doubled the deficit which is something that was deemed impossible previously without a major war like WWII. I have trouble understanding how even the most ardent Reagan worshipers gloss over the fact that he doubled the deficit in peacetime the first time we tried tax cuts for the wealthiest Americans. As a matter of fact, cutting taxes didn’t stimulate anything but the second phase of Reagan improvements which involved spending massive amounts of government money paying large corporations to develop military hardware did. This is exactly why the economy took off, it was the largest influx of government money into the economy we had seen and it worked like a charm as long as you ignore the fact that it doubled the deficit.
Getting back to the present situation, George W. Bush pushed through two major programs that had devastating effects on the deficit. The first was the Reagan mantra of cutting taxes on the wealthiest Americans. This of course had the same effect that it had in Reagan’s years; it caused a loss of tax revenue that led to significant deficit increases. Interestingly enough, Republican believers in the tax cut mantra still believe it is the answer today even though we have a lot of statistical data that proves it takes increases in revenue along with decreases in spending to lower deficits. All one has to do is compare the Clinton and Bush Sr. years to the Bush Jr. and Reagan years to see this in action but it really is as simple as addition and subtraction. Any child knows you don’t increase the amount of water in a bucket by punching a hole in the bottom of it. The second program that Bush pushed through was the Medicare Prescription Drug Act which basically increased the amount the government program would provide for paying for drugs for Medicare participants. While this is a much more noble cause than tax cuts for the wealthy it was implemented without a hint of how it was to be financed so naturally it just added to the deficit. The net effect of the Bush Tax cuts and the Prescription Drug Act changed the CBO’s predictions by some 33% (660 billion dollars of the 2 trillion) by the time the increases in interest payments on the debt it created are added.
If you add the 33% to the 37% you come up with some 1.43 trillion of the difference between the CBO’s prediction and what we are actually seeing. Try to keep in mind that this number is composed strictly of policy mistakes that were put in place before Obama’s election. It is interesting that the harshest critics of the deficit issue today are some of the same people who actually caused both of these problems to happen through de-regulation of the financial industry and tax cuts for the wealthiest Americans along with a Prescription Drug Act that was passed without any hint of how it would be financed.
Does this mean that Obama has no blame in the current fiasco? I would say that there is enough blame to go around for everyone but we will continue to look at actual numbers to see where the 2 trillion dollars difference between the CBO’s estimate and today’s reality was created. Another 20% of the difference can be found in Obama’s support for the continuation of the wars in Iraq and Afghanistan combined with the continuation of the Bush tax cuts along with the Wall Street Bailout that Bush signed and Obama supported. In other words another 400 billion of the 2 trillion dollar difference can be traced directly to these three policies that Bush put in place and Obama continued to support after his election. Many of Obama’s supporters were disappointed with his continuation of the wars in Afghanistan and Iraq. Without knowing the security information that Obama became privy to upon arriving in the White House it is hard to make judgments about his decisions along these lines. We can further question his support of the Wall Street bailout but most reputable economists believe that it was necessary to keep the international economy from a devastating collapse; one that we are still not completely sure won’t happen in the near future I might add. Extending the Bush tax cuts was unmistakably a bargaining tool that Obama used to get support for some of his other programs but I personally believe it was a bad deal and one that can be shown mathematically to have increased the deficit problem when we need to go the other direction. In any case, if you add the 400 billion to the 1.43 trillion above you come to a 1.83 trillion dollar figure or some 90% of the current deficit problem and we still have not gotten to any of the Obama programs that conservatives want to convince us are the root cause of the deficit.
Obama is not without blame in the current crisis. The stimulus bill that he helped push through Congress to get the economy going added another 7% to the difference between the original CBO estimate and the 2 trillion dollar deficit we have. Obama’s health care bill that he pushed through has also added to the problem, along with his initiatives on education, energy, and other social programs added another 3%. In other words, Obama’s programs which conservatives see as the socialist part of his agenda have added a total of 10% (200 billion) to the deficit problem.
To recap; policies and economic problems that occurred during the 8 year term of George Bush are the direct cause of 70% of the deficit problem we are faced with. Obama’s support for/ and extension of Bush policies added another 20%. Obama’s programs that he has personally pushed through add another 10%. The end result is that we have a 2 trillion dollar difference between what we should have in our deficit and what we are actually faced with and we are now faced with the reality that we have to deal with this issue before it gets any larger. There are only two ways to decrease the deficit, increase revenue and decrease spending. Unfortunately, we are now faced with such a severe problem that we will probably have to do both in large and painful increments to see our way clear of this issue. There is always the possibility that the economy will turn around and start to grow at a fast rate which will necessarily narrow the difference between what we take in and what we spend. Unfortunately, the deficit issue has grown to such proportions that growth is probably not possible without first cutting into the deficit. It still remains to be seen whether we can change our economic policies to actually deal with the issues that caused the economic collapse that triggered the biggest part of the deficit.
Showing posts with label reagan. Show all posts
Showing posts with label reagan. Show all posts
Tuesday, July 19, 2011
Tuesday, April 12, 2011
A Swing to the Right
The far right in this country has managed to shift the whole political spectrum to the right in the last thirty years. While most of the conservatives on talk radio and Fox News would have everyone believe that the exact opposite is underway, the right wing media has managed to use propaganda very effectively in this country since Reagan eliminated the Fairness Doctrine (see my posts Propaganda? and the Fairness Doctrine). Reagan himself was the first to successfully demonize the liberals in this country but he has been followed by many others with even more right wing conservative agendas; to the point that the political middle in this country today has shifted drastically to the right. To a certain extent the pendulum swing of politics is inevitable in a democratic based government, but the effective use of propaganda techniques utilized by the far right has shifted things further than any other time in recent history in this country.
I would like to point out a few examples of what I am talking about. As I have written about in a past post (The Redistribution of Wealth Parts I and II) we have seen a rather drastic upward shift in the wealth of this country since Reagan took office in 1980. This is the direct result of changes in our basic tax structure. Reagan cut income taxes for the wealthiest Americans some 40% and started a trend that has more or less continued without pause in the ensuing 30 years. What is less well understood is that cuts of an even more drastic measure were also made in other taxes designed to tax the wealthiest Americans; inheritance taxes, luxury taxes, and capital gains taxes. At the same time even though corporate taxes are posted at 35%, loopholes for the largest corporations have culminated with 8 of the top 12 corporations on the Fortune 500 list not only paying NO income tax last year; but also receiving almost 4 billion dollars in tax credits. The combination of these policies has resulted in the top 1% of wealthiest Americans now owning 45% percent of the wealth in this country instead of the 17% they owned when Reagan came into office.
If the right wing argument that cutting taxes is the best way to stimulate the economy actually held true we should be in the biggest economic boom this country has ever seen after the tax policies of the last 30 years. Instead, we find ourselves in the worst economic downturn since the Great Depression brought about by the unimaginable greed of the wealthiest Americans. Where is the great investment in jobs and infrastructure that Reagan and his supporters predicted? It is in the internationally collapsed financial markets that the average American financed with huge losses to his 401K and hard earned retirement plan. Almost all of corporate America is healthy and showing near record profits but we don’t see job creation or infrastructure investment in this country. Instead, we see continuing shifts of jobs overseas and more investment in the same financial markets that collapsed the last time and had to be bailed out by the US government. Leaving aside the fact that it is reprehensible that the wealthiest amongst us just received government bailouts of their business interests it is plain that the jobs creation that tax cuts were supposed to produce are actually jobs overseas. Financial derivatives markets that are more profitable than production are the favored investment for this money and will continue to be as long as the tax structure remains tilted in favor of this type of market. Anyone who takes a look at the new Republican budget plan fostered by Paul Ryan will quickly see that one of the tenets of this plan is the further reduction and elimination of capital gains taxes. What we should actually be doing to stimulate the creation of jobs is raising capital gains taxes on these unregulated markets. This would induce investors to invest in industries that actually create jobs instead of putting all of their money in financial markets and overseas manufacturing owned by US companies that are specifically designed and structured to avoid paying US taxes. Investors seek profit so as long as there is greater profit margin in financial markets as opposed to manufacturing or production we will not see jobs created in these markets.
One form of conventional wisdom that the right wing loves to express concerning tax systems is that cutting taxes stimulates the economy. As I have noted in several other posts, a fair taxation system is one that taxes according to the benefit one receives from the government. The US government has explicitly been corporate business oriented since WWII in this country, especially since the Reagan years. The massive buildup of defense spending which Reagan used to boost the economy by doubling the money spent on defense spending in the first five years of his administration was a stimulus program aligned directly towards lining the pockets of the biggest American corporations. Reagan cut taxes on the wealthiest Americans while he at the same time fed them the largest increase in government spending ever seen up until that time in the form of defense contracts. It is little wonder that the budget deficit that we are still struggling with today originated during Reagan’s term. Reagan managed to more than double the deficit in just eight years; a feat that has not been matched before or since. It is true that Reagan cut taxes, what is not usually understood is that he stimulated the economy by doubling our defense spending and that all of this extra 600 billion dollars went to large American corporations. If this isn’t bad enough, the extra spending went directly towards the deficit because we also cut government revenue in the form of taxes at the same time.
Another conventional wisdom along the same lines is that any increase in taxes on the wealthiest Americans leads directly to a decline in our economy. The basis of this particular myth is an attempt to directly correlate profit margins with taxes. The gist of the myth is as follows; since the wealthiest Americans are the ones who have money to invest and create jobs, raising their taxes leads directly to them cutting their investment and raising prices. In the first place, if American investors are so averse to paying taxes that they want to invest overseas to avoid it I suggest that they do so. What they will find is that without the force of the US government backing their investments with foreign policies explicitly designed to further their profits they will find the sledding a little tougher. Again, it goes back to the fact that they are the beneficiaries of a government system friendly to their interests and should be willing to repay the subsidies and support they get by paying their fair share of the taxes needed to support the government. Second, it is both disingenuous and ridiculous to suggest that higher taxes lead directly to higher prices. Oddly enough, such muddled logic is espoused by the same people who purport to be the biggest supporters of free markets and the capitalist system. Even a casual acquaintance with capitalist theory leads to the understanding that profits are based upon supply and demand; not some arbitrary decision by the owner of the manufacturing interest as to what his profit margin should be. I would suggest that if owners could set profit margins based strictly upon what they want to make, no one could afford to buy any of their products. In other words, profit maximization is one of the basic tenets of capitalism. Owners of manufacturing interests maximize profits as a matter of course based upon pricing that is the maximum that the market will bear; not upon what profit margin they would like to realize. To suggest that raising taxes on these owners will lead directly to them passing this cost directly along to the consumer is to suggest that they can somehow suspend the free market system in favor of some imaginary notion of desirable profit margins.
Another conventional wisdom that the conservatives love to use as camouflage is the idea that small business owners who create most of the jobs in this country are being stifled by high tax rates. As in most common sense ideas there is a grain of truth to this notion. Small businesses without the means to hire large teams of tax attorneys do wind up paying the high tax rates and this is without a doubt a drain on their ability to create jobs. However, what most conservatives don’t like to admit is that the statistics they like to throw around about “small business” include some of the largest corporations in this country. The classification itself is so skewed as to be meaningless under current government regulations. What we really need to do is separate small business owners from the large corporate interests they are grouped with in our efforts to stimulate small business. I am all for giving tax breaks to companies under 100 employees or some like category. However, the current definition of the term “small business” allows some of the largest companies in this country to fall under this heading. It is this heading that conservatives from both parties use to disguise the fact that there is a difference between what most Americans consider a small business and what the US government specifies as a small business. This gives them the ammunition they need to loudly proclaim the sad stories about actual small businesses suffocating under high taxes and continue to attempt to cut taxes for all business interests, including those that are not paying taxes now because they can afford to hire teams of attorneys to find loopholes in the system.
This same tactic is used in the income tax tables for individuals. Currently in this country those that make from 53 to 174 thousand dollars in this country pay 28% of their income in federal income tax. The highest rate is 35% for those reporting above 379 thousand dollars in income. It is indeed debatable where the dividing line should be for paying higher rates of tax but I don’t think anyone in this country could reasonably argue that someone who makes 53 thousand dollars gets the same benefit to his business interests that someone who makes 379 thousand dollars from living in this country. Let’s take this analogy a little further and compare someone who makes 53 thousand dollars and someone who makes 2 million dollars a year. Can anyone seriously suggest that both receive the same benefit to their interests from the US Government? In previous years, when the US deficits were small and manageable, we had a progressive tax rate that topped out from 70-90% for the highest wage earners. However, these tax brackets were also progressive for much higher incomes. In other words, the tax tables topped out from 1 to 5 million dollars and were graduated accordingly. Who benefits the most by grouping themselves with those who earn less in deciding what their tax rate will be? It is not accidental that the top brackets were lowered when Reagan came along as it makes it possible for the very wealthiest to group themselves with those who make much less income. In reality the business interests most favored by living under the US government are the very wealthiest Americans and a tax table that accurately reflects this would in fairness progress at a much steeper rate for those Americans who make the highest incomes.
