The Mother of Middle-Class Tax Cuts

And on we go

Glad you are debating here, Chris. Perhaps no one else is paying attention to us, but we, as time permits, can attempt to state our thoughts and feelings. Not a surprise, I have a few comments on your latest post.

On Adam Smith, he wrote at a time when incorporated entities and central banks did not rule the roost to the extent they do today in America and the larger world. Because of that, I believe some (maybe even most) of his statements now amount to mere over-simplification of our real issues. He could not, and did not, contemplate that of the 100 largest economic forces in the world, it's said that 51 are countries and 49 are individual corporations. He likewise did not imagine a USA "playing chicken" with how long we can be the world's biggest debtor (with no plan to repay any of it) and dupe others into believing we're too big to fail.

On 401(k), yes I have one, and I am frustrated as a real financial conservative that the yields on insured debt securities (bank CDs, government bonds, even other bonds.) are held way BELOW inflation by our Fed "creating" funny money. The recent emergency responses to the subprime melt-down have not only included the Fed funds rate declining ABITRARILY to 2% to rob the elderly of yield at their local banks, but also have included the Fed FLOODING markets with "liquidity", aka funny money from thin air. All this is politically motivated (to avoid disaster commencing on Republicans' watch) and is in ADDITION to our decades of stated fiscal deficit. It is weakening both America and our currency AND FACES A SUDDEN DAY OF RECKONING SIMILAR TO WHAT WE NOW SEE HAPPENING IN CRUDE OIL.

Except for Clinton (8 years of the last 28), Replublican presidents have presided over this.

On "redistribution", you use a term in your 3rd paragraph above, "lesser individual", to describe those with whom wealth might be shared downward via liberals' tax policies. I do not believe that the two guys who started "Girls Gone Wild" and "Red Bull" (both now very wealthy) are greater or better than teachers, laborers, factory workers, farm workers, store clerks, and everybody working in the criminal justice system, as examples. I DO believe that most who are "earning" ten million or more a year, in fact, are gathering that kind of money from forms of opportunism and that the money itself is actually COMING FROM those "lessers" or from their lost opportunities usurped (such as in short-selling securities.) So returning some, even most, of it to society is not at all "immoral" to me.

I think it's more immoral if we DON'T find that political courage to levy taxes that, in fact, curb the excesses from so easily developing in the first place. We wonder, today, why we have "billion-dollar" CEOs. The answer is BECAUSE WE DON'T STOP THE CYCLE WITH TAXATION (like we used to when CEOs typically earned 25 times the pay of the average worker---earnings that were actually quite enough.)

As for "economic growth", the best things we can do is tax both astronomical incomes and astronomical capital gains until our nation is not indebted and is not printing emergency "funny" money. (Key word: Astronomical. I AM NOT TALKING ABOUT ANY NEW TAXES ON INDIVIDUALS UNDER $75K OR FAMILIES UNDER $150K). Reducing some spending is a good idea, too. But the difference between you Republicans and us Democrats is that you want to reduce spending on individuals and we want to reduce it on the portion accruing to incorporated entities.

Daniel David of NM @ May 22, 2008 11:13:10 AM

"The savings rate for the mass of our population has actually declined in recent years after the Reagan and Bush tax cuts, not increased as you suppose. The 401(k) "wealth" in the stock market merely is a replacement of the real security of pensions and can vanish just as fast as we are seeing home "equities" decline. "

No, actually the decline in savings is due more to the availability of credit and liquidity in the markets than with Bush's or Reagan's tax cuts. I mean, just look at the climate before the credit market meltdown: interest rates were very low, the markets were flush with dollars and this was partly financed by foreigners buying up U.S. denominated assets. The tax cuts is just one of several vehicles to influence savings, but as you correctly pointed out, if it is not followed up with vehicles to induce savings (such as increasing interest rates), then no one will be inclined to save. I wonder if you are putting away your money in a 401(k), Daniel. Even though stocks are volatile in the short run, in the long term there is no better investment vehicle to accumulate wealth. This has been proven time and again both academically and in practice.

You are flat out wrong about Progressive Income taxes creating a middle class. A middle class is created not by what tax scheme we have in place, but by the opportunity for average individuals to buy and sell their labor on an open market and to reap the fruits of their own labor. Go back and read Adam Smith's "Wealth of Nations" (not all of it, but the very first few chapters). Redistributing wealth does not create a middle class, but rather weakens the middle class and creates a divergence between the haves and have nots. After all, no one has really successfully argued how you make somene richer by taking from someone else and giving that person's property to a lesser individual. That is simply a redistribution, not an increase in the wealth from the individual you took from nor is it an increase in wealth to whom you gave the property to.

And you are absolutely correct that the current GOP politicians had it backwards in borrowing and spending. But if you think for a second that liberals only "tax and spend" on their programs, then you are absolute fool. Remember, when the Dems took over Congress they said they were going to implement PAYGO rules, but as their demands for spending increased, those rules went to the wayside. Now guess what? The Dems are doing exactly what the GOP is doing, but no one really minds because spending, whether with current surpluses or by financing with debt, is the cause celebre of the Democrat Party. And your $4 trillion number is a farce.

One thing I will point out - it is not supply-siders or taxcutters who must present a thesis as to how tax cuts can help spur economic growth. Instead, it is individuals such as yourself and Barack Obama who must present a thesis as to how tax increases will not only harm economic growth, but promote it. And the years during Clinton don't count - there was massive technological advancement that took place before and during his years in office and when he raised rates, they were not an impediment on that process.

Chris of AZ @ May 22, 2008 03:10:48 AM

No thanks. Not buying.

Chris, I too was "tutored" (by a grandfather, then an employer) to be a conservative for the first 40 years of my life. I read all the Chamber of Commerce stuff and actually almost believed some of it. Then I woke up.

The "death" tax is not the estate tax. It is the medical establishment cost imposed on families of modest means if someone gets sick enough to die. The payers of estate tax never file bankruptcy. The sick do routinely, however.

The savings rate for the mass of our population has actually declined in recent years after the Reagan and Bush tax cuts, not increased as you suppose. The 401(k) "wealth" in the stock market merely is a replacement of the real security of pensions and can vanish just as fast as we are seeing home "equities" decline.

Pareto postulated that economies left alone will find 80% of the wealth accruing to 20% of the people. Progressive Income taxes counteract that effect and they are the reason America even has a middle class, except since Reagan we have been trying to shrink it with a few George Jeffersons "movin' on up" and a lot more falling from middle to lower.

The reason the Bush administration has done a poor job explaining economics is that if they did it well, they would have to admit the tax-and-spend liberals are the ones who are right, not the recent borrow-and-spend Republicans. Conservatives used to say that "inflation is just caused by government printing money it doesn't have". But they have had to drop that truism as they increased the national debt $4,000,000,000,000.00 in the Bush years alone to fight wars no one would stand hitched to actually pay for (with a tax) and worse---to give massive tax cuts to the top end. Face it, their stories don't stand up to scrutiny.

Daniel David of NM @ May 21, 2008 21:36:23 PM

Daniel David...

You know that we have had marginal tax rates as high as 95%? Yes, that's right, 95%. And when we had tax rates as high as 95%, we still had a high number of rich individuals. Yet, something strange also happened: we had less people who saved their money and accumulated wealth. Why? Because they had no incentive to save their money, invest it, or better yet, after they paid for their nondiscretionary items and taxes, they had little money left over to save and invest. Now, you keep putting that out and even your own candidate, Barack Obama, will not even go so far as to suggest an increase in taxes of that magnitude. But I am willing to bet, no I will absolutely guarantee, that if you raise taxes by that amount you will not be socking it to the uberrich, but instead will be hitting the middle class. You and the rest of the liberals have no credibility on taxes, except to keep demonizing tax cuts as being for the wealthy. And due to the ineptitude of the Bush Administration to explain economics, that title has stuck.

And one last thing. Simply raising taxes is in no way a guarantee that the government will pay down the debt. In fact, I will give you another guarantee: if the government raises our taxes, it will simply find another excuse to spend the money on whatever it wants.

Chris of AZ @ May 21, 2008 16:53:22 PM