There is some talk about how we can’t balance the budget with cuts alone, and that we will need to raise taxes in order to make up the difference. In effect, I think this is correct but still misleading. Let me explain.
The current tax code punishes productive behavior and rewards unproductive behavior. Do nothing, and you’ll get a vast wealth of government give-backs. You won’t live like a billionaire, but compared to global living standards you’ll be firmly in the ‘middle class’. If averages can be believed, you’ll have cable TV, air conditioning, a cell phone, three meals a day, free medical care, and probably a car. This is high living compared to your average Indonesian villager.
On the other side, you have vast multinationals like GE, who have figured out that if they push all their really productive activity offshore, they can get away with effectively paying nothing in taxes. This is a good thing as far as GE customers are concerned, but not nearly as good as putting GE on a level playing field with their smaller competitors would be. And let’s not mince words here – GE has a deeply intimate relationship with the government at every level, and both political parties, so their 'zero' tax number is evidence that they've used that relationship to game the system to their benefit.
So those people who do better than most, but not well enough to buy government access, are the ones who bear the real burden of our tax code. Those upper middle class programmers, accountants, salesmen, and small business owners are picking up the whole tab. Even the 'middle class' get more in government benefits than they actually pay in. Under our current tax code they aren't productive enough to be really punished.
All of this is a great argument for a DRAMATICALLY simplified tax code that rewards savings and investment and only punishes consumption. Unfortunately, congressmen of all stripes will fight this tooth and nail. Giving kickbacks to their contributors (be they union bosses or real estate developers) is one of their biggest percs and the way they ensure that campaign money keeps flowing. So while a simple, consumption based tax code is what we need, we’re never going to get it.
If we were to simplify the tax code and base it upon consumption, we would get much more rapid economic growth. Unemployment would fall, business would boom, and everyone would get richer. But that would mean taking power away from the government and they won’t give that up – ever. Instead we’ll have 45% of the population paying nothing in federal taxes and the large multinationals paying nothing either – just like we have now.
The ‘tax cuts for the rich’ canard that Democrats endlessly tout is childish and silly. The morality of a progressive tax code was always dubious anyway, and can really only be justified from the liberal 'envy based' worldview. But to set that argument aside, the rich don’t have nearly enough money to pay for all the things that the poor would like to get for free. So when Democrats say 'tax breaks for the rich' what they are really talking about is making the worst aspects of our current tax code even worse. They are talking about narrowing the tax base and not just making it less fair, but much less effective as well.
In fact it’s really the poor who should have their tax rates raised. No one should be able to ride for free on the backs of others without paying some other price. It should be difficult, embarrassing and profoundly uncomfortable to receive government benefits. And even when the benefit is delivered, it shouldn't be enough so that you can sustain yourself forever without being productive. You should still have to kick something in, in order to eat the free cheese.
But to be fair, reducing the complexity of the tax code on the high end would help too. GE shouldn't be paying nothing - or more specifically, GE shouldn't be paying less than their competition just because they can afford lobbyists. I have no objection to setting the corporate tax rate to zero so long as it's that way for every corporation. Then we can rely on the free market to push the benefit of that down to consumers in the form of lower pricing.
But like I said, there is no reason to believe that we’ll be seeing those things happen. Instead we’ll continue the tax code status quo that benefits elected officials most, and tax payers, least. It’s just one more example of how the people we elect to office (from both parties) have interests which are directly opposed to the rest of us.
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Tom, your comment that elected officials have interests directly opposed to the electorate is thought provoking and sounds like a challenge to capitalist constitutional democracies. Do you have any thoughts on possible solutions to this within our system (such as new/different checks and balances) or are you suggesting that maybe Fukuyama was wrong about it being the "end of history?"
Well I don't think of that as a particularly controversial assertion. I think most honest observers with no rent to seek would say the same thing. Our politicians all believe that it's money that leads to success, so they'll do whatever they have to do to ensure it's free flow.
How do we prevent it? I certainly don't have any magic bullet. Term limits might help - or at least it would make them more incompetent at gaming the system so we'll catch more of them when they try. But corruption and power go hand in hand so it’s not like we can fully prevent it all. So long as lying to the public effectively continues to lead to success - that's what we're going to get.
I think the idea of raising the pay for elected officials DRAMATICALLY would at least attract people who are more successful in other fields. Then maybe you get fewer people who are specifically interested in power for its own sake. I (for example) would never run for congress - I couldn't afford the pay cut. But I think I can arguably say that I know more about how the American economy works than virtually anyone in the current congress.
But I think it's clear that you can’t just change the rules because as soon as you do, they’ll just change them back. That’s how we ended up with Senators directly elected. Checks and balances are too easily 'unchecked'.
The tragic truth though is that democracies simply don’t last that long. Eventually they all commit suicide. And all things considered, we’ve already had a pretty good run with this one. We had a selection bias for a long time that kept the ‘takers’ away and left us with predominantly ‘makers’. But the welfare state put an end to that and now the numbers are finally evening out. People whose sole economic contribution is ‘voting as their told’ are becoming a larger and larger portion of the population and as you would expect, the 51% at the bottom is voting to pick the pockets of the 49% at the top.