Much has been made recently about excessive executive compensation, especially amongst those large companies that the US taxpayer recently bailed out. The rate of pay for top US executives is literally hundreds of times higher than they are in the rest of the world. They are also on average some 700 times higher than they were just thirty years ago in this country. What is not well understood is that the elimination of the higher tax brackets that Reagan brought about during his administration was the catalyst for this change. There is a direct correlation between the Reagan tax cuts and the beginnings of the runaway executive pay system. I would also point out that there is a direct correlation between these astronomical rises in compensation for top executives based upon profit margins for the corporations they manage and the rise of corporate fraud and illegal bookkeeping practices that have crashed numerous large corporate entities in this country in the last 30 years. It is simply too tempting for many of these executives to obtain almost limitless wealth by cooking the books and often destroying their own companies in the process. This factor should not be underestimated in many of the recent large financial disasters that recently crashed the world economy. By replacing the top 35% brackets with 90% brackets we could remove much of the temptation for such avarice while at the same time adding immensely to government revenue at a time when we are suffering from record deficits.
If anyone is unconvinced that we have swung to the far right of the political spectrum in this country, try to remember the last time you heard any such discussion on the US tax structure on a news network. In actuality, what we hear is not discussion at all but carefully choreographed commercials aimed at convincing us that anyone who dares suggest higher taxes is either a socialist or simply unable to understand basic economic theory. Meanwhile, the rich get richer and the working middle class is disappearing under a mountain of seemingly insurmountable public and private debt.
I would like to point out a few examples of what I am talking about. As I have written about in a past post (The Redistribution of Wealth Parts I and II) we have seen a rather drastic upward shift in the wealth of this country since Reagan took office in 1980. This is the direct result of changes in our basic tax structure. Reagan cut income taxes for the wealthiest Americans some 40% and started a trend that has more or less continued without pause in the ensuing 30 years. What is less well understood is that cuts of an even more drastic measure were also made in other taxes designed to tax the wealthiest Americans; inheritance taxes, luxury taxes, and capital gains taxes. At the same time even though corporate taxes are posted at 35%, loopholes for the largest corporations have culminated with 8 of the top 12 corporations on the Fortune 500 list not only paying NO income tax last year; but also receiving almost 4 billion dollars in tax credits. The combination of these policies has resulted in the top 1% of wealthiest Americans now owning 45% percent of the wealth in this country instead of the 17% they owned when Reagan came into office.
If the right wing argument that cutting taxes is the best way to stimulate the economy actually held true we should be in the biggest economic boom this country has ever seen after the tax policies of the last 30 years. Instead, we find ourselves in the worst economic downturn since the Great Depression brought about by the unimaginable greed of the wealthiest Americans. Where is the great investment in jobs and infrastructure that Reagan and his supporters predicted? It is in the internationally collapsed financial markets that the average American financed with huge losses to his 401K and hard earned retirement plan. Almost all of corporate America is healthy and showing near record profits but we don’t see job creation or infrastructure investment in this country. Instead, we see continuing shifts of jobs overseas and more investment in the same financial markets that collapsed the last time and had to be bailed out by the US government. Leaving aside the fact that it is reprehensible that the wealthiest amongst us just received government bailouts of their business interests it is plain that the jobs creation that tax cuts were supposed to produce are actually jobs overseas. Financial derivatives markets that are more profitable than production are the favored investment for this money and will continue to be as long as the tax structure remains tilted in favor of this type of market. Anyone who takes a look at the new Republican budget plan fostered by Paul Ryan will quickly see that one of the tenets of this plan is the further reduction and elimination of capital gains taxes. What we should actually be doing to stimulate the creation of jobs is raising capital gains taxes on these unregulated markets. This would induce investors to invest in industries that actually create jobs instead of putting all of their money in financial markets and overseas manufacturing owned by US companies that are specifically designed and structured to avoid paying US taxes. Investors seek profit so as long as there is greater profit margin in financial markets as opposed to manufacturing or production we will not see jobs created in these markets.
One form of conventional wisdom that the right wing loves to express concerning tax systems is that cutting taxes stimulates the economy. As I have noted in several other posts, a fair taxation system is one that taxes according to the benefit one receives from the government. The US government has explicitly been corporate business oriented since WWII in this country, especially since the Reagan years. The massive buildup of defense spending which Reagan used to boost the economy by doubling the money spent on defense spending in the first five years of his administration was a stimulus program aligned directly towards lining the pockets of the biggest American corporations. Reagan cut taxes on the wealthiest Americans while he at the same time fed them the largest increase in government spending ever seen up until that time in the form of defense contracts. It is little wonder that the budget deficit that we are still struggling with today originated during Reagan’s term. Reagan managed to more than double the deficit in just eight years; a feat that has not been matched before or since. It is true that Reagan cut taxes, what is not usually understood is that he stimulated the economy by doubling our defense spending and that all of this extra 600 billion dollars went to large American corporations. If this isn’t bad enough, the extra spending went directly towards the deficit because we also cut government revenue in the form of taxes at the same time.
Another conventional wisdom along the same lines is that any increase in taxes on the wealthiest Americans leads directly to a decline in our economy. The basis of this particular myth is an attempt to directly correlate profit margins with taxes. The gist of the myth is as follows; since the wealthiest Americans are the ones who have money to invest and create jobs, raising their taxes leads directly to them cutting their investment and raising prices. In the first place, if American investors are so averse to paying taxes that they want to invest overseas to avoid it I suggest that they do so. What they will find is that without the force of the US government backing their investments with foreign policies explicitly designed to further their profits they will find the sledding a little tougher. Again, it goes back to the fact that they are the beneficiaries of a government system friendly to their interests and should be willing to repay the subsidies and support they get by paying their fair share of the taxes needed to support the government. Second, it is both disingenuous and ridiculous to suggest that higher taxes lead directly to higher prices. Oddly enough, such muddled logic is espoused by the same people who purport to be the biggest supporters of free markets and the capitalist system. Even a casual acquaintance with capitalist theory leads to the understanding that profits are based upon supply and demand; not some arbitrary decision by the owner of the manufacturing interest as to what his profit margin should be. I would suggest that if owners could set profit margins based strictly upon what they want to make, no one could afford to buy any of their products. In other words, profit maximization is one of the basic tenets of capitalism. Owners of manufacturing interests maximize profits as a matter of course based upon pricing that is the maximum that the market will bear; not upon what profit margin they would like to realize. To suggest that raising taxes on these owners will lead directly to them passing this cost directly along to the consumer is to suggest that they can somehow suspend the free market system in favor of some imaginary notion of desirable profit margins.
Another conventional wisdom that the conservatives love to use as camouflage is the idea that small business owners who create most of the jobs in this country are being stifled by high tax rates. As in most common sense ideas there is a grain of truth to this notion. Small businesses without the means to hire large teams of tax attorneys do wind up paying the high tax rates and this is without a doubt a drain on their ability to create jobs. However, what most conservatives don’t like to admit is that the statistics they like to throw around about “small business” include some of the largest corporations in this country. The classification itself is so skewed as to be meaningless under current government regulations. What we really need to do is separate small business owners from the large corporate interests they are grouped with in our efforts to stimulate small business. I am all for giving tax breaks to companies under 100 employees or some like category. However, the current definition of the term “small business” allows some of the largest companies in this country to fall under this heading. It is this heading that conservatives from both parties use to disguise the fact that there is a difference between what most Americans consider a small business and what the US government specifies as a small business. This gives them the ammunition they need to loudly proclaim the sad stories about actual small businesses suffocating under high taxes and continue to attempt to cut taxes for all business interests, including those that are not paying taxes now because they can afford to hire teams of attorneys to find loopholes in the system.
This same tactic is used in the income tax tables for individuals. Currently in this country those that make from 53 to 174 thousand dollars in this country pay 28% of their income in federal income tax. The highest rate is 35% for those reporting above 379 thousand dollars in income. It is indeed debatable where the dividing line should be for paying higher rates of tax but I don’t think anyone in this country could reasonably argue that someone who makes 53 thousand dollars gets the same benefit to his business interests that someone who makes 379 thousand dollars from living in this country. Let’s take this analogy a little further and compare someone who makes 53 thousand dollars and someone who makes 2 million dollars a year. Can anyone seriously suggest that both receive the same benefit to their interests from the US Government? In previous years, when the US deficits were small and manageable, we had a progressive tax rate that topped out from 70-90% for the highest wage earners. However, these tax brackets were also progressive for much higher incomes. In other words, the tax tables topped out from 1 to 5 million dollars and were graduated accordingly. Who benefits the most by grouping themselves with those who earn less in deciding what their tax rate will be? It is not accidental that the top brackets were lowered when Reagan came along as it makes it possible for the very wealthiest to group themselves with those who make much less income. In reality the business interests most favored by living under the US government are the very wealthiest Americans and a tax table that accurately reflects this would in fairness progress at a much steeper rate for those Americans who make the highest incomes.
Much has been made recently about excessive executive compensation, especially amongst those large companies that the US taxpayer recently bailed out. The rate of pay for top US executives is literally hundreds of times higher than they are in the rest of the world. They are also on average some 700 times higher than they were just thirty years ago in this country. What is not well understood is that the elimination of the higher tax brackets that Reagan brought about during his administration was the catalyst for this change. There is a direct correlation between the Reagan tax cuts and the beginnings of the runaway executive pay system. I would also point out that there is a direct correlation between these astronomical rises in compensation for top executives based upon profit margins for the corporations they manage and the rise of corporate fraud and illegal bookkeeping practices that have crashed numerous large corporate entities in this country in the last 30 years. It is simply too tempting for many of these executives to obtain almost limitless wealth by cooking the books and often destroying their own companies in the process. This factor should not be underestimated in many of the recent large financial disasters that recently crashed the world economy. By replacing the top 35% brackets with 90% brackets we could remove much of the temptation for such avarice while at the same time adding immensely to government revenue at a time when we are suffering from record deficits.
If anyone is unconvinced that we have swung to the far right of the political spectrum in this country, try to remember the last time you heard any such discussion on the US tax structure on a news network. In actuality, what we hear is not discussion at all but carefully choreographed commercials aimed at convincing us that anyone who dares suggest higher taxes is either a socialist or simply unable to understand basic economic theory. Meanwhile, the rich get richer and the working middle class is disappearing under a mountain of seemingly insurmountable public and private debt.
Wednesday, April 6, 2011
The Fruits of Supply Side Economics
We often hear the right wing Reaganites espousing the same old supply side rhetoric that Reagan himself pushed so successfully. I suppose this is a natural response, trying to continue a lie that worked once until it is finally disproved to the point that you can no longer use it effectively is a basic strategy. While most of those using the arguments today have fallen away from some of the terminology Reagan used because it has been proven to be disastrously wrong, there is still strong sentiment for the basic idea of smaller government and more free market enterprise. Without bothering to repeat that this didn’t work in Reagan’s time and has had disastrous results ever since, I want to go a little deeper into how big business in this country really works and explode the myth that the free market has anything to do with corporate business in this country.
Of the top ten Fortune 500 companies in the United States in 2010 3 were oil companies who between the 3 of them generated some 34 billion dollars in after tax profits last year. Taking the time to add up all profits from these same top ten Fortune 500 companies and divide this total number into the oil company profits I realized that these 3 oil companies account for 36% of the total profits of the top ten corporations. The interesting connection that most people fail to make after this point is that the US government supports this industry in a very large way financially. While it is near impossible to pin down exact amounts in the form of government subsidies these companies receive in various forms the best estimates are somewhere between 15 and 35 billion a year industry wide. For arguments sake let us take the lowest number of the two and say that 15 billion a year is an accurate number.
