I often listen to conservative talk radio in my car for a couple of reasons. First, I like to keep informed of all sides of political arguments and even though most of conservative talk radio is more akin to propaganda than information one can still get an idea of the right wing viewpoint by listening to Rush Limbaugh or Sean Hannity. The good news is that you don’t have to listen for very long in that they endlessly repeat the same talking points ad nauseum (see the definition of propaganda). Second, since I live in an area that is heavily right wing in its general political leanings there is virtually no left wing or progressive radio available without having satellite radio which I don’t happen to have in my car.
I don’t normally have much of a reaction to what I hear on these shows beyond the amusement that comes from realizing how childishly simple and devoid of actual study most of these points are in reality. It is interesting to follow the careful application of facts and editing that Limbaugh employs in trying to make his points. He really is quite masterful at avoiding telling the whole story about anything while at the same time emphasizing and carefully stacking the half truths of his narrative to build his positions. On average I would say that he rarely goes over a sentence or two without badly distorting the truth or taking a half truth and expounding it as irrefutable fact. There is an old maxim that says “a little knowledge is a dangerous thing”; in Limbaugh’s case I would expand this to “a little knowledge combined with a lot of half truths endlessly represented as the whole truth is a dangerous thing” (again, see the definition of propaganda).
As I was listening today I heard Limbaugh launch into his normal ridicule of Democratic positions by one of his favorite tactics of sarcasm combined with satire. The specific issue he was talking around today was the upcoming budget battles and the attempt by Republican’s to cut further into discretionary spending and Medicare programs. What is interesting is that both parties agree that rising health care concerns are an issue that is to a large extent driving much of our national debt problems. Unfortunately, this is about the only thing that both parties agree upon when it comes to health care. Typical of Limbaugh and his tactics he was not discussing the issue today or offering solutions to the problem but rather ridiculing the idea that Obama put forward in his speech yesterday that he was not willing to stand by and let the Republican party do away with Medicare programs that are the only means many Americans have of receiving the health care they need to survive. Limbaugh launched into an insulted tirade describing how Democrats are trying to paint the Republican party as the party that would have these people put out in the street without healthcare.
This is typical of the way Limbaugh operates, avoiding the substance of the issue by concentrating on the satirical implication that Democrats are only interested in demonizing Republicans. He went on to describe how offensive and silly it is to suggest that Republicans don’t care about people, that they are somehow immune to feeling of empathy for the needy. I doubt there are very many people who believe that Republicans want people to suffer or that they desire to somehow punish the poor and needy by denying them health care. The point that Limbaugh purposefully avoids and goes to great lengths to disguise is that this WILL be the result of doing away with Medicare programs and privatizing them with a public voucher system that everyone recognizes will lock people into set benefits at a time when actual health care costs are skyrocketing. Intentions count less than results when it comes to basic necessities of life. The fact that no one intends for people to suffer does not change that fact that people do in fact suffer and die when they can’t get the basic health care they need to survive. While it might be worthwhile in Limbaugh’s opinion to point out this was not the intention of such measures this is actually of no consolation to the people who will be suffering and dying as an inevitable result of the measures themselves. It is neither wrong nor imprudent to point out inevitable results of cutting such programs; it is in fact criminally irresponsible to avoid doing so.
There are two possible ways to interpret this behavior. The first and most obvious possibility is that Limbaugh simply doesn’t know what he is talking about. While it is easy to dismiss this out of hand there is perhaps a grain of truth to it. I would submit that it is hard to understand the concerns of those of us whose families are often at the mercy of such systems when you are as far removed from the cold hard realities of having to make hard choices as Limbaugh currently happens to be. Limbaugh makes some 28 million dollars a year in direct income without including endorsement contracts. This amounts to some 116 thousand dollars a day which probably does make it hard for him to have any understanding of the world that most of listeners deal with every day. It stretches the imagination to believe that someone who makes that much money could have any understanding of what it is like to do without basic needs. I would suggest that it has probably been quite some time since Limbaugh was even directly personally exposed to anyone who is struggling in today’s economy. While this also explains his undying and ridiculously nonsensical ideas about taxation and Reaganomics which preaches that lowering taxes is the best way to stimulate the economy, it doesn’t say much for his ability to be objective when he twists fact and figures so relentlessly to prove such a theory makes any sense economically while pocketing the results of the tax cuts so directly.
The second possibility is that Limbaugh actually is what he appears to be, a willing shill for corporate America who has as little use for truth and factual information as his hero Ronald Reagan. Reagan, who made a living many years being a direct employee of corporate interests as a spokesman in their campaigns to increase profit margins at any cost later graduated to a position in government where he could be even more effective in this pursuit; the President of the United States. It is impossible to know which possibility is correct or even if it is the combination of the two is what drives Limbaugh in his daily rants but it is easy to know the practical results of his choices; a show unmatched in its propaganda value if you are a wealthy American or a large corporation in its ability to influence voter opinions of the very people that such interests routinely abuse to build their wealth and power.
It is hard to imagine a better methodology for enriching the wealthiest amongst us than the talking heads of conservative radio. If I were to suggest a scenario that involved the wealthiest Americans gaining control of the levers of power with the full aid and support at the ballot box of the working class they are pilfering their profits from you would suggest that such a scenario is at best unlikely. However, both Limbaugh and Hannity, who manage to portray themselves as protectors of the common man while collecting millions of dollars each year from the wealthiest corporate interests in this country, are in fact two of the most effective agents for making sure this is exactly what happens. Hannity makes some 22 million dollars a year in salary before endorsements in case you are wondering. Not surprisingly, he is just as adamant that any increase in taxes on the wealthiest Americans would be a disaster of the first order. One basic mantra that all conservative commentators constantly repeat is the idea that tax cuts lead to net increases in revenue.
Budgets as large as our national budget can be extraordinarily complicated instruments but the basic laws of addition and subtraction are not magically suspended when it comes to evaluating them. National budgets, just like personal budgets, are a balance between money coming in (revenue) and money going out (expenditure). While it is possible to increase relative revenue if you cut expenditures enough the net gain is simply a one to one ratio, every dollar saved equals a dollar available to pay against the debt. Common sense tells us that to decrease the deficit we must have a combination of reduced expenditure and increased revenue. Not surprisingly, history does as well. Contrary to the cherished magical myth that conservatives love to repeat about cutting taxes while simultaneously increasing government revenue it simply does not occur and we have proved that on four separate occasions since 1980. Reagan’s first tax cuts drastically reduced government revenue to the point that three later tax increases were necessary to keep us from breaking the government then. The difference is that the later tax cuts worked to shift the largest proportion of the burden from the rich to the middle class. Even with the later tax increases, the deficit doubled during Reagan’s tenure.
When Bush senior came into office with his “read my lips, no new taxes” pledge he soon found that it was necessary to renege on this promise because we were still sliding into a deeper deficit and the only way to begin to pull us out of it was to increase revenue by raising taxes. While this may or may not have cost him the next election, it did manage to begin to increase revenue. With Clinton, we got more of the same in the way of increased taxes along with expenditure cuts that were well on the way to balancing the budget. With Bush junior we got another round of tax cuts that led directly to higher deficits. It is hard to stress this fact enough; tax cuts do not increase revenue. It really is voodoo economics to suggest that it does and recent history has pointed this out repeatedly no matter what conservative commentators say to the contrary. As anyone who has passed third grade math knows you cannot get larger numbers by subtracting no matter how many times you do it.
Beyond the simple mathematics of why this doesn’t work there is also the basics of how capitalism works to explain this more clearly. Capitalism is largely based upon the idea that accumulations of wealth can be used for investment which will spur more economic growth. It is a repeating cycle of continuous growth based upon the idea that one must first have accumulations of capital before there can be investment. If our country was in a situation where there was not enough capital to spur growth temporary tax cuts as a stimulus might be a viable option but we would still have to realize that any tax cut must be offset by expenditure cuts to keep from bloating the deficit. However, everyone agrees that there is a huge surplus of capital in this country right now; although much of it has been hoarded into offshore tax havens so that its owners can avoid paying taxes on it. In other words, cutting taxes on the wealthiest is not only unnecessary , it is actually counterproductive to inducing investment because it has been proven to further reduce the likelihood of investment for the simple reason that there is no inducement to reinvest this capital. This is largely the reason why there was such huge investment in the unregulated financial markets that crashed the economy in the first place. Every time there is a tax cut on the wealthiest Americans along with deregulation of the financial industry there is a corresponding increase in unfeasible financial markets that inevitably crash. Radical tax cuts to the top level of income earners in the twenties (70%-24%) immediately preceeded the rampant speculation that fostered the Great Depression. After the initial Reagan tax cuts we had the Savings and Loan crash. After the Bush tax cuts we had the recent financial crash of the whole US banking system that we are still trying to claw our way out from under. Nothing stimulates the ingenuity of the confidence men amongst us as much as large piles of cash reserves that become available with such tax cuts. In case anyone hasn’t noticed, we as the taxpayers bailed out the wealthiest Americans in each case so we not only don’t get to participate in the party; we have to pay the bill after the party is over.
What is actually needed is not further reductions in capital gains taxes and the income taxes of the wealthiest Americans, but the increase of such taxes to induce them to reinvest the money in industries that produce jobs in this country instead of encouraging further tax havens for shifting jobs overseas. Tax incentives could easily be written to encourage investment in industries that create jobs by tying tax rates directly to the number of jobs created while increasing tax rates on financial markets that do not. In other words, we have plenty of capital for investment. Tax cuts to increase the capital available for investment aren’t what we need. Tax increases with incentives designed to induce investment from existing capital in industries that produce jobs are what we need.
Limbaugh, Hannity, and their ilk would be comical if they weren’t doing so much damage to our political structure by deliberately spreading corporate propaganda. Shills have been a component of the business world since the first halting steps of capitalism but they have rarely been as effective as this new crop of them happens to be. While Reagan himself is their patron saint, they are all cut from the same cloth. It is up to the American public to recognize they are being fleeced by the people who proclaim to protect their interests but I find it especially ludicrous that two men who make 48 million dollars a year between them are widely seen as the protectors of the working class public by a large portion of the voting populace. They remind me of the peddler of the magic beans in the fable Jack and the Beanstalk with the exception that they are peddling “magic tax cuts” instead of “magic beans”. Unfortunately, there is no such thing as “magic tax cuts” that will grow us out of the deficit situation we are in. There are only real numbers and the reality that it takes addition to make larger numbers and tax increases to create more revenue.
Showing posts with label equal taxation. Show all posts
Showing posts with label equal taxation. Show all posts
Friday, April 15, 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, 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.
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