Class Warfare Blog

February 23, 2011

Tax and Spend, My Ass!

Latter day conservatives have excoriated Democrats as being “tax and spend liberals.” They, on the other hand, believe in “getting government off the backs of ‘the people’” by cutting taxes, removing business regulations, and minimizing the size of government. Unfortunately for us, all of these Republican ideas have been tested in the last 30 years and none of them has worked. (I won’t go into the research because facts apparently have no weight in a political discussion.) Undeterred, the current Republican push is for more of the same.

On the contrary, one can make an argument that the one and only purpose of government is to redistribute wealth. Imagine trying to run the military funded by bake sales and selling candy bars at the local WalMart. While only a few like to be taxed, it is unthinkable to do away with taxes. We, through our government, confiscate part of everyone’s produce to pay for what we collectively need to do: things like pay for the military, build roads and airports, provide a postal service, provide for the elderly, and schools for our children. Imagine what the world would be like if each of these efforts were done like a charity. Public television fund drives are annoying enough, imagine collecting enough money to run schools, police departments, sanitation, water districts, food inspections, road repairs, etc.

So, clearly governments must tax and spend. When Democrats do it, the data show that everyone, even the wealthiest Americans, do better than when Republicans do it. (Which raises the question of why are wealthy people all Republicans? They do better under Democratic Presidents.) The poorest of Americans do marginally better than the richest under Democrats but a 1% increase in income for a wealthy person is a whole lot more money than a 1% increase for a poor person. Democrats have a focus on fairness for all. Republicans less so.

Republicans have lost their way. Conservatives of just a couple of generations ago placed a great deal of focus on maintaining the stability for American families. They supported things like increases in unemployment insurance, almost automatically. They spoke at length about the importance of maintaining the stability of the American family, etc. Currently school teachers are being described as a drag on progress, people on unemployment insurance are lazy and shiftless, and public employee pensions, originally offered as a substitute for better pay, are being blamed for the financial ills of local governments, when the current governmental financial difficulties clearly stem from a significant decline in government income caused by ill-advised tax cuts and a few wars and things, one of the “things” being millions of people having lost their jobs and are no longer paying taxes.

All that “family friendly” rhetoric and action is long gone and here is why. Prior to Ronald Reagan, the top marginal income tax rate was 70% (it had been higher). It is important to realize that very, very few people made enough money to have any income taxed at that level. Everybody’s first, say $8,000 was taxed at one rate, and then as the amount of income increased, the additional amount was taxed at a higher level, and a higher level, etc. People talked incessantly about “which bracket” they were in, as the number of tax rates was quite large. When President Reagan brokered a new tax structure, there were just three levels (roughly 15%, 28%, and 39%). Currently you have to make over $250,000 before the top rate kicks in and the Republicans in Congress used every trick in the book to make sure that the current top rate of 35% didn’t spring back to the previous 39% when the Bush tax cuts expired. (They argued that rich people created jobs with that money, a claim for which there is no evidence.)

But the bigger story is the effect the transition from a top rate of 70% down to 39% has caused. In the days of the 70% and higher marginal tax rates, corporations found other ways to compensate executives (executive bathrooms, corporate jets at their disposal, etc.) because the executive only got $30 out of every $100 of compensation at those high levels, therefore the corporations had poor leverage, so they held on to their money. Back then, top executives might make 15-20 times as much as the average worker did in their company. With the tax rule change, executive’s pay began to skyrocket. After all, for every extra $100 of extra pay, they were getting over $60 now. So, CEOs changed from boasting about the Picasso hanging in their office (owned by the corporation) to boasting about how much money they made. They finagled Boards of Trustees to maximize their pay and now it is not unusual for CEOs to be making 250-300 times what an average company worker makes.

In one case, a hedge fund manager made over a billion dollars in a single year. To put this in perspective, consider that there are about 264 work days a year, with say 11 holidays and two weeks vacation, that comes to about 1944 hours of work (at eight hours per day). If one were compensated with a billion dollars, that works out to a tad over $514,000 per hour. (Do you honestly think anyone’s services are worth that much . . . in a fair game?) CEOs generally aren’t anywhere near that level of compensation, but they are way up there, compared to you and me. (Multiply your salary by 200-300 for an estimate if you are in a big company.) The consequence has been that whereas with the higher marginal rates, the power resided in the corporations, now the power resides in some very wealthy people. Corporations don’t have personalities, people do. And some of the very wealthiest have decided a long time ago that the “land of the free” referred to “economic freedom” meaning one is allowed to buy what one wants: politicians, political parties (the so-called “Tea Party was bankrolled by billionaires), and even whole elections.

These richest of the rich have now decided to take over control of public policy. First step: get the Supreme Court to overturn decades of settled law to declare corporations “persons” for political purposes, just as they are considered “persons” for business purposes (a bizarre but acknowledged fiction). In this manner, these wealthy persons can use their corporations many in stead of their own. The next step: kill the unions. They do wish to create jobs, really! They just don’t want those jobs to pay very well, because it hurts their bottom lines. Instead of making only $200,000 per hour, they may only make $190,000 per hour. And while good paying union jobs make for stable families and stable communities, well, families will just have to fend for themselves as the billionaires do. After all, they are free to buy what they can, so every one lives in the land of the free. The shackles aren’t made of steel any more, they are economic.

Our only hope is to tax the rich to restore the balance. The gravy train is a runaway and we aren’t on it.

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