Adding up the total oil production of the top 50 companies in the US and dividing this into the production of the big three oil companies we see that these three oil companies account for about 37% of the total oil production in the US. Assuming these top three companies get an equal share of government subsidies this comes up to some 5.5 billion dollars a year these companies receive in the form of subsidies or 16% of their total profits. While this is fairly typical of the large corporations and their working agreements with the US government it hardly makes for a level playing field for the rest of us. Talk to any small business owner in this country and ask them if a 16% subsidy would help them. The subsidies themselves come in many different forms; the following of which are just a partial list:
• Construction bonds at low interest rates or tax-free
• Research-and-development programs at low or no cost
• Assuming the legal risks of exploration and development in a company's stead
• Below-cost loans with lenient repayment conditions
• Income tax breaks, especially featuring obscure provisions in tax laws designed to receive little congressional oversight when they expire
• Sales tax breaks - taxes on petroleum products are lower than average sales tax rates for other goods
• Giving money to international financial institutions (the U.S. has given tens of billions of dollars to the World Bank and U.S. Export-Import Bank to encourage oil production internationally, according to Friends of the Earth)
• The U.S. Strategic Petroleum Reserve
Looking a little deeper into oil companies in the US and their deals with the government we come upon another set of circumstances that work differently in the US than any other industrialized nation in the world. Presently, most of the oil reserves in the US are under public lands or in publicly owned waters offshore. While this is not unique to the US the sweetheart royalty deals that US oil companies get with our government in the use of these lands most definitely is different. US oil companies typically pay some 40% of their profits on the oil from these publicly owned lands back to the government while the average in the rest of the world on such deals is 65%. This number is further reduced on offshore deepwater rigs to 18%, or in special cases where the extraction is prohibitive; eliminated entirely. What this amounts to is another 25-38% of profits that oil companies in the US get to keep as opposed to the way this business works in the rest of the world.
How any of this fits into the description of free market enterprise is beyond me; a more accurate description would be government subsidized enterprise and the dirty little secret that the Republican party and Conservative commentators don’t want you to know is that all large corporations in this country operate under a similar umbrella while usually at the same time complaining that they are taxed too high. If they actually paid the 35% tax rate they are supposed to according to the law they might have a point. As we shall see, this is not the case.
For example, oil field lease agreements and drilling equipment are taxed at 9% in this country while almost all similar equipment cost taxes are in the 25% range. What this amounts to is that government subsidized corporations not only get incentivized deals to support their industry but they also don’t pay their fair share of the taxes on the profits they make. In 2009 Exxon advertised that they paid some 15 billion on a 34.2 billion profit before taxes. What they failed to point out was that this 15 billion was paid out to foreign governments where they had set up offshore tax structures specifically to avoid paying US taxes. In actuality they paid absolutely zero in US income taxes that year but were able to receive tax credits for the taxes they paid overseas while simultaneously taking advantage of the subsidies that the US government affords them. During the same time period Chevron paid some 200 million in US income taxes on 10 billion dollars reported profits. In case you are wondering, this comes out to about a 2% tax rate which is a little high for a large US corporation as we will see.
Let’s look at some other of the corporations on the Forbes ten lists for a moment. GE, which is listed as number 4 on the list with some 11 billion in profits last year, paid zero in US income taxes over that same period. As a matter of fact they have some 2.4 billion in tax credits for the same year. Hold onto your hat, it gets worse. GE, as a large corporate conglomerate, managed to relieve itself of most of its tax burden by shifting jobs overseas and hiring a small army of ex IRS examiners to help it file its taxes. Let’s look at this a little closer. GE makes a substantial amount of its profit margin in government contracting so it is a direct recipient of government funds while at the same time is steadily laying people off in the US to help its tax burden. From the US government’s point of view, this is a lot like handing someone a gun and paying them an obscene amount of money to shoot you in the foot.
Bank of America is listed at number five on the list. In 2010 Bank of America showed some 6.2 billion dollars in profits on their books. Of course this was after they received almost 1 trillion in interest free bailout money from the government so it isn’t hard to see how good their business acumen is to start with. Nevertheless, they also paid zero in income taxes while at the same time receiving a 1.9 billion dollar tax refund; not a bad way to make a living if you ask me.
Conoco-Phillips is next at number six on the list. As an oil company they also receive the same subsidy treatment that Exxon listed above does. The best figures available show them receiving some 16 billion in profits in the last three years while paying 450 million in income taxes. Obviously they need to hire better accountants because they paid in to the US coffers at an astounding 2.8% while Exxon paid zilch. Of course this is probably because of their less effective use of money spent lobbying Congress. They only spent 19 million dollars in that effort in 2009.
Ford Motor Company comes in at number eight on the list. They only reported 3 billion in profits in 2010. To their credit Ford didn’t take a government bailout last year. To the discredit of their accountants they actually paid in some income tax as well, some 69 million for a whopping 2.3% tax rate. Try to keep in mind as you read this that the unfair tax rate that all conservatives regularly complain about for business interests is 35%.
Earning honorable mention is Citi Group at number 12 on the list. While they didn’t manage to crack the top ten last year in total revenue they did manage to make some 4.4 billion in profits while paying exactly zero in income taxes. I don’t suppose their board of directors is too despondent about those two slots out of the top ten because they also managed to garner 2.5 trillion in federal money in the recent bailout.
Let’s see if we can make sense of all of this. Of the 8 corporations I have listed (all within the top 12 on the Forbes 500 list) they took in some 63.9 billion in reported profits last year. From these profits they paid in a total of 283 million in income tax over that same period. Wait a minute, I almost forgot; they also received 4.3 billion in tax credits over that same period. In actuality that means on 63.9 billion dollars in profits they paid in a -4.27 billion dollars in taxes (or made an extra 4.27 billion in refunds). Yet the American public is somehow supposed to believe that we live in country that is not business friendly.
Our government in actuality has evolved into a bunch of well paid cheerleaders for large corporations and the wealthiest one percent of Americans. Not only is our foreign policy built around supporting large business interests; much of the legislation bought and paid for by lobbyist from these same interests in Washington is specifically designed to help them line their pockets with subsidies. Our tax structure is an abysmal joke and if you are by any chance wondering who is the butt of the joke look at your pay stub next week to figure out where these subsidies come from. They are listed under income tax withholding.
The beginning of the deficit issues we are currently smothering under in this country occurred when Ronald Reagan came into office and began drastically cutting the tax rates on corporations and the wealthiest Americans. The truth of the matter is that we would not be in a deficit situation if we had not been handing out free passes in the form of subsidies and tax loopholes to the wealthiest among us for the last thirty years while steadily shifting the burden for paying for everything to payroll deductions on the middle class.
Of the top ten Fortune 500 companies in the United States in 2010 3 were oil companies who between the 3 of them generated some 34 billion dollars in after tax profits last year. Taking the time to add up all profits from these same top ten Fortune 500 companies and divide this total number into the oil company profits I realized that these 3 oil companies account for 36% of the total profits of the top ten corporations. The interesting connection that most people fail to make after this point is that the US government supports this industry in a very large way financially. While it is near impossible to pin down exact amounts in the form of government subsidies these companies receive in various forms the best estimates are somewhere between 15 and 35 billion a year industry wide. For arguments sake let us take the lowest number of the two and say that 15 billion a year is an accurate number.
Adding up the total oil production of the top 50 companies in the US and dividing this into the production of the big three oil companies we see that these three oil companies account for about 37% of the total oil production in the US. Assuming these top three companies get an equal share of government subsidies this comes up to some 5.5 billion dollars a year these companies receive in the form of subsidies or 16% of their total profits. While this is fairly typical of the large corporations and their working agreements with the US government it hardly makes for a level playing field for the rest of us. Talk to any small business owner in this country and ask them if a 16% subsidy would help them. The subsidies themselves come in many different forms; the following of which are just a partial list:
• Construction bonds at low interest rates or tax-free
• Research-and-development programs at low or no cost
• Assuming the legal risks of exploration and development in a company's stead
• Below-cost loans with lenient repayment conditions
• Income tax breaks, especially featuring obscure provisions in tax laws designed to receive little congressional oversight when they expire
• Sales tax breaks - taxes on petroleum products are lower than average sales tax rates for other goods
• Giving money to international financial institutions (the U.S. has given tens of billions of dollars to the World Bank and U.S. Export-Import Bank to encourage oil production internationally, according to Friends of the Earth)
• The U.S. Strategic Petroleum Reserve
Looking a little deeper into oil companies in the US and their deals with the government we come upon another set of circumstances that work differently in the US than any other industrialized nation in the world. Presently, most of the oil reserves in the US are under public lands or in publicly owned waters offshore. While this is not unique to the US the sweetheart royalty deals that US oil companies get with our government in the use of these lands most definitely is different. US oil companies typically pay some 40% of their profits on the oil from these publicly owned lands back to the government while the average in the rest of the world on such deals is 65%. This number is further reduced on offshore deepwater rigs to 18%, or in special cases where the extraction is prohibitive; eliminated entirely. What this amounts to is another 25-38% of profits that oil companies in the US get to keep as opposed to the way this business works in the rest of the world.
How any of this fits into the description of free market enterprise is beyond me; a more accurate description would be government subsidized enterprise and the dirty little secret that the Republican party and Conservative commentators don’t want you to know is that all large corporations in this country operate under a similar umbrella while usually at the same time complaining that they are taxed too high. If they actually paid the 35% tax rate they are supposed to according to the law they might have a point. As we shall see, this is not the case.
For example, oil field lease agreements and drilling equipment are taxed at 9% in this country while almost all similar equipment cost taxes are in the 25% range. What this amounts to is that government subsidized corporations not only get incentivized deals to support their industry but they also don’t pay their fair share of the taxes on the profits they make. In 2009 Exxon advertised that they paid some 15 billion on a 34.2 billion profit before taxes. What they failed to point out was that this 15 billion was paid out to foreign governments where they had set up offshore tax structures specifically to avoid paying US taxes. In actuality they paid absolutely zero in US income taxes that year but were able to receive tax credits for the taxes they paid overseas while simultaneously taking advantage of the subsidies that the US government affords them. During the same time period Chevron paid some 200 million in US income taxes on 10 billion dollars reported profits. In case you are wondering, this comes out to about a 2% tax rate which is a little high for a large US corporation as we will see.
Let’s look at some other of the corporations on the Forbes ten lists for a moment. GE, which is listed as number 4 on the list with some 11 billion in profits last year, paid zero in US income taxes over that same period. As a matter of fact they have some 2.4 billion in tax credits for the same year. Hold onto your hat, it gets worse. GE, as a large corporate conglomerate, managed to relieve itself of most of its tax burden by shifting jobs overseas and hiring a small army of ex IRS examiners to help it file its taxes. Let’s look at this a little closer. GE makes a substantial amount of its profit margin in government contracting so it is a direct recipient of government funds while at the same time is steadily laying people off in the US to help its tax burden. From the US government’s point of view, this is a lot like handing someone a gun and paying them an obscene amount of money to shoot you in the foot.
Bank of America is listed at number five on the list. In 2010 Bank of America showed some 6.2 billion dollars in profits on their books. Of course this was after they received almost 1 trillion in interest free bailout money from the government so it isn’t hard to see how good their business acumen is to start with. Nevertheless, they also paid zero in income taxes while at the same time receiving a 1.9 billion dollar tax refund; not a bad way to make a living if you ask me.
Conoco-Phillips is next at number six on the list. As an oil company they also receive the same subsidy treatment that Exxon listed above does. The best figures available show them receiving some 16 billion in profits in the last three years while paying 450 million in income taxes. Obviously they need to hire better accountants because they paid in to the US coffers at an astounding 2.8% while Exxon paid zilch. Of course this is probably because of their less effective use of money spent lobbying Congress. They only spent 19 million dollars in that effort in 2009.
Ford Motor Company comes in at number eight on the list. They only reported 3 billion in profits in 2010. To their credit Ford didn’t take a government bailout last year. To the discredit of their accountants they actually paid in some income tax as well, some 69 million for a whopping 2.3% tax rate. Try to keep in mind as you read this that the unfair tax rate that all conservatives regularly complain about for business interests is 35%.
Earning honorable mention is Citi Group at number 12 on the list. While they didn’t manage to crack the top ten last year in total revenue they did manage to make some 4.4 billion in profits while paying exactly zero in income taxes. I don’t suppose their board of directors is too despondent about those two slots out of the top ten because they also managed to garner 2.5 trillion in federal money in the recent bailout.
Let’s see if we can make sense of all of this. Of the 8 corporations I have listed (all within the top 12 on the Forbes 500 list) they took in some 63.9 billion in reported profits last year. From these profits they paid in a total of 283 million in income tax over that same period. Wait a minute, I almost forgot; they also received 4.3 billion in tax credits over that same period. In actuality that means on 63.9 billion dollars in profits they paid in a -4.27 billion dollars in taxes (or made an extra 4.27 billion in refunds). Yet the American public is somehow supposed to believe that we live in country that is not business friendly.
