Tax Politics

My biggest problem with the modern Republican Party is their seeming abandonment of ideas. They are stuck in a terrible rut lately, and are redeemed (as a political force) only by their incomparable skill at branding. When one takes a serious look at their concepts for solving American problems, a simple pattern emerges. Health care system got you down? Cut taxes. Working class Americans can’t afford insurance? Cut taxes. Manufacturing base eroding? Cut taxes. Energy system a relic from the previous century? Cut taxes.

I have to admit to liking the idea of cutting taxes. Who wouldn’t? Paying the government is one of those steady annoyances that can become too much in light of everything else. You see a chunk of your cash go before you get your paycheck, then you pay sales tax locally. You pay fees to drive your car, own your dog, and start a business. On top of everything else, you pay property taxes. Taxes, taxes, taxes. Then you see the size of the government budget, hear someone screaming about fiscal irresponsibility and wonder, “What the hell am I paying all of this for?”

When you take a breath, and sit down in contemplation, it is easy to get lost in the things you are paying for. Most folks who have ever pleaded in exasperation for “someone to do something about this”, have found relief in some government action. To be certain, not all actions are just, efficient, or necessary. But it is a curious fact that the entire country, including conservatives who don’t want the government involved in business,  was furious in its demand that the government fix the Gulf Oil Spill. More curious, were the accusations by conservatives that the Obama Administration did not do enough prior to the spill. Conservatives wanting for lack of deeper government involvement in commerce? Very curious indeed.

We all instinctively recognize that the market can’t handle everything. We all instinctively acknowledge that, were there no traffic cops, we would go to fast. The sum total of all of the fears and recognitions of our mutual shortfalls is expressed in government action; and that action requires money. The commercial infrastructure that the business community in the United States enjoys is payed for in tax dollars. Roads, dams, levees, locks, bridges, and the freedom to operate with limited fear because of the world’s best military, police, and fire protection are all business benefits that taxes pay for. An educated workforce that labors under the knowledge that some level of dignity will attach to retirement is also a byproduct of taxes.

All of the above, with the notable exception of the military, are in decline in America. We are laying off teachers, consolidating schools, and trimming the rolls of police. The American Society of Civil Engineers issues a report card on American infrastructure; in 2009 the grade was a D. The society estimated a 5 year investment of $2.2 trillion was needed to bring our infrastructure back to par. Friends, this is a shortfall in investment that will cripple our nation’s competitiveness in this century. To make it more critical, that estimate does not account for any investment in real modernization of our energy and transportation grids. We are doing all of these things, because we the people have decided against taxes.

It is easy to see where Republicans and others could go wrong on this. The top marginal tax rate in 1980 was 70%, with tax rates on median wage earners in the 24% to 37% range. Cutting taxes from that level to the rates seen in 1989 has the potential to drive a tremendous amount of money into the private sector. In general, that is not a bad thing; providing the private sector is motivated to spend that cash in similar areas as the government. So when one sees the tax cuts of the Reagan and Bush years, one expects to see massive improvements in the U.S. economy. The problem is, we don’t.

Even including the recession, the United States’ gross domestic product, the measure of its economy, has more than doubled since 1980. The number, in 2008 dollars, has moved from $5.8 trillion to $12.8 trillion during that rough 30 year period. In inflation adjusted dollars, median household income during that period has increased by less than 20% (US Census Bureau). Were I in the Tea Party, I might be moved to call that trend wealth redistribution. Clearly, it hasn’t been redistributed in the manner that President Obama has been accused of; quite the contrary. As I am not in the Tea Party, I will only point out that the data does not support the Republican contention that tax cuts are the universal cure all.

To make matters more complicated, many Republicans are now faced with promises they made to constituents regarding the deficit. When you spend your time ranting against taxes and deficits, you will inevitably pay the piper. Even though half of the deficit is a direct effect of the recession, and even though the deficit represents no immediate threat of inflation, and no threat of any kind regarding insolvency, Republicans are now forced to promise that they will cut both taxes and the deficit. Mathematics, of the scope and power that could solve that contradiction, haven’t yet been invented.