So in the end the problems we have now will be brought to a close when the American people get so fed up that they burn the capital to the ground. That will leave us with a whole new set of problems, and instead of Jefferson, Adams, and Hamilton to solve them we’ll have Richard Trumpka, Rahm Emanuel, and that guy from ACORN. But if you look at history, that’s the way it will probably go.
I tend to agree that our democracy is headed to a poor end , though as I enter my 40th year it saddens me that our run may be coming to a close much faster than I anticipated. Would think that the UK's decline to its present state would be enough of a warning shot, but there seems to be willful ignorance as to what is happening "over there".
Conceptually, at what point would you model the tipping point to be, either in % terms (like your 51%-49%), or more specifically, in time? And depending on that answer, do you think there is anyone on the near, intermediate, or long-term (if we get that far) horizon who may be able to help the US see the light in time and reverse course? I'm not hopeful that there is, but would love to consider that alternative scenario, however fanciful.
I won’t lie, I put a lot of thought into the timing of this. As it stands today, I think the cliff is much further away than I used to. Our present trajectory is totally unsustainable of course, but I think it might be sustained much further than anyone is imagining. Japan has had everything but locusts, and they still haven’t fallen apart. I think that means that it takes longer to collapse than many realize.
I’m also encouraged by the goings on in Wisconsin. Big labor has thrown everything they had at that judge race and only come up with 50%. True, that might be enough in this case, but this is Wisconsin. It’s the progressive’s home turf. They should have a big advantage. What this tells me is that more people in America ‘get it’ than you would think. I think there is reason to hope.
I don’t think there is a personality that can fix this. More and more I think Christie is too similar to Giuliani to be a big hit nationally. He’s VERY anti-gun and has no intention of changing sides on that issue, so it will cost him when he leaves Trenton. I like Rand Paul, but he’s got to cook a little while yet. His dad comes off as a little nuts while he seems serious – but that may not last.
Thanks to this Libya debacle I think we’ll be done with Obama. But the person who beats him had better be deep in Tea party country or we’re all in trouble. John McCain would have been almost as bad as Obama albeit in very different ways. And the bulk of the Republican field is profoundly unexciting to me.
And even so – that’s not the problem. The problem with America is that the 60’s generation thinks it‘s a natural right to present the bills in their lives to someone else. They’ve sealed themselves in the cocoon of academia, and from there raised multiple generations of college kids who feel the same way. Thankfully that wears off for most of them, so it’s really still just the kids from Woodstock. The generations before and immediately after them were both considerably more conservative than they are.
It’s the me, me, me, me, me, me, me… but enough about me… what do you think of me generation. Their been calling their selfishness morality for 40 years, and now we’re at the end of the line. If our government outlives them, then we may mean revert and be OK in the long run. But if we do go, it will be those geriatric hippies who take us down.
Your point re: Japan is well-taken, but I think part of the reason it has been able to stay afloat (however defined) is that the US always existed as a viable developed market alternative. If the US goes tapioca, you've now got a short (non-existent) list of viable alternatives. That may allow the US more runway in dealing with its problems, but it may also mean the ultimate break, if it occurs, is likely going to be violent, both literally and figuratively.
Re: the Republican field, if I can get to the point when I consider it "profoundly unexciting" in the next 2 years, that will mark a big improvement on my current thinking.
Thanks as always for the thoughts and replies.
I am inclined to agree that the relative stability of the US provided a huge buffer that helped Japan, however indirectly, survive its recent travails thus far. And as far as the cliff being further away, it took the Roman Empire what, 200 years, to fully collapse once it peaked. So is it that the cliff is further away or rather that inertia will take us further than previously expected out over the abyss like Wylie Coyote before we realize its simply too late to do anything but go splat?
A big distinction that is often missed is "income" versus "wealth".
The "rich" - the truly rich, pay no taxes, because they don't have income, they have wealth. Wealth is not taxed, and for those who have meaningful wealth, the income derived from it is untaxed as well (tax-free investments, shelters, etc.).
High income taxes do not harm the "rich" at all. They harm those who might threaten the comfortable position that the "rich" have made for themselves. The major threat to Bill Gates is not the government but an aspiring entrepreneur making $400k or so today who if he could put some capital together might be able to compete with Microsoft. Tax that guy at 50% and he'll never be able to accumulate the resources he needs to take you out.
So, you get Bill Gates and his frigging father on TV promoting an income tax surcharge in Washington last year.
Socialism favors the wealthy, actually. Because it preserves their position forever - like it's frozen in amber - there is no social mobility. No-one can supplant them because no-one is permitted to keep any disposalbe income and so cannot accumulate any capital. European families remain at the top for generation after generation.
This is why so many aristocrats have throughout history aligned themselves with the communist revolutionaries against the hated "bourgeois" middle-class.
If the libtards blogging in their mom's basements really wanted to take down the "rich", they'd support a regressive income tax that permits you to keep MORE of your money the more you earn - this would promote dynamism, entrepreneurship, innovation, etc. And would take down many comfortable third-generation idiot family scions who find themselves competing with a host of newcomers who all of the sudden have the means to meet their ambition.
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