Our government in actuality has evolved into a bunch of well paid cheerleaders for large corporations and the wealthiest one percent of Americans. Not only is our foreign policy built around supporting large business interests; much of the legislation bought and paid for by lobbyist from these same interests in Washington is specifically designed to help them line their pockets with subsidies. Our tax structure is an abysmal joke and if you are by any chance wondering who is the butt of the joke look at your pay stub next week to figure out where these subsidies come from. They are listed under income tax withholding.
The beginning of the deficit issues we are currently smothering under in this country occurred when Ronald Reagan came into office and began drastically cutting the tax rates on corporations and the wealthiest Americans. The truth of the matter is that we would not be in a deficit situation if we had not been handing out free passes in the form of subsidies and tax loopholes to the wealthiest among us for the last thirty years while steadily shifting the burden for paying for everything to payroll deductions on the middle class.
Wednesday, March 23, 2011
Tax Philosophy in America; a Brief History
The United States has been blessed with an abundance of natural resources unlike most any other nation in the world from the very beginning of our nation. Plentiful rich land for expansion, an abundance of coal, oil, natural gas, and a mostly congenial and mild climate combined to make this a haven for those willing to work hard and have an independent spirit for the better part of three centuries now. Combine this with rich soil, and almost limitless supplies of fresh water and wild game and you begin to get a feel for how uniquely rich this country has been since its inception. It is hard to overstate the fact that much of the rich character of our nation is directly attributable to the vast bounty in natural resources that our part of the continent of North America contained when the first settlers from Western Europe set foot here. We as Americans are fond of bragging about the individualism and entrepreneurial spirit that made us the greatest economic and military power in the world today without giving due credit to the vast richness the land held when we came here.
At the outset of the experiment that the United States government is we were almost overwhelmingly an agricultural nation. What made this country unique from so many of the nations of Western Europe where so many of the original immigrants came from was the heretofore unimaginable amount of land available for the taking. This is the only nation of the western world where for centuries there was more land available than people to work it. This led to low prices on land and high prices on labor; both uniquely and vastly different from what the rest of the western world knew as normal. It was this great abundance of land that financed much of our government expense for most of the first two centuries of our existence as a nation. Money from the public sale of these lands along with moderate tariffs on imports from overseas provided the great majority of revenues that our government needed to survive. While much of Western Europe struggled with high taxes and all manner of attempts to raise enough revenue to cover expenditures Americans were for the most part completely unconcerned with such problems.
Indeed the American Revolution by which we as a country gained our independence from Great Britain was largely fought over Americans refusal to pay taxes to the British government. Great Britain believed that since she had provided the military that fought two wars against foreign powers and Native American allies to these powers, the colonies should share in the high taxes these expenditures had levied on her citizens in Great Britain and other colonies of the crown. American colonial leaders disagreed. It is worth noting here that even at that time the preponderance of this tax burden fell upon the first wealthy class that had sprung up in this nation. These taxes that American colonial leaders found so objectionable were not levied on the average American small farmer they were taxes on the merchant and planter class; the wealthiest Americans.
As Adam Smith in his "Wealth of Nations" notes; it is the division of wealth that is in many ways the root cause of government expense to begin with. If all nations are equal in wealth there is little motive for one nation to attack another. If all citizens within a country are equal in wealth there is little reason for the expensive protections government provides in the form of justice systems, police, and standing armies. It is the division of wealth, furthermore the unequal division of wealth that makes stronger central governments necessary. Central governments from the very beginning of civilization have been necessary to support property rights. John Locke, the enlightened thinker from whom Jefferson borrowed the immortal "Life, Liberty, and the Pursuit of Happiness" in the opening of the Declaration of Independence, stated the function of all government more clearly as the protection of "Life, Liberty, and Property". While both Jefferson and Locke agree that all true governments receive their power from the consent of the governed Locke was much more honest about the three basic rights governments have the duty to protect. In other words, justice systems, courts, police, and to a great extent national armies are necessitated by the need to protect property rights. In largely agrarian societies with equal wealth smaller, less expensive governments have always sufficed. An axiom that Smith well recognized is that the larger the division of wealth within a nation, the more complex and expensive the government system that is needed to support it.
Smith spends a great deal of time in his book explaining this theory. It is the basis for his justification for taxing the populace in proportion to their wealth. After all, if they are the reason why a larger more expensive government is necessary, they should be willing to pay for it in proportion to their need. This is an important point and one that we seem to have lost sight of in this country in the recent past. Much of our governmental effort goes into protecting the business interests of our wealthiest citizens. Our nation's foreign policy since the beginning of the 20th century has been overwhelmingly slanted towards protection of the largest business interests in the country. When we were an isolationist nation with little business interests outside of our borders we had little need of a huge military or a large and expensive state department. As corporate giants began to dominate the market place both here and abroad our government grew to protect and support their interests.
When the bulk of this nation was agrarian we had little need of a large central government. For much of the first 120 years of our history as a nation this held true. However, with the growth of corporations, manufacturing interests and international trade interests at the end of the nineteenth century this began to change. This change was manifested in our growing involvement in international affairs on a national basis. We didn’t become intimately involved in international affairs through a national referendum; we became involved because of the growing influence of a wealthy class of Americans whose financial interest necessitated a strong military and diplomatic international presence to support their interests. Anyone who takes the time to read the writings of our founding fathers will find them almost unanimous in their disdain for a strong central government supported by large standing armies. This is because as an agrarian nation, we had no need of such exigencies, but as an economic leader in world financial centers this is no longer the case. I don’t think anyone would sensibly argue we don’t need a standing army today or an international diplomatic corp. Aside from those who believe we should revert to being an agrarian nation, everyone understands this is simply a necessity in today’s world.
It was our nation’s rise as an industrial nation that necessitated the growth of our government. In other words, the growth of wealth in this country led to our becoming a leader in the world and this wealth also has costs associated with it that we pay in the form of a larger, more expensive government. You simply cannot have one without the other. Therefore, since it is the wealthiest among us who profit the most from this system they should pay the largest share of the expense in maintaining it. This has been the basis for a fair system of taxation from the very beginnings of organized governments. To quote from Smith again;
The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expence of government to the individuals of a great nation is like the expence of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.
The growth of corporate power in this country is another reality that we seem to not understand very well as a voting public. Corporations have gained legal status that allows them to have many of the same rights as individuals without the requisite liability of an individual. Just for example, the Supreme Court recently ruled that corporations have the same right of free speech as individuals so they should not be limited as to how they contribute to campaigns of their favorite candidates. While this may seem plausible on its surface it covers up the fact that as an individual you and I are responsible for all of our actions to the very limits of our financial ability to cover them while corporate leaders are only liable as far as their corporate finances while their individual finances are beyond the ability of a court to reach. This is just one example of how the vast capabilities of large corporation’s wealth don’t match their culpability in our legal system. There are many others that favor corporations which is exactly why their success has been tied so closely with the growth of our nation’s power and the growing division between the wealthiest 1% of Americans and the rest of us. I don’t believe corporations are evil entities but they are favored entities under the legal system of this country which is exactly why they have so much wealth and requisite power in our government today.
It is in their best interests that many of the foreign policy decisions that the rest of us pay for are routinely made. Receiving the great abundance of favor that such decisions afford them, one would think that they would happily pay the heaviest share of the expenses put forth to gain them but that is not what is going on in this country today. Since the Reagan revolution we have seen a steady increase in corporate profits along with a steady decrease of the amount of revenue the government receives from them. It is true that the Corporate Tax Rates in this country are high compared to most other industrialized nations (close to 35%). However, what is also true is that tax loopholes that have progressively been extended throughout the last 30 years have reduced the actual tax liability of corporations to all time lows. In 1978 the percentage of total tax revenue raised in this country off of tax revenue on corporations was 15% as opposed to some 47% in individual income taxes at the same time that corporations took in some 40% of the total profits realized. In 2009 the percentage of revenue gathered from corporations was 6% as opposed to 46% in individual income taxes. In other words, corporations which took in some 70% of the total profits made in this country paid 6% of the taxes collected. Looked at another way if corporations earn 70% of the profits and pay 6% of the revenue they are paying a vastly smaller percentage of the cost of the government that makes their profit margin possible while at the same time capitalizing on the protection government affords them. Taking into account the recent rulings on campaign contributions by corporations it is easy to see how this vast increase in profit margins will allow them to continue to consolidate control over the election process in the near future.
Beyond the unlevel playing field of corporate America is another level of unequal taxation the Reagan revolution ushered in that is just as devastating to the deficit. The highest tax brackets in this country have historically paid some 70-90% in income taxes. Again, this is the group of Americans who profit the most from the business environment that our large government creates through subsidies, government research and development grants, and foreign policy decisions built around protecting the financial interests of this same group of people. This same group of people today typically pays some 15% on their income taxes by the time all the loopholes available to them through tax attorneys and favorable legislation are assessed while the average upper middle class citizen pays close to 30% on their income taxes in direct payroll deductions. This is exactly why the upper 1% of the wealthiest Americans now own 45% of the wealth of this country as opposed to the 18% they owned when Reagan came into office.
Without a doubt we as a country have some serious problems as far as our financial situation. We are continually spending more than we take in which is obviously unsustainable. The question is what do we do about it? Do we continue to slash government programs until we can subsist on the lower revenues our present tax codes provide or do we believe that it is both necessary and proper for the government to provide basic services and increase our revenues through higher taxation on corporate profit? The ugly truth we seem to be ignoring is that our government which has steadily grown more and more to be controlled by corporate interests in the financial interests of the wealthiest Americans has at the same time continuously reduced their responsibility for paying the bills. The good news is that we are approaching a point to where these questions will have to be answered. The bad news is that we don’t seem to realize why or how we got into this situation. Corporate interests of the wealthiest Americans continue to gain more control of our government while at the same time increasing their profit margins by cutting the amount of taxes they pay while pointing to the poorest among us as the financial drain on the economy. The choice is ours to make. We can either institute a taxation system based upon the timeless values of equal taxation espoused by Adam Smith above or we can continue our present system of unequal taxation and see the eventual financial collapse of our government as we now know it. What we cannot do is expect to continue on the path we are presently on without facing up to where it is leading us.
At the outset of the experiment that the United States government is we were almost overwhelmingly an agricultural nation. What made this country unique from so many of the nations of Western Europe where so many of the original immigrants came from was the heretofore unimaginable amount of land available for the taking. This is the only nation of the western world where for centuries there was more land available than people to work it. This led to low prices on land and high prices on labor; both uniquely and vastly different from what the rest of the western world knew as normal. It was this great abundance of land that financed much of our government expense for most of the first two centuries of our existence as a nation. Money from the public sale of these lands along with moderate tariffs on imports from overseas provided the great majority of revenues that our government needed to survive. While much of Western Europe struggled with high taxes and all manner of attempts to raise enough revenue to cover expenditures Americans were for the most part completely unconcerned with such problems.
Indeed the American Revolution by which we as a country gained our independence from Great Britain was largely fought over Americans refusal to pay taxes to the British government. Great Britain believed that since she had provided the military that fought two wars against foreign powers and Native American allies to these powers, the colonies should share in the high taxes these expenditures had levied on her citizens in Great Britain and other colonies of the crown. American colonial leaders disagreed. It is worth noting here that even at that time the preponderance of this tax burden fell upon the first wealthy class that had sprung up in this nation. These taxes that American colonial leaders found so objectionable were not levied on the average American small farmer they were taxes on the merchant and planter class; the wealthiest Americans.
As Adam Smith in his "Wealth of Nations" notes; it is the division of wealth that is in many ways the root cause of government expense to begin with. If all nations are equal in wealth there is little motive for one nation to attack another. If all citizens within a country are equal in wealth there is little reason for the expensive protections government provides in the form of justice systems, police, and standing armies. It is the division of wealth, furthermore the unequal division of wealth that makes stronger central governments necessary. Central governments from the very beginning of civilization have been necessary to support property rights. John Locke, the enlightened thinker from whom Jefferson borrowed the immortal "Life, Liberty, and the Pursuit of Happiness" in the opening of the Declaration of Independence, stated the function of all government more clearly as the protection of "Life, Liberty, and Property". While both Jefferson and Locke agree that all true governments receive their power from the consent of the governed Locke was much more honest about the three basic rights governments have the duty to protect. In other words, justice systems, courts, police, and to a great extent national armies are necessitated by the need to protect property rights. In largely agrarian societies with equal wealth smaller, less expensive governments have always sufficed. An axiom that Smith well recognized is that the larger the division of wealth within a nation, the more complex and expensive the government system that is needed to support it.
Smith spends a great deal of time in his book explaining this theory. It is the basis for his justification for taxing the populace in proportion to their wealth. After all, if they are the reason why a larger more expensive government is necessary, they should be willing to pay for it in proportion to their need. This is an important point and one that we seem to have lost sight of in this country in the recent past. Much of our governmental effort goes into protecting the business interests of our wealthiest citizens. Our nation's foreign policy since the beginning of the 20th century has been overwhelmingly slanted towards protection of the largest business interests in the country. When we were an isolationist nation with little business interests outside of our borders we had little need of a huge military or a large and expensive state department. As corporate giants began to dominate the market place both here and abroad our government grew to protect and support their interests.
When the bulk of this nation was agrarian we had little need of a large central government. For much of the first 120 years of our history as a nation this held true. However, with the growth of corporations, manufacturing interests and international trade interests at the end of the nineteenth century this began to change. This change was manifested in our growing involvement in international affairs on a national basis. We didn’t become intimately involved in international affairs through a national referendum; we became involved because of the growing influence of a wealthy class of Americans whose financial interest necessitated a strong military and diplomatic international presence to support their interests. Anyone who takes the time to read the writings of our founding fathers will find them almost unanimous in their disdain for a strong central government supported by large standing armies. This is because as an agrarian nation, we had no need of such exigencies, but as an economic leader in world financial centers this is no longer the case. I don’t think anyone would sensibly argue we don’t need a standing army today or an international diplomatic corp. Aside from those who believe we should revert to being an agrarian nation, everyone understands this is simply a necessity in today’s world.
It was our nation’s rise as an industrial nation that necessitated the growth of our government. In other words, the growth of wealth in this country led to our becoming a leader in the world and this wealth also has costs associated with it that we pay in the form of a larger, more expensive government. You simply cannot have one without the other. Therefore, since it is the wealthiest among us who profit the most from this system they should pay the largest share of the expense in maintaining it. This has been the basis for a fair system of taxation from the very beginnings of organized governments. To quote from Smith again;
The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expence of government to the individuals of a great nation is like the expence of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation.
The growth of corporate power in this country is another reality that we seem to not understand very well as a voting public. Corporations have gained legal status that allows them to have many of the same rights as individuals without the requisite liability of an individual. Just for example, the Supreme Court recently ruled that corporations have the same right of free speech as individuals so they should not be limited as to how they contribute to campaigns of their favorite candidates. While this may seem plausible on its surface it covers up the fact that as an individual you and I are responsible for all of our actions to the very limits of our financial ability to cover them while corporate leaders are only liable as far as their corporate finances while their individual finances are beyond the ability of a court to reach. This is just one example of how the vast capabilities of large corporation’s wealth don’t match their culpability in our legal system. There are many others that favor corporations which is exactly why their success has been tied so closely with the growth of our nation’s power and the growing division between the wealthiest 1% of Americans and the rest of us. I don’t believe corporations are evil entities but they are favored entities under the legal system of this country which is exactly why they have so much wealth and requisite power in our government today.
It is in their best interests that many of the foreign policy decisions that the rest of us pay for are routinely made. Receiving the great abundance of favor that such decisions afford them, one would think that they would happily pay the heaviest share of the expenses put forth to gain them but that is not what is going on in this country today. Since the Reagan revolution we have seen a steady increase in corporate profits along with a steady decrease of the amount of revenue the government receives from them. It is true that the Corporate Tax Rates in this country are high compared to most other industrialized nations (close to 35%). However, what is also true is that tax loopholes that have progressively been extended throughout the last 30 years have reduced the actual tax liability of corporations to all time lows. In 1978 the percentage of total tax revenue raised in this country off of tax revenue on corporations was 15% as opposed to some 47% in individual income taxes at the same time that corporations took in some 40% of the total profits realized. In 2009 the percentage of revenue gathered from corporations was 6% as opposed to 46% in individual income taxes. In other words, corporations which took in some 70% of the total profits made in this country paid 6% of the taxes collected. Looked at another way if corporations earn 70% of the profits and pay 6% of the revenue they are paying a vastly smaller percentage of the cost of the government that makes their profit margin possible while at the same time capitalizing on the protection government affords them. Taking into account the recent rulings on campaign contributions by corporations it is easy to see how this vast increase in profit margins will allow them to continue to consolidate control over the election process in the near future.
Beyond the unlevel playing field of corporate America is another level of unequal taxation the Reagan revolution ushered in that is just as devastating to the deficit. The highest tax brackets in this country have historically paid some 70-90% in income taxes. Again, this is the group of Americans who profit the most from the business environment that our large government creates through subsidies, government research and development grants, and foreign policy decisions built around protecting the financial interests of this same group of people. This same group of people today typically pays some 15% on their income taxes by the time all the loopholes available to them through tax attorneys and favorable legislation are assessed while the average upper middle class citizen pays close to 30% on their income taxes in direct payroll deductions. This is exactly why the upper 1% of the wealthiest Americans now own 45% of the wealth of this country as opposed to the 18% they owned when Reagan came into office.
Without a doubt we as a country have some serious problems as far as our financial situation. We are continually spending more than we take in which is obviously unsustainable. The question is what do we do about it? Do we continue to slash government programs until we can subsist on the lower revenues our present tax codes provide or do we believe that it is both necessary and proper for the government to provide basic services and increase our revenues through higher taxation on corporate profit? The ugly truth we seem to be ignoring is that our government which has steadily grown more and more to be controlled by corporate interests in the financial interests of the wealthiest Americans has at the same time continuously reduced their responsibility for paying the bills. The good news is that we are approaching a point to where these questions will have to be answered. The bad news is that we don’t seem to realize why or how we got into this situation. Corporate interests of the wealthiest Americans continue to gain more control of our government while at the same time increasing their profit margins by cutting the amount of taxes they pay while pointing to the poorest among us as the financial drain on the economy. The choice is ours to make. We can either institute a taxation system based upon the timeless values of equal taxation espoused by Adam Smith above or we can continue our present system of unequal taxation and see the eventual financial collapse of our government as we now know it. What we cannot do is expect to continue on the path we are presently on without facing up to where it is leading us.
Thursday, February 10, 2011
Ownership of the Media
As discussed in my last post, there were originally two main supports for avoiding propaganda on the publicly owned airwaves in this country. The first was the Fairness Doctrine which was the guiding principle behind the FCC’s efforts to make sure that custodians of the public airwaves focused on presenting the news instead of pushing an agenda. In other words, it is the basic difference between the efforts to inform vs. the efforts to convince. By the ultimate but limited usage of the FCC’s ability to control who had a license to use the airwaves the FCC attempted to make sure that no one political viewpoint could completely dominate the system. Propaganda, to be effective, must control the spread of information so that opposing viewpoints are not heard or considered and complete editorial control over what is broadcast is the first step in successful propaganda. With the Reagan administration's demolition of the Fairness Doctrine that I discussed in my last post, the door was open to removing the second support.
The second support for maintaining the integrity of the publicly owned airwaves consisted of a steady effort by the FCC to control the ownership of media as a means of assuring the spread of accurate information. The idea of a free press in this country is as old as the nation itself. The protection of this idea has taken many different forms but by and large it still springs from the basic concept perhaps best expressed by Thomas Jefferson, "The only security of all is in a free press. The force of public opinion cannot be resisted when permitted freely to be expressed. The agitation it produces must be submitted to. It is necessary, to keep the waters pure." It is the idea of a press as free as possible from vested interests of ownership that has shaped our national policies concerning the media since the early 1920's.
With the rise of corporate interests in this country it became obvious that this idea needed protection from the inevitable control that would come from unrestricted ownership of the media by the wealthy as both the Supreme Court and Congress have on numerous occasions ruled and legislated that the American public owns the airwaves. It is the duty of the FCC to see that the public interests are served by those who obtain license to utilize the airwaves. If a corporation or even a wealthy individual owns the radio or television station through which a local community gets its news it is all too common for viewpoints opposing the vested interest of that ownership to be censored or even altogether silenced by editorial authority. While this is an inevitable result of our modern business tendency for corporate entities to be vested in diverse industries it can also be a dangerous temptation for propaganda as opposed to information as corporate entities seek to convince rather than inform public opinion.
As an example let us assume that a news organization is simply that; a news organization who's sole interest is the reporting of events. In this scenario it can be argued that such an organization is in fact a purely market based entity in that its ratings are its prime motivation as ratings are directly proportional to advertising premiums which pay the bills. However, the reality of modern corporate America is that media outlets are almost without exception actually individually just one arm of what is usually a multi-faceted corporate conglomerate; usually a very small arm in terms of fiscal returns. Under these conditions is it reasonable to expect that the news media outlet will report accurately on issues that adversely affect the much larger profit share of its corporate ownership? Naturally, if other media outlets are reporting on this same issue even though it negatively affects any one corporate entity it must be forced to at least address the issue, it cannot ignore it completely nor can it arbitrarily report facts and figures without a basis in fact without facing the possibility of being exposed as propaganda rather than news. It is this diversity; the widespread ownership by groups with diverse viewpoints and vested interests that best guarantees the spread of accurate information. It can be reasonably argued that the more diverse the ownership of our media outlets are; the more accurate will be the information they broadcast. Of course the inverse axiom is that the more narrow the ownership of the media becomes the more inaccurate the broadcasts will be and the more likely they will devolve into propaganda as opposed to news.
Unfortunately, this logic has steadily fallen prey to corporate grasp in this country for the last thirty years along with the Fairness Doctrine. On February 8, 1996 the Telecommunications Act of 1996 was signed into law by President Bill Clinton. This act was the first major legislated change in the industry since the Communications Act of 1934. It was widely touted by its supporters as an act to encourage the free market in the industry and to increase competition which would inevitably drive prices down and improve the quality of communications services. While the main focus of the act was telecommunications such as the telephone industry and cable television it also directly effected FCC rules defining media ownership. Previous to this act the FCC limited the ownership of media outlets in order to assure diversity of ownership and protect the integrity of individual ownership. These regulations limited the ownership of radio stations to forty for any one group and further limited this ownership based upon markets. In other words, no one entity could own numerous stations in one market and therefore monopolize the industry and thereby the spread of information. Television station ownership was similarly limited as were newspapers. All of these types of media outlets were well recognized to be the cogs in the machinery necessary to combat propaganda.
It is interesting to look at the results of the Telecommunications Act of 1996 and its immediate effects on the industry. While one of the act's basic intents was to foster competition and fight the consolidation of the ownership of media outlets that had been underway since the abolition of the Fairness Doctrine by Reagan in the early 1980's it has had the opposite result. In 1983 the number of major media outlets in the United States was 50. This number is now reduced to 6. Private ownership of radio stations by individuals has shrunk to numbers lower than have been known since the early days of radio stations even though the gross number of radio stations is growing astronomically. Over 4000 individually owned radio stations were bought out in the first 4 years after the passage of the act by corporate entities. Huge corporate entities with thousands of stations now own the vast majority of radio stations in the United States today. Local news is increasingly not even existent on most of these stations and those that do still retain some news capability increasingly find their content editorially doctored so that the resultant report is almost unrecognizable from its original form.
As the ownership of our media outlets shrinks the pressure to remove remaining constraints to ownership has increased proportionally. In 2003 the FCC under pressures from large media concerns intent upon increasing their monopoly, further loosened the rules concerning media ownership. Unlike previous FCC rulings these changes were not made available to the public for a time period before their release so as to afford the public time to comment. The new rulings did several things to allow for more consolidation of the industry by corporate entities. Market shares for ownership of all media in a given market was raised from 35% to 45% (this had previously been raised in a similar ruling in 1985 from 25%). Restrictions on newspaper and TV station ownership in the same market were removed. Requirements for periodic license review for renewal by the FCC were dropped. In effect, licenses are no longer reviewed for "public interest" considerations at all. Not only is the Fairness Doctrine not considered in these reviews the reviews themselves are no longer conducted under this guideline so a broadcast license is in effect perpetual and subject only to monetary fees with the public interest no longer a consideration at all. We have basically come full circle with this ruling ignoring 80 years of careful protection of the public interest as the basis for all such decisions and instead bowed subserviently to the corporate interest.
Fortunately, there is still a faint heartbeat in the ideas surrounding the belief that the public airwaves are still the property of the American people. In a case brought before the United States Court of Appeals for the Third Circuit the majority ruled 2-1 against the FCC and ordered it to reconfigure how it justified raising ownership limits. Since the Supreme Court later turned down an appeal on this case (Prometheus Radio Project v FCC) this ruling still stands. It is worth noting that the dissenting opinion on this case was turned in by one Antonin Scalia who was also instrumental in striking down the Fairness Doctrine as I pointed out in my last post. Since Mr. Scalia is now on the Supreme Court we will undoubtedly hear from him again on this subject at some point. It is also worth noting that this ruling strictly applies only to the provisions surrounding the market percentage ruling and does not apply to the much more important issue of FCC review of licenses. In 2007 the FCC made another ruling removing restrictions on newspaper and TV ownership in the same market as there was some concern that the court ruling might have invalidated this section as well.
The most disturbing part of this whole situation is the loss of the recognition of how important the idea of a free press is to this nation's survival. There are several ways to attack a free press and limit its ability to inform the public. The first and most obvious way is to simply legislate it out of existence by having the state take over the media directly. This is a highly effective means and both has been and still is utilized with great success in different areas of the world to control political expression. There is little danger of this type of takeover in this country presently. However, it is beyond question that we are now faced with a different type of attack on our institution of a free press. If corporate entities are allowed to use their superior financial and political support to simply buy up media outlets they can control the information that Americans use to decide who to vote for at the polls. Since they no longer are under any restrictions such as the Fairness Doctrine or license review based upon "public interest" they basically have carte blanche control of the levers of public dissemination of information once they attain ownership. As an example of whether this in fact underway I would ask you to consider if you remember any of the major news outlets in this country reporting on the recent FCC rulings above.
The second support for maintaining the integrity of the publicly owned airwaves consisted of a steady effort by the FCC to control the ownership of media as a means of assuring the spread of accurate information. The idea of a free press in this country is as old as the nation itself. The protection of this idea has taken many different forms but by and large it still springs from the basic concept perhaps best expressed by Thomas Jefferson, "The only security of all is in a free press. The force of public opinion cannot be resisted when permitted freely to be expressed. The agitation it produces must be submitted to. It is necessary, to keep the waters pure." It is the idea of a press as free as possible from vested interests of ownership that has shaped our national policies concerning the media since the early 1920's.
With the rise of corporate interests in this country it became obvious that this idea needed protection from the inevitable control that would come from unrestricted ownership of the media by the wealthy as both the Supreme Court and Congress have on numerous occasions ruled and legislated that the American public owns the airwaves. It is the duty of the FCC to see that the public interests are served by those who obtain license to utilize the airwaves. If a corporation or even a wealthy individual owns the radio or television station through which a local community gets its news it is all too common for viewpoints opposing the vested interest of that ownership to be censored or even altogether silenced by editorial authority. While this is an inevitable result of our modern business tendency for corporate entities to be vested in diverse industries it can also be a dangerous temptation for propaganda as opposed to information as corporate entities seek to convince rather than inform public opinion.
As an example let us assume that a news organization is simply that; a news organization who's sole interest is the reporting of events. In this scenario it can be argued that such an organization is in fact a purely market based entity in that its ratings are its prime motivation as ratings are directly proportional to advertising premiums which pay the bills. However, the reality of modern corporate America is that media outlets are almost without exception actually individually just one arm of what is usually a multi-faceted corporate conglomerate; usually a very small arm in terms of fiscal returns. Under these conditions is it reasonable to expect that the news media outlet will report accurately on issues that adversely affect the much larger profit share of its corporate ownership? Naturally, if other media outlets are reporting on this same issue even though it negatively affects any one corporate entity it must be forced to at least address the issue, it cannot ignore it completely nor can it arbitrarily report facts and figures without a basis in fact without facing the possibility of being exposed as propaganda rather than news. It is this diversity; the widespread ownership by groups with diverse viewpoints and vested interests that best guarantees the spread of accurate information. It can be reasonably argued that the more diverse the ownership of our media outlets are; the more accurate will be the information they broadcast. Of course the inverse axiom is that the more narrow the ownership of the media becomes the more inaccurate the broadcasts will be and the more likely they will devolve into propaganda as opposed to news.
Unfortunately, this logic has steadily fallen prey to corporate grasp in this country for the last thirty years along with the Fairness Doctrine. On February 8, 1996 the Telecommunications Act of 1996 was signed into law by President Bill Clinton. This act was the first major legislated change in the industry since the Communications Act of 1934. It was widely touted by its supporters as an act to encourage the free market in the industry and to increase competition which would inevitably drive prices down and improve the quality of communications services. While the main focus of the act was telecommunications such as the telephone industry and cable television it also directly effected FCC rules defining media ownership. Previous to this act the FCC limited the ownership of media outlets in order to assure diversity of ownership and protect the integrity of individual ownership. These regulations limited the ownership of radio stations to forty for any one group and further limited this ownership based upon markets. In other words, no one entity could own numerous stations in one market and therefore monopolize the industry and thereby the spread of information. Television station ownership was similarly limited as were newspapers. All of these types of media outlets were well recognized to be the cogs in the machinery necessary to combat propaganda.
It is interesting to look at the results of the Telecommunications Act of 1996 and its immediate effects on the industry. While one of the act's basic intents was to foster competition and fight the consolidation of the ownership of media outlets that had been underway since the abolition of the Fairness Doctrine by Reagan in the early 1980's it has had the opposite result. In 1983 the number of major media outlets in the United States was 50. This number is now reduced to 6. Private ownership of radio stations by individuals has shrunk to numbers lower than have been known since the early days of radio stations even though the gross number of radio stations is growing astronomically. Over 4000 individually owned radio stations were bought out in the first 4 years after the passage of the act by corporate entities. Huge corporate entities with thousands of stations now own the vast majority of radio stations in the United States today. Local news is increasingly not even existent on most of these stations and those that do still retain some news capability increasingly find their content editorially doctored so that the resultant report is almost unrecognizable from its original form.
As the ownership of our media outlets shrinks the pressure to remove remaining constraints to ownership has increased proportionally. In 2003 the FCC under pressures from large media concerns intent upon increasing their monopoly, further loosened the rules concerning media ownership. Unlike previous FCC rulings these changes were not made available to the public for a time period before their release so as to afford the public time to comment. The new rulings did several things to allow for more consolidation of the industry by corporate entities. Market shares for ownership of all media in a given market was raised from 35% to 45% (this had previously been raised in a similar ruling in 1985 from 25%). Restrictions on newspaper and TV station ownership in the same market were removed. Requirements for periodic license review for renewal by the FCC were dropped. In effect, licenses are no longer reviewed for "public interest" considerations at all. Not only is the Fairness Doctrine not considered in these reviews the reviews themselves are no longer conducted under this guideline so a broadcast license is in effect perpetual and subject only to monetary fees with the public interest no longer a consideration at all. We have basically come full circle with this ruling ignoring 80 years of careful protection of the public interest as the basis for all such decisions and instead bowed subserviently to the corporate interest.
Fortunately, there is still a faint heartbeat in the ideas surrounding the belief that the public airwaves are still the property of the American people. In a case brought before the United States Court of Appeals for the Third Circuit the majority ruled 2-1 against the FCC and ordered it to reconfigure how it justified raising ownership limits. Since the Supreme Court later turned down an appeal on this case (Prometheus Radio Project v FCC) this ruling still stands. It is worth noting that the dissenting opinion on this case was turned in by one Antonin Scalia who was also instrumental in striking down the Fairness Doctrine as I pointed out in my last post. Since Mr. Scalia is now on the Supreme Court we will undoubtedly hear from him again on this subject at some point. It is also worth noting that this ruling strictly applies only to the provisions surrounding the market percentage ruling and does not apply to the much more important issue of FCC review of licenses. In 2007 the FCC made another ruling removing restrictions on newspaper and TV ownership in the same market as there was some concern that the court ruling might have invalidated this section as well.
The most disturbing part of this whole situation is the loss of the recognition of how important the idea of a free press is to this nation's survival. There are several ways to attack a free press and limit its ability to inform the public. The first and most obvious way is to simply legislate it out of existence by having the state take over the media directly. This is a highly effective means and both has been and still is utilized with great success in different areas of the world to control political expression. There is little danger of this type of takeover in this country presently. However, it is beyond question that we are now faced with a different type of attack on our institution of a free press. If corporate entities are allowed to use their superior financial and political support to simply buy up media outlets they can control the information that Americans use to decide who to vote for at the polls. Since they no longer are under any restrictions such as the Fairness Doctrine or license review based upon "public interest" they basically have carte blanche control of the levers of public dissemination of information once they attain ownership. As an example of whether this in fact underway I would ask you to consider if you remember any of the major news outlets in this country reporting on the recent FCC rulings above.
Monday, November 15, 2010
Economic Collapse Part I
What happened to the economy in 2008? Obviously, we went into a recession or maybe even a depression but what happened to cause this to happen? Lots of people want to know the answer to that but I am afraid that for the most part we are listening to the wrong sources to figure it out. What we really need to do is understand what kind of economy we actually have in the US today to be able to understand what just went wrong with it. Unfortunately, I don’t see a lot of people taking this approach as it is always easier to continue a bad policy than to understand what is wrong with it in the first place.
Maybe we should start with some of the currently accepted ideas as to what went wrong with the economy. If you listen to Rush Limbaugh or Sean Hannity or any of their carefully cloned copies currently filling the talk radio airwaves you will hear that government is at fault. In their view, the government began to interfere with the free market and this caused a lot of loans to be made that were not secure loans. When these loans inevitably went into default, the market began to collapse and voila; we have a recession on our hands. Big government, in its infinite ignorance of the free market, basically caused the whole thing. To be even more explicit, liberal politicians in their effort to take care of their entitled voter base began to force the free market to loan money to people who couldn’t afford to pay it back.
If this sounds familiar, it is because we have heard it before. Ronald Reagan used similar logic to get himself elected in 1980. We had a recession during that time too. Jimmy Carter, the incumbent president went on TV and began asking Americans to cut back, to conserve, to consider the possibility that we might all have to do things differently to continue to lead the free world in economic growth. Self sacrifice and a calling to a greater good were his solution to the problems we were facing at the time. Reagan took the opposite tact and began excoriating government as the source of the problem. In Reagan’s view it was the government and its entitlements programs to those undeserving that were dragging the economy down. Welfare queens who lived better than the average working man were the topic he continually wanted to dote upon whether it actually had anything to do with the problems we were facing or not.
Reagan knew what we really needed. A scapegoat to blame all our problems on; especially one that would resonate so thoroughly with working class Americans and he found it in the welfare queens and the liberals in government who fostered them. Unfortunately, this recipe for fixing the problem didn’t work then and it won’t work this time either. In point of fact, the government might have been part of the problem in that it has blindly supported the corporate entities that have been feeding it money for the last half of the 20th century but that is like blaming the cow for giving bad milk when you feed it onions all day.
Let’s take a look at the actual numbers of what was going on in 2008 when the government publicly admitted that it was going to have to bail out the private banking concerns in this country. On September 18, 2008 Ben Bernanke (head of the Federal Reserve) and Treasury Secretary Henry Paulsen met with key Congressional legislators with the message that they needed 700 Billion dollars to avoid a financial catastrophe. This wasn’t some cry in the wilderness from a lunatic fringe; this was the head of the Federal Reserve and the head of the US Treasury telling US congressmen that they had to do something quick. In Bernanke’s words,
“If we don’t do this, we may not have an economy on Monday.”
In order to understand the magnitude of this statement it is necessary to look back a little bit. The George W. Bush administration, the Bill Clinton administration, the George H. W. Bush administration, and the Ronald Reagan administration have been in power in Washington since 1980. There is little doubt that they have been the most business friendly, corporate sponsored administrations in the history of this country. With the exception of the first term of the Clinton presidency we had seen 28 years of pro business government without respite. They have gradually dismantled or defanged every financial regulatory agency, every economic control that was put in place after the Great Depression. These agencies and laws were put in place after the Great Depression for the express reason that some very bright men took a look at what happened then and decided they needed regulations to keep from having a repeat performance. Not surprisingly, we are now getting that repeat performance and for many of the same reasons that the last collapse happened.
The George W. Bush administration was arguably the friendliest to corporate interests and de-regulation of the industry. Imagine what it took to convince a president extraordinarily concerned with his public image and how he would be viewed by history to completely reverse his field on how free markets are supposed to work in his last 4 months in office. I would like to have been a fly on the wall in the meeting when Bernanke and Paulsen proposed to him that in order to stave off total economic collapse; he was going to have to nationalize the US banking system by doing a government bailout. I wonder what it took to convince him that his whole laissez-faire approach to economics was wrong; that he was going to have to socialize the US financial system to avoid a worldwide economic collapse. Everyone seems to miss that this occurred; that a notoriously stubborn and self serving US President who had built his whole career around the idea that we need less government suddenly decided the government was the only solution. What did they actually show him in that meeting?
Let’s look at some numbers to see if the current ideas about home mortgage defaults explain the problem. In September of 2008 there were some 760,000 homes in danger of foreclosure according to data released by the US Foreclosure Market report. While this is a high number it doesn’t explain the collapse. In 2008 the average home mortgage total value was 167,000 dollars. If you multiply 760,000 by 167,000 which is the worst possible scenario because it assumes that each and every house in danger of foreclosure instantly becomes a total loss you come up with a little less than 127 billion dollars. Keep in mind that this is the worst possible case in that most home foreclosures actually result in much lower losses after all the paperwork is done and the lawyers are paid. According to most estimates I have found the highest average is quote by Freddie Mac officials as 60,000 dollars. Using this number which is actually quite a bit higher than most estimates and multiplying it by 760,000 we come up with somewhat less than 46 billion dollars. In other words, if worse came to worse and every single home that was in danger of foreclosure in September of 2008 actually occurred all at once the industry would be looking at a 45.6 billion dollar loss. Remember, this is the worst case scenario and assumes that all these homes were foreclosed upon at once. Where did the 700 Billion dollar numbers that Paulsen and Bernanke were talking about come from? Clearly, there is something else going on that we aren’t discussing on a public level and I will get back to that in a later post but for now I just wanted to point out that if the foreclosure market was the problem we could have completely solved that with a 46 billion dollar injection into the market and I heard no one in power making that suggestion.
In my next post on this subject I will begin to explore the Community Reinvestment Act and how it supposedly led to the collapse of the housing bubble.
Maybe we should start with some of the currently accepted ideas as to what went wrong with the economy. If you listen to Rush Limbaugh or Sean Hannity or any of their carefully cloned copies currently filling the talk radio airwaves you will hear that government is at fault. In their view, the government began to interfere with the free market and this caused a lot of loans to be made that were not secure loans. When these loans inevitably went into default, the market began to collapse and voila; we have a recession on our hands. Big government, in its infinite ignorance of the free market, basically caused the whole thing. To be even more explicit, liberal politicians in their effort to take care of their entitled voter base began to force the free market to loan money to people who couldn’t afford to pay it back.
If this sounds familiar, it is because we have heard it before. Ronald Reagan used similar logic to get himself elected in 1980. We had a recession during that time too. Jimmy Carter, the incumbent president went on TV and began asking Americans to cut back, to conserve, to consider the possibility that we might all have to do things differently to continue to lead the free world in economic growth. Self sacrifice and a calling to a greater good were his solution to the problems we were facing at the time. Reagan took the opposite tact and began excoriating government as the source of the problem. In Reagan’s view it was the government and its entitlements programs to those undeserving that were dragging the economy down. Welfare queens who lived better than the average working man were the topic he continually wanted to dote upon whether it actually had anything to do with the problems we were facing or not.
Reagan knew what we really needed. A scapegoat to blame all our problems on; especially one that would resonate so thoroughly with working class Americans and he found it in the welfare queens and the liberals in government who fostered them. Unfortunately, this recipe for fixing the problem didn’t work then and it won’t work this time either. In point of fact, the government might have been part of the problem in that it has blindly supported the corporate entities that have been feeding it money for the last half of the 20th century but that is like blaming the cow for giving bad milk when you feed it onions all day.
Let’s take a look at the actual numbers of what was going on in 2008 when the government publicly admitted that it was going to have to bail out the private banking concerns in this country. On September 18, 2008 Ben Bernanke (head of the Federal Reserve) and Treasury Secretary Henry Paulsen met with key Congressional legislators with the message that they needed 700 Billion dollars to avoid a financial catastrophe. This wasn’t some cry in the wilderness from a lunatic fringe; this was the head of the Federal Reserve and the head of the US Treasury telling US congressmen that they had to do something quick. In Bernanke’s words,
“If we don’t do this, we may not have an economy on Monday.”
In order to understand the magnitude of this statement it is necessary to look back a little bit. The George W. Bush administration, the Bill Clinton administration, the George H. W. Bush administration, and the Ronald Reagan administration have been in power in Washington since 1980. There is little doubt that they have been the most business friendly, corporate sponsored administrations in the history of this country. With the exception of the first term of the Clinton presidency we had seen 28 years of pro business government without respite. They have gradually dismantled or defanged every financial regulatory agency, every economic control that was put in place after the Great Depression. These agencies and laws were put in place after the Great Depression for the express reason that some very bright men took a look at what happened then and decided they needed regulations to keep from having a repeat performance. Not surprisingly, we are now getting that repeat performance and for many of the same reasons that the last collapse happened.
The George W. Bush administration was arguably the friendliest to corporate interests and de-regulation of the industry. Imagine what it took to convince a president extraordinarily concerned with his public image and how he would be viewed by history to completely reverse his field on how free markets are supposed to work in his last 4 months in office. I would like to have been a fly on the wall in the meeting when Bernanke and Paulsen proposed to him that in order to stave off total economic collapse; he was going to have to nationalize the US banking system by doing a government bailout. I wonder what it took to convince him that his whole laissez-faire approach to economics was wrong; that he was going to have to socialize the US financial system to avoid a worldwide economic collapse. Everyone seems to miss that this occurred; that a notoriously stubborn and self serving US President who had built his whole career around the idea that we need less government suddenly decided the government was the only solution. What did they actually show him in that meeting?
Let’s look at some numbers to see if the current ideas about home mortgage defaults explain the problem. In September of 2008 there were some 760,000 homes in danger of foreclosure according to data released by the US Foreclosure Market report. While this is a high number it doesn’t explain the collapse. In 2008 the average home mortgage total value was 167,000 dollars. If you multiply 760,000 by 167,000 which is the worst possible scenario because it assumes that each and every house in danger of foreclosure instantly becomes a total loss you come up with a little less than 127 billion dollars. Keep in mind that this is the worst possible case in that most home foreclosures actually result in much lower losses after all the paperwork is done and the lawyers are paid. According to most estimates I have found the highest average is quote by Freddie Mac officials as 60,000 dollars. Using this number which is actually quite a bit higher than most estimates and multiplying it by 760,000 we come up with somewhat less than 46 billion dollars. In other words, if worse came to worse and every single home that was in danger of foreclosure in September of 2008 actually occurred all at once the industry would be looking at a 45.6 billion dollar loss. Remember, this is the worst case scenario and assumes that all these homes were foreclosed upon at once. Where did the 700 Billion dollar numbers that Paulsen and Bernanke were talking about come from? Clearly, there is something else going on that we aren’t discussing on a public level and I will get back to that in a later post but for now I just wanted to point out that if the foreclosure market was the problem we could have completely solved that with a 46 billion dollar injection into the market and I heard no one in power making that suggestion.
In my next post on this subject I will begin to explore the Community Reinvestment Act and how it supposedly led to the collapse of the housing bubble.
Thursday, September 9, 2010
Redistribution of Wealth Part 1
As a somewhat reluctant follower of the talk radio I have noticed this phrase getting a lot more usage in the last couple of years. It is usually tied to some sort of diabolical socialist plot to take money out of the working man’s pocket and give it to a lazy, shiftless group of people who do not work. Supposedly, there is a vast group of people in this country standing around with their hands out waiting on the Democratic Party to send them a check. I suppose this can be traced all the way back to Reagan’s fanciful “welfare queen” that he created from whole cloth as a sort of symbol of encroaching ruin for the country. Even though the people that Reagan spun parables about did not actually exist, they were a caricature that he was able to make stick. Reagan, like all demagogic types, understood that people didn’t want to hear about real problems that might be associated with their own actions. People understood there was a problem. They could see it all around them in unemployment, high interest rates, and a stagnant general economy and Reagan simply gave them a straw man to blame it on. Big government was robbing them to pay people who didn’t want to work. Reagan suggested that cutting taxes would allow people to reinvest their own money in the economy rather than give it to the government who would inevitably waste it. Reaganomics was an idea born of the idea that the American public is basically ignorant of economics in general. Since it was such a successful propaganda tool for Reagan it has since come to be the mantra of the right wing conservatives everywhere in one form or the other. Maybe we should take time to look at how it actually worked out now that we have about 30 years of experience with this philosophy.
The basic philosophy of Reaganomics is that a rising tide floats all boats. In other words, the investment dollars of the rich go directly into creating jobs instead of going to the federal government in the form of taxes. This is underlined with the oft repeated “proofs” that the government will just waste your money anyway; usually with the insinuation that this waste will be in the form of giveaways to people who are basically too lazy to work. Reagan made an art form out of this description and repeated it so often and so persuasively that people began to believe it. It is now accepted fact in almost all right wing conservative movements; the basic core that most of their system is built around. In Reaganomics the cutting of taxes for the rich allows them to invest in the economy and create jobs. As more jobs are created everyone benefits; hence the rising tide analogy. It sounds like basic common sense which is exactly why it is so widely believed.
When Reagan ran for President in 1980 against Jimmy Carter there could hardly have been a wider divergence in their relative beliefs about the American system. Carter was suggesting that Americans should tighten their belts, cut down their thermostats, and be responsible for helping the country pull itself out of the recession that we were all in together. Reagan suggested that the recession and most of our other problems were the direct result of big government. In other words, it wasn’t our fault so why should we suffer for it? He needed a scapegoat of course and he found it in the “welfare queens” who were draining all of our hard earned tax money out of the economy. Everyone could see there was a problem with such systems wherein several generations of families were living off the government dole but Reagan took it to new heights. It was a fitting symbol of the disaster that was the government according to Ronald Reagan. His solution was to cut government spending while at the same time cutting taxes to increase investment.
Reagan won the election and immediately set about implementing his program. The interesting thing about Reagan was that he was a pragmatist first, a conservative second. In other words, he had no problem saying one thing and doing another, it had been his mode of operations for as long as he had been in politics. He did initially cut taxes but raised them numerous times afterwards. The first tax cuts were not very successful at stimulating the economy as unemployment went up after they were enacted. What did stimulate the economy was a massive increase in federal spending through the military and the industrial complex that Eisenhower has warned the country about as he left office. In other words, Reagan’s “miraculous” economic recovery was simply a matter of pouring federal money into defense programs; money that we didn’t have to spend. The national debt when Reagan took office was a little less than 2 trillion dollars. It had been at roughly this same rate since 1945 when adjusted for inflation. By the time Reagan left office in 1988 it was a little over 4 trillion. Reagan more than doubled the national debt in 8 years when it had remained virtually the same for the previous 35 years. The massive buildup for World War II cost a little over a trillion dollars to our national debt yet Reagan and his economic plan cost 2 trillion and we were not fighting a war. Reagan coined the phrase that “government is not the solution; government is the problem” during his run for governor of California in the last sixties. He sold Americans on the idea that he would cut the government but he actually more than doubled the cost of government in just 8 years.
Unfortunately, Reagan proved to politicians everywhere that the truth doesn’t matter; what really matters is how you spin it and what you make people believe. He started a massive upward spiral in government spending that hasn’t stopped yet. In the ensuing 17 years after he left office the federal deficit grew to an astonishing 9 trillion dollars as politicians spent like drunken sailors while espousing the same principals. The key to getting elected it seems is to guarantee the economy is booming and politicians from Bush Sr. to Bush Jr. learned this lesson well. There was a brief downturn in federal spending under Clinton but it was quickly curtailed when the economy started to droop again. Vice President Cheney in a moment of rare clarity pointed out that “Reagan proved that deficits don’t matter” when questioned about it during Bush Junior‘s last term in office. It is a little ironic that the man who was elected on the promise of reducing government actually started a trend in government spending that led directly to a five-fold increase in government deficits over the next 25 years and led directly to the economic collapse the we are experiencing today but I will go into that in a later post. For the moment I would like to concentrate on what the other result of Reaganomics wound up being; the drastic redistribution of wealth in this country from the middle class to the very wealthiest amongst Americans.
Reagan’s basic premise was that by reducing taxes on the wealthy they would invest that money in the economy which would lead to more jobs; thus the infamous “trickle down” theory that one still hears bandied about by those with no understanding of economics. By cutting taxes on the very rich Reagan did two things; he increased the deficit by cutting the amount of money the government took in and he increased the wealth of the wealthiest Americans drastically. You might ask yourself how this happened but it was really a very simple two pronged approach. First, cutting taxes on the wealthy was not simply a matter of cutting income tax it included Estate taxes, and all manner of taxes on accumulated wealth. All the tax cuts since the 1980’s have favored the wealthiest American’s and corporations. Second, the massive federal spending into military and defense corporations wound up stimulating the stock market into frenzy and as I will show a little later, it is overwhelmingly the richest Americans who own stocks and bonds.
Let’s start with income taxes on the richest Americans. Reaganomics says that dropping these taxes increases economic activity. The truth is that in a period from 1940 to 1970 during which the United States saw the greatest increase in economic power ever seen on this planet the income tax rate on the top earners in the United States stayed steady at 70%. During a period of unprecedented growth and economic prosperity that has not been equaled before or since, a period that saw massive growth of infrastructure, schools, electrical grids, highway systems, and nearly every other indices of governmental performance the income tax rate for the highest earners was always above 70%. This was also a period during which dividends from stocks and bonds were taxed at the same rate as all other income, unlike today when it is not taxed in many cases, yet we saw continuous and massive economic growth. In the period since Reagan taxes on the highest income brackets have fell to less than 30% and there are numerous loopholes that allow dividends to be ignored in this accounting. Most estimates of the actual income tax rate that winds up being paid into the system by the wealthiest Americans are now around 17%. Warren Buffet pointed this out in an interview with Tom Brokaw in 2007 when he admitted that he paid tax on only some $97,000 of his 66 million dollar income. Buffet contrasted this with the average member of his staff how paid some 39% of their total income on combined taxes that same year. If Reagan was right we should be in the midst of the greatest economic boom in history. Unfortunately, what we are actually seeing is a wasting away of the infrastructure that was built in this country from 1940- 1970. Electrical grids, schools, roads, and almost every system that the government supports are in a state of collapse these days. The only government sponsored activity that seems to be doing well is the military industrial complex but I guess a 6 trillion dollar increase in the deficit would be nearly impossible to blow without having something to show for it.
Obviously, the cuts in taxes should be stimulating the economy and increasing productivity if Reagan was right. This should have “trickled down” to all of us by now but it seems there is a flaw in the plan. The rich are definitely getting richer but for some reason it doesn’t seem to be trickling down. Between 1947 and 1973 both worker productivity and worker median income doubled. From 1980 to 2005 worker productivity increased some 70% while worker median income increased 19%. This seems impossible until one finds that during this same period from 1980 to 2005 the top 1% of wealthiest Americans increased their percentage of the total income produced in this country from 8.2% to 17.4%. Favorable tax rates on both income and wealth and the massive fluctuations in the stock markets are the simplest explanations. The top 1% of wealthiest Americans owned some 23% of the total wealth in this country in 1979. Today they own around 43% of the total wealth in the country. This isn’t the whole story unfortunately. Not only have income taxes for the very rich dropped but estate taxes and capital gains taxes have fallen drastically as well. As a matter of fact the federal tax burden has shifted dramatically since 1980 with the percentage of tax revenues actually being collected shifting dramatically towards payroll taxes. Since 1980 the payroll tax burden has risen 25% as a share of total tax income. During this same period the percentage of tax revenue generated by capital gains tax on investments has fallen 31% and the percentage of tax revenue generated by estate taxes has fallen 46%. There has been a massive redistribution of wealth in the last 30 years but it isn’t going from tax payers to the indigent; it is going from taxpayers to the wealthiest Americans. Instead of “trickle down” economics what we actually have is “sucking up” economics. It is as if there is a giant vacuum at the top pulling everything that way.
The truth of the matter is that Reagan as president was the same thing he had been before; an unemployed actor who worked as a shill for corporate America. According to studies by the World Institute for Development Economics Research what we have actually seen in the last 30 years is a massive concentration of wealth and earning power in large corporations. Over 40% of the GNP of the United States comes from 500 largest conglomerates in the country. According to studies recently released by this group these companies control over two thirds of total American business sources, employ two thirds of the industrial workers in this country, account for 60% of total sales and collect over 70% of total profits. In 1955 corporate tax income paid some 33% of the total taxes taken in by the Federal Government. In 2007 this number had decreased to 14%. In other words, entities that gobble up 70% of the total profits made in this country pay in 14% of the taxes. No wonder corporate America deifies Ronald Reagan. One can hardly imagine a more favorable climate for corporate growth than such a system yet we are still on the verge of economic collapse in this country.
The basic philosophy of Reaganomics is that a rising tide floats all boats. In other words, the investment dollars of the rich go directly into creating jobs instead of going to the federal government in the form of taxes. This is underlined with the oft repeated “proofs” that the government will just waste your money anyway; usually with the insinuation that this waste will be in the form of giveaways to people who are basically too lazy to work. Reagan made an art form out of this description and repeated it so often and so persuasively that people began to believe it. It is now accepted fact in almost all right wing conservative movements; the basic core that most of their system is built around. In Reaganomics the cutting of taxes for the rich allows them to invest in the economy and create jobs. As more jobs are created everyone benefits; hence the rising tide analogy. It sounds like basic common sense which is exactly why it is so widely believed.
When Reagan ran for President in 1980 against Jimmy Carter there could hardly have been a wider divergence in their relative beliefs about the American system. Carter was suggesting that Americans should tighten their belts, cut down their thermostats, and be responsible for helping the country pull itself out of the recession that we were all in together. Reagan suggested that the recession and most of our other problems were the direct result of big government. In other words, it wasn’t our fault so why should we suffer for it? He needed a scapegoat of course and he found it in the “welfare queens” who were draining all of our hard earned tax money out of the economy. Everyone could see there was a problem with such systems wherein several generations of families were living off the government dole but Reagan took it to new heights. It was a fitting symbol of the disaster that was the government according to Ronald Reagan. His solution was to cut government spending while at the same time cutting taxes to increase investment.
Reagan won the election and immediately set about implementing his program. The interesting thing about Reagan was that he was a pragmatist first, a conservative second. In other words, he had no problem saying one thing and doing another, it had been his mode of operations for as long as he had been in politics. He did initially cut taxes but raised them numerous times afterwards. The first tax cuts were not very successful at stimulating the economy as unemployment went up after they were enacted. What did stimulate the economy was a massive increase in federal spending through the military and the industrial complex that Eisenhower has warned the country about as he left office. In other words, Reagan’s “miraculous” economic recovery was simply a matter of pouring federal money into defense programs; money that we didn’t have to spend. The national debt when Reagan took office was a little less than 2 trillion dollars. It had been at roughly this same rate since 1945 when adjusted for inflation. By the time Reagan left office in 1988 it was a little over 4 trillion. Reagan more than doubled the national debt in 8 years when it had remained virtually the same for the previous 35 years. The massive buildup for World War II cost a little over a trillion dollars to our national debt yet Reagan and his economic plan cost 2 trillion and we were not fighting a war. Reagan coined the phrase that “government is not the solution; government is the problem” during his run for governor of California in the last sixties. He sold Americans on the idea that he would cut the government but he actually more than doubled the cost of government in just 8 years.
Unfortunately, Reagan proved to politicians everywhere that the truth doesn’t matter; what really matters is how you spin it and what you make people believe. He started a massive upward spiral in government spending that hasn’t stopped yet. In the ensuing 17 years after he left office the federal deficit grew to an astonishing 9 trillion dollars as politicians spent like drunken sailors while espousing the same principals. The key to getting elected it seems is to guarantee the economy is booming and politicians from Bush Sr. to Bush Jr. learned this lesson well. There was a brief downturn in federal spending under Clinton but it was quickly curtailed when the economy started to droop again. Vice President Cheney in a moment of rare clarity pointed out that “Reagan proved that deficits don’t matter” when questioned about it during Bush Junior‘s last term in office. It is a little ironic that the man who was elected on the promise of reducing government actually started a trend in government spending that led directly to a five-fold increase in government deficits over the next 25 years and led directly to the economic collapse the we are experiencing today but I will go into that in a later post. For the moment I would like to concentrate on what the other result of Reaganomics wound up being; the drastic redistribution of wealth in this country from the middle class to the very wealthiest amongst Americans.
Reagan’s basic premise was that by reducing taxes on the wealthy they would invest that money in the economy which would lead to more jobs; thus the infamous “trickle down” theory that one still hears bandied about by those with no understanding of economics. By cutting taxes on the very rich Reagan did two things; he increased the deficit by cutting the amount of money the government took in and he increased the wealth of the wealthiest Americans drastically. You might ask yourself how this happened but it was really a very simple two pronged approach. First, cutting taxes on the wealthy was not simply a matter of cutting income tax it included Estate taxes, and all manner of taxes on accumulated wealth. All the tax cuts since the 1980’s have favored the wealthiest American’s and corporations. Second, the massive federal spending into military and defense corporations wound up stimulating the stock market into frenzy and as I will show a little later, it is overwhelmingly the richest Americans who own stocks and bonds.
Let’s start with income taxes on the richest Americans. Reaganomics says that dropping these taxes increases economic activity. The truth is that in a period from 1940 to 1970 during which the United States saw the greatest increase in economic power ever seen on this planet the income tax rate on the top earners in the United States stayed steady at 70%. During a period of unprecedented growth and economic prosperity that has not been equaled before or since, a period that saw massive growth of infrastructure, schools, electrical grids, highway systems, and nearly every other indices of governmental performance the income tax rate for the highest earners was always above 70%. This was also a period during which dividends from stocks and bonds were taxed at the same rate as all other income, unlike today when it is not taxed in many cases, yet we saw continuous and massive economic growth. In the period since Reagan taxes on the highest income brackets have fell to less than 30% and there are numerous loopholes that allow dividends to be ignored in this accounting. Most estimates of the actual income tax rate that winds up being paid into the system by the wealthiest Americans are now around 17%. Warren Buffet pointed this out in an interview with Tom Brokaw in 2007 when he admitted that he paid tax on only some $97,000 of his 66 million dollar income. Buffet contrasted this with the average member of his staff how paid some 39% of their total income on combined taxes that same year. If Reagan was right we should be in the midst of the greatest economic boom in history. Unfortunately, what we are actually seeing is a wasting away of the infrastructure that was built in this country from 1940- 1970. Electrical grids, schools, roads, and almost every system that the government supports are in a state of collapse these days. The only government sponsored activity that seems to be doing well is the military industrial complex but I guess a 6 trillion dollar increase in the deficit would be nearly impossible to blow without having something to show for it.
Obviously, the cuts in taxes should be stimulating the economy and increasing productivity if Reagan was right. This should have “trickled down” to all of us by now but it seems there is a flaw in the plan. The rich are definitely getting richer but for some reason it doesn’t seem to be trickling down. Between 1947 and 1973 both worker productivity and worker median income doubled. From 1980 to 2005 worker productivity increased some 70% while worker median income increased 19%. This seems impossible until one finds that during this same period from 1980 to 2005 the top 1% of wealthiest Americans increased their percentage of the total income produced in this country from 8.2% to 17.4%. Favorable tax rates on both income and wealth and the massive fluctuations in the stock markets are the simplest explanations. The top 1% of wealthiest Americans owned some 23% of the total wealth in this country in 1979. Today they own around 43% of the total wealth in the country. This isn’t the whole story unfortunately. Not only have income taxes for the very rich dropped but estate taxes and capital gains taxes have fallen drastically as well. As a matter of fact the federal tax burden has shifted dramatically since 1980 with the percentage of tax revenues actually being collected shifting dramatically towards payroll taxes. Since 1980 the payroll tax burden has risen 25% as a share of total tax income. During this same period the percentage of tax revenue generated by capital gains tax on investments has fallen 31% and the percentage of tax revenue generated by estate taxes has fallen 46%. There has been a massive redistribution of wealth in the last 30 years but it isn’t going from tax payers to the indigent; it is going from taxpayers to the wealthiest Americans. Instead of “trickle down” economics what we actually have is “sucking up” economics. It is as if there is a giant vacuum at the top pulling everything that way.
The truth of the matter is that Reagan as president was the same thing he had been before; an unemployed actor who worked as a shill for corporate America. According to studies by the World Institute for Development Economics Research what we have actually seen in the last 30 years is a massive concentration of wealth and earning power in large corporations. Over 40% of the GNP of the United States comes from 500 largest conglomerates in the country. According to studies recently released by this group these companies control over two thirds of total American business sources, employ two thirds of the industrial workers in this country, account for 60% of total sales and collect over 70% of total profits. In 1955 corporate tax income paid some 33% of the total taxes taken in by the Federal Government. In 2007 this number had decreased to 14%. In other words, entities that gobble up 70% of the total profits made in this country pay in 14% of the taxes. No wonder corporate America deifies Ronald Reagan. One can hardly imagine a more favorable climate for corporate growth than such a system yet we are still on the verge of economic collapse in this country.
Subscribe to:
Posts (Atom)