The result; we cut services. We lay off teachers, police, and firefighters at the state and local level. We put off road construction and maintenance. We continue to fall farther behind China in the development of new energy products. We contemplate raising the age of Social Security…again. We contemplate reducing the benefits of Social Security. We may even cross the sacred threshold and make real cuts in defense spending. All of this because we aren’t mature enough to have reasoned discussions on tax rates…and to call them taxes. In the last thirty years, the United States has gone through an orgy of tax-cutting, union-busting, regulation-suspending, and accounting-rule changing; all revolving around the premise that what is good for big business is good for America.

With all of this good for America activity, where have all the good jobs gone America? It should be instructive to all, that when people think fondly back to the good old days, they are remembering times when the taxes were higher. We don’t like to pay them, but we the people seem to like the results when the government of the people, by the people, and for the people does positive work with those taxes in our communities. I don’t think that we ought to go back to the top-marginals in existence before President Reagan, but we ought to at least be able to have conversations about taxes and their efficient application without having to worry about Rush Limbaugh or Grover Norquist calling us names.

The Rational Middle is curious about your feelings on this subject…

14 thoughts on “Tax Politics

  1. “No Tommy, they won’t. Its called pass through, and in competitive markets businesses will jockey for position by deciding how much of a new or increased tax, regulatory expense, or operations expense to pass on to their customers. M.C.

    Michael, isn’t that contradictory? One says it will increase the price, period. You seem to be saying, it will increase the price, but not by the full amount of the “expense”. Either way you look at it, it seems to me both are in agreement the price of goods will increase. The only difference is exactly how much.

    I was in a very competitive line of business. Our margins were razor thin and driven in large part by competition. We really had very little room to “absorb” any sort of mandated increase to our costs. Actually, quite often we made it a direct, line item pass through to our customers and itemized it, blaming the cost on circumstances beyond our ability or option to control.

    And on another thought, I don’t think ANY of us protest legitimate infrastructure costs. It’s the billions, if not trillions of dollars being spent to investigate the sexual proclivities of the Tse Tse Fly that we object to. Or to refurbish Murtha’s Airport! :-) (I’ll stop there! :-) )

    You can’t just say because some are not in favor of “Bigger Government”, then we are oblivious to the need for funding for legitimate needs. But honestly, isn’t this a time when everyone, INCLUDING the Government should be looking at funding what we “need” as opposed to what we “want”?

    Great exchange between a couple of gentleman whose opinions I have tremendous respect for. Hey! Makes me feel smarter just reading it! The entire Political Landscape of America needs more informative, respectful exchanges like this and a lot less finger pointing and name calling.

  2. Educated workforce: Education is for the most part, locally funded through property taxes. Federal mandates have forced local school boards to fund programs they may not otherwise choose to. Much of that funding distracts from true education. And while I’m at it, our educational system has been run by Democrats for 40 years. Do you think the quality has improved?

    Clean water, clean air, parks: While nice and good, these things don’t help me to sell more of my products.

    Fire and police departments: Locally funded and managed.

    Roads and bridges: Mostly locally funded through user fees such as auto registration fees, gas taxes and commercial licenses.

    Military: Ligitimate federal funding, although I think the military industrial complex should be looked at in terms of it’s conflicts of interest.

    My point is that much of the federal spending does not contribute to additional commerce. In fact, taking more out of the private sector is the worst thing the government can do. It robs entrepreneurs of investment capital. The federal government is not smarter than an entrepreneur when it comes to investing money. That would be like saying that Bill Gates is more creative than Steve Jobs.

  3. The infrastructure that we all build our business with Tommy; educated workforce, clean water, clean air, parks, fire departments, police, roads, bridges, a military to defend us.

    You and I could go back and forth on this for days…and I don’t see either of us bending an inch.

  4. In may be an impasse, but what you advocate takes something from me (my money). What I advocate is reduