Disparities of taxation and wealth? Time to choose between ideology and civilization

The never-ending tide of troglodytic microcephaly from Republican candidates has the older, mainstream conservative intelligencia wringing its hands in near-despair. What kind of Twilight Zone do we live in, when GOP icon Alan Greenspan gives his highest presidential rating to Bill Clinton and by-far lowest rating ever to George W. Bush?

A veritable flood of former Republican standard bearers, like Paul Craig Roberts (the “father of Reaganomics”) have deserted, along with large swathes of the professional caste, from intelligence and military officers to scientists. Heck, rumors have it that the state of Arizona draws half its power from coils placed around the spinning in Barry Goldwater's grave.

Now, Bush family friend and renowned economic forecaster John Mauldin has weighed in.

"Far too many in both parties tell a frustrated America what it wants to hear, rather than the economic reality. The Republicans have some of the worst offenders."

John goes on with a riff about Mike Huckabee's "Fair Tax". Here's an excerpt:

"Fair Tax proponents want a 23% sales tax to replace every type of government tax. No more income, corporate, social security, or Medicare taxes. And everyone gets a $5,000 or so "prebate" which covers the taxes up to the poverty level. What could be simpler or more fair?

"First of all, the 23% they talk about is really 30%. Under the proposal, if an item sells for $100, then $23 of that would go to the government (said to be tax-inclusive). That means the item really costs $77 and the tax is an additional $23 or about 30% (said to be the tax-exclusive rate). Add an average 7% for state sales tax and we are now up to 37%. But wait, it gets worse.”

Bruce Bartlett writes this week in the Wall Street Journal: "A 2000 estimate by Congress's Joint Committee on Taxation found the tax inclusive rate would have to be 36% and the tax-exclusive rate would be 57%. In 2005, the U.S. Treasury Department calculated that a tax exclusive rate of 34% would be needed just to replace the income tax, leaving the payroll tax in place. But if evasion were high then the rate might have to rise to 49%. If the Fair Tax were only able to cover the limited sales tax base of a typical state, then a rate of 64% would be required (89% with high evasion)."

Mauldin: "Further, this is a tax hike on the middle class. If you make less than $15,000 you win. If you make more than $200,000 you win, because you actually save more and spend less of your income. This is a nice populist proposal which sounds good but is economically challenged. It only works on someone who has not read about the problems. Let me give you two links if you want to read more. One is to Bartlett's article and the other is to the people at Fact Check.org.

"The call by Huckabee and others to deport 12,000,000 illegal immigrants is simply economic suicide. It would create a depression (not just a minor recession) in short order. Let's reduce productivity by 10 15%. Let's reduce consumer spending by 7-8%. Shut down hundreds of thousands of businesses who could not get workers they need. Who will pick the crops? Or do any of a hundred jobs that Americans don't want to do? It would drive up labor costs and create inflation. It would be a disaster of Biblical proportions. Now, I am all for controlling the border. I want to know who is coming in. But we have to deal with reality, and the reality is that we need those workers who are here. The economy simply will not function without them."


HOW IS ALL THIS RELEVANT?

Why am I quoting all this from John Mauldin? Because it is vital for us to remember that not all of our conservative neighbors have gone stark, jibbering mad. Some are merely in a deep state of denial. Able to criticize bits and pieces of what has happened to their movement - as John does, above - though without (alas) allowing themselves to see the big picture. How the neocons, who hijacked conservatism, have relentlessly and deliberately reversed nearly every prudent principle that it used to stand for.

(In fact, I agree with John that IRS rules should be slashed and simplified. The problem is that every interest group lays down a ferocious veto, whenever their favorite offsets are under threat. There IS a solution! It is called "No Losers"... in which the tax code is slimmed by computer algorithm, seeking the minimum number of rules, under special, pre-set boundary conditions that follow a simple rule. For the 100 most common or representative tax profiles, the simplification algorithm makes no change in NET tax paid.

(Thus, everybody winds up paying the same, even if their favorite deduction goes away. It sounds magical, but, believe it or not, this really can be done! At very low expense, this experiment could at least present a proposed reform under which nobody’s ox is gored and the number of rules shrinks. Well, tax accountants would hate it. But that's for another time.)

In fairness, let's hear John out when he criticizes one of the catechisms of the left... that the rich aren't paying their fair share, since the Bush tax cuts. "They want to "tax the rich" and make more for middle class tax cuts. Sounds nice, but let's look at the facts. The bottom half of taxpayers only pay 3% of the total income taxes collected, which is 1% less than before the Bush tax cuts. 44% of the US population, or 122 million people, pays no income tax at all.

"The richest 1% of the country pay 39% of all taxes ($365,000 income and up), which is 3% more than before the Bush tax cuts, under the Clinton tax policy. The top 5% ($145,000) pay 60% of all taxes (up 5% from 1999); and the top 25%, with income over $62,000, pays paid 86% of all taxes. It seems to me that the rich are paying their fair share. Every category is paying more now than under Clinton, except the bottom 75%."

This notion that the rich are paying more nowadays - even after receiving fantastic tax cutes (during time of war) - sounds odd...

...and it turns out that it is. I hate to say it, but John is being just a bit disingenuous here. The middle class is paying less tax and the rich are paying more... because of a vast swing in actual wealth -- including income-generating property -- from the middle to the top.

This flow has accelerated so fast that the super-rich are, indeed, paying more net taxes, despite their low tax rates.


TIME TO CHOOSE... BETWEEN IDEOLOGY AND CIVILIZATION

Another way to put this would be to ask “How much tax is paid on the top 1% (by accumulated dollar value) of wealth, rather than the top 1% (by population) of wealth owners. That tax has inarguably gone down. Way down. Resulting in yet further wealth transfer in that same direction, so that more percentage points of overall wealth are owned by that top 1% of owners.

Thus, John manages to make a truly terrifying vicious spiral -- threatening a new age of feudal style aristocratism -- sound benign. He should know better.

In other words, the very same facts that he uses to deflect criticism of the Bush Tax Cuts actually show just how far those cuts have skewed the system in favor of those who are raking it in. Without comparing these stats of gross tax payments to the growing disparity in actual wealth, they are deeply misleading. In fact, if you seek the one common thread, among every Republican candidate’s tax proposals, it is this. All of them seek ways to accelerate further transfer of wealth percentage shares into the hands of the top 1% of individual owners.

Yes, some of the dems’ suggested means of reversing this trend are questionable, in their own right. I am far less interested in solutions that are confiscatory than those aimed at regulating and counterbalancing activities that are - in themselves - criminally stupid, market-warping acts of collusion by a narrow clade of golf buddies. Simply prevent outrageous thievery and re-introduce market forces at the top! That ought to solve the problem. Certainly defenders of idealised markets tell us so!

For example, try breaking up interlocking directorates (Republican Teddy Roosevelt could have told you that!) Or adjusting the rules of compensation for CEOs, directors, etc, so that their rewards come largely from ten-year company stock options! That would reshape the playing field so that managers’ best interests coincided with society’s. Oh, and those who run a company into the ground would not flutter away with 8-figure buyouts. The market for managerial talent would remain flat and fair. It would just remove the incentive for 10,000 golf buddies to conspire together to rob us all.

(Does nobody ever examine the fundamental premise-assumption underlying these godawful CEO compensation deals? The capitalist premise is that such vast payouts should attract brilliant people from other fields, until competition drives the pay levels back down!

(In effect, the golf buddies are telling us that they are mutant-level talents, like top basketball stars, worth any price, so the rules of supply/demand will never apply to them! Funny thing though. Their system to decide all this is a classic circle-jerk.)

We need to ponder whether it actually "defends market capitalism" when these wealth flows so severely alter our social structure that they threaten to entrench a quasi-feudal aristocracy. Don't forget who Adam Smith called the true and worst enemies of markets! In his day, socialism and bureaucratic regulation were FAR from the top enemies of market enterprise! Indeed, throughout human history, market enterprise had one major enemy. Conspiratorial oligarchy.

Those who style themselves as defenders of liberty and markets need to step back. They need to remember that the masters of Guided Allocation of Resources (GAR) are enemies of freedom, of every kind. We don’t need their clique to guide us. Or any clique. What we need is our Enlightenment back.


=== More political misc ====

See a bitter, but illuminating, ex-insider’s view of what’s become of TV news by veteran reporter/producer John Hockenberry, in MIT Technology Review. Especially depressing is the part where he tells of tryig to interview members of the bin Laden family, only to be thwarted from above.

Have I been crazy to suggest that there’s a lot more going on in the R’oil Desert Kingdom than the Bush Administration wants us to learn? You really, really need to read “Confessions Of A Terrorist,” which exposes one of the biggest smoking guns ever. Or at least, since scores of potential material witnesses, from the home country of most of the 9/11 hijackers, were whisked out of the US on luxury charters, without ever being questioned, on the same day that Americans were forbidden to fly.

Following up this article, I’d be interested if anybody has read Gerald Posner’s Why America Slept (Random House), is a lean, lucid retelling of how the CIA, FBI and U.S. leaders missed a decade's worth of clues and opportunities that if heeded, Posner argues, might have forestalled the 9/11 terrorist attacks. My interest is very narrow and specific, whether Posner mentions anything about FBI agents or others being re-assigned away from counter-terror duties, during the first eight months of the Bush Administration, in order to go skeleton hunting for dirt about the Clintons. So far, my sources on this are anecdotal, not statistical. If the numbers were as high as I suspect, it could be the biggest scandal of this entire, sordid period.

Finally, here are a few more points to add at the addendum following my main article: Ostrich Papers: How It Will Take All Decent Americans to Restore Decency to America...

* What if, in the middle of a declared state of dire emergency and an ongoing war -- one that was using up all American ground forces and devastating the budget -- a Democratic President (say, FDR) were to regularly walk away from his job and take more days off than any other in history? Even exceeding the earlier record set by Ronald Reagan? And setting this milestone with a whole year left before his term ran out? Would you Have let Bill Clinton get away with hurling our forces into harm’s way, then turning away to kick back with cronies for weeks at a stretch, on their new, mega-ranches?

Over the past few months, two of the most high-profile inspectors general in government have faced public firing squads. As the Washington Post on its front page on Friday, Stuart Bowen, the inspector general tasked with investigating Iraq reconstruction, now faces an investigation himself. Several government agencies are examining charges that his office was involved in massive mismanagement and waste, the very sins he had been tasked with uncovering in Iraq. Most puzzlingly, over twenty-five of his employees earned more than General David Petraeus did last year. This article in the New Republic is naturally tilted-against the Bush Administration. But then, so are the facts.

Who was speaking about inspectors general two years ago? See my article: Free the Inspectors General. Amazing that such a simple and blatantly sensible suggestion gets no notice, alas.

--See more on the Economy: Past, Present and Future

David Brin
http://www.davidbrin.com