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

Economic falsehoods...

For this posting, I am simply handing the stage over to my friend, Russ Daggatt, who has compiled more "ostrich ammo"... or irrefutable evidence to push (relentlessly) into the faces of every "decent conservative" you can find. NOT evidence that Bush et al have betrayed America, or decency or honesty or the Enlightenment...

...but evidence that they have betrayed conservatism... dragging it down paths of utter lunacy and irresponsibility that can no longer even remotely be called conservative, by any previous or sane standard.

This should be one of the Democrats' main thrusts. They should assign oe of their convention speakers to stand there and address the decent conservatives of America. It would take a solid hour to finish just a summary list of why decent, life-long republicans should finally stand up and say enough, making temporary alliance with decent moderates and liberals to end this great klepto raid...

...so that we can all get back to arguing in goodwill, among honest folk, HOW to make a better country and civilization and world.

On to Russ:

Let's leave aside for the moment the Iraq war, and the "War on Terror," and illegal warrantless wiretapping, and torture, and the US attorneys purge, and all of the other topics dominating the current list of Bush crimes. Let's go back to the "pre-9/11" Bush administration. Bush's first big initiative was his tax cuts.

Polls at the time, in 2001, showed that the public was not clamoring for tax cuts. If you asked them, yes or no, would you like to have your taxes cut, they said yes. But if you asked them whether you would rather have their taxes cut or ... almost any major spending priority -- balancing the budget, fixing Social Security, etc. -- they strongly favored the alternative to a tax cut. But Bush managed to threaten and cajole ... and lie ... to get his big tax cuts.

Among other things, Bush and his cronies insisted that the tax cuts would not turn the budget surpluses they inherited from Clinton into budget deficits. Remember, the rationale for the tax cuts at the time Bush proposed them was that he was only "returning a quarter of the projected budget surpluses to the American people" -- leaving three-quarters of the surpluses intact.
Almost immediately (a couple of weeks) after Bush forced his tax cuts through a reluctant Congress, the Bush White House changed its forecasts to show ... surprise! ... deficits. Then the rationale changed from "returning a quarter of the surplus" to "the tax cuts will generate so much economic activity that they will pay for themselves in the long run" (the theory that his dad twenty years earlier labeled "Voodoo Economics"). (This practice of changing the rationale for their policies when they fail instead of changing the policies themselves was later perfected with respect to the Iraq War.)

Now Bush and his apologists and enablers claim that his tax cuts “worked” (just like the “surge” in Iraq is “working”). So let’s look at the forecasts in Bush’s FY2002 budget and compare those with what actually happened (Bush reduced the duration of these forecasts from the 10 years that had previously been the case to only five years, so the FY2002 numbers only go out through 2006):

(Note, formatting may not be very good, posting to blogger.)


George W. Bush’s surplus/(deficit)
year . projected . Actual . Difference

2002 . . $231 . ($158) . ($389)
2003 . . $242 . ($378) . ($620)
2004 . . $262 . ($413) . ($675)
2005 . . $269 . ($318) . ($587)
2006 . . $303 . ($248) . ($551)

Total . $1,307 . ($1,515) . ($2822)

[Source: White House Office of Management and Budget]

By their own measure, they were over $2.8 TRILLION dollars off in their budget forecasts (for just five years). Yet they claim their tax cuts "worked" as planned. Are they lying or merely delusional? It's not a factual question. The numbers aren’t in dispute. Their tax cuts were supposed to stimulate so much economic activity that they would pay for themselves. Clearly, that didn’t happen. But that apparently doesn’t have any effect on their narrative.

[I should note that the deficit has been greatly understated in recent years by netting out the Social Security surplus against the federal government's operational budget. It was less of a problem in past years because the SS surplus wasn't that big. But with baby boomers in their peak earning years, it has increased to where it is quite large relative to the operational budget. The surplus in Social Security and other federal government retirement accounts is currently running around $180 billion/year and is projected to rise to ~ $260 billion by 2011 before starting to head back down. Which means the federal budget deficit should really be increased by that amount. All the more reason it is inexcusable to be running long-term structural deficits six years into an economic expansion after the mildest recession in modern American history and when the baby boomers are in their peak earnings years.]

So, then, did Bush’s tax cuts at least stimulate economic growth? Of course, our economy isn’t a controlled experiment, so you can’t really separate out Bush’s tax cuts and measure their impact on the economy. But you can compare real GDP growth following Bush’s 2001 tax cuts with GDP growth following Clinton’s 1993 tax increases: 

1994 4.0
1995 2.5
1996 3.7
1997 4.5
1998 4.2
1999 4.5
2000 3.7
2001 0.8
2002 1.6
2003 2.5
2004 3.6
2005 3.1
2006 2.9

Real GDP growth averaged 3.3% annually during Clinton’s eight years. By contrast, real GDP growth has averaged only 2.8% during Bush’s first five years. [In an over-abundance of intellectual fairness to Bush -- not a practice the right generally reciprocates -- I stuck Clinton with FY 2001 (which included the last recession) even though Bush was president during most of that year. If I take 2001 away from Clinton and give it to Bush, and give Clinton 1993, the numbers are even better for Clinton: 4.2% annual GDP growth vs. 2.5% for Bush.]

Obviously, this doesn’t prove that Clinton’s fiscal responsibility helped the economy or that Bush’s fiscal irresponsibility hurt the economy. But it sure as heck refutes the notion that because the economy has grown under Bush that is proof that his tax cuts deserve the credit.

Oh, and federal spending as a percentage of GDP was 21.4% when Clinton took office and 18.5% when he left, but is now back up to 20.8%. So it is not the case, as the right wing claims, that “if you send the money to Washington they will just spend it” – Clinton raised taxes and reduced the size of government. Nor is it the case that cutting taxes will “starve the beast” and reduce spending – Bush cut taxes and increased the size of government.

How about recent stock market highs? Don't they prove Bush's tax cuts are "working"? The Dow Jones Industrial Average was 3253 when Clinton took office and 10,587 when he left -- for an increase of 325% during the Clinton years. By contrast, the Dow Jones closed yesterday at 13,468 -- for an increase of 27% during the Bush years. Taking a broader measure of the market -- the S&P 500 -- it was 435 when Clinton took office and 1342 when he left -- for an increase of 309%. It closed yesterday at 1468 -- for an increase of 9.4% under Bush.

So, then, what is the factual basis for the assertion that Bush’s tax cuts “worked”? The budget deficit got worse, government got bigger and growth was slower than in preceding periods.

Leaving us with the question that started this discussion: Is Bush (and his apologists and enablers) lying or just delusional? Which is worse? (And is there any discernable pattern that transcends individual issues.)

Meanwhile, what is currently the greatest threat to the economy? An ongoing "credit squeeze." In classical economic theory, federal borrowing results in the "crowding out" of private borrowing. Under Bush, the federal debt has increased by over $3 TRILLION. According to every objective economic analysis I've read, the "crowding out" effect of increased federal borrowing more than offsets any alleged "incentive" effects of the Bush tax cuts, resulting in a net economic loss. We're six years into an economic expansion -- when is this stimulative effect supposed to kick in and eliminate the deficit? But don't worry. According to Dick Cheney, "Reagan proved deficits don't matter." And I suppose the deficits are in their "last throes."
-----

Oh, what has happened to conservatism?

Who are today's wastrels, living for the moment and spending their grandchildren into poverty?

And who are the new puritans, wagging their fingers at us to "waste not" and to save a "stitch in time"? Preaching what used to be old standard values like "let's try to crap less in our own house?"

While proclaiming "family values" which party is rife with candidates who disposed of marriages like tissue paper, amid betrayal and spite? And which - despite expanding their tolerance of different ways - shows a panoply of leaders who are mostly monogamous-hetero-committed-boring?

Which party now relies on "gut" instinct for just about everything, while bullying or harrassing every professional who dares to disagree... and which one calls for a return to relying upon the advice of apolitical and knowledgeable experts? And which of these images would you have guessed to be "conservative"?

Will no one else notice that roles have reversed utterly, with liberals now the prune-faced, penny-pinching, chiding, earnest believers in most of the old puritan virtues (without the intolerance), while neoconservatives seem to feel that momentary spasms of utter self-indulgence are the way to deal with a world on onrushing change?

Is there ANYBODY out there willing to confront the American people with a little bit of good, old-fashioned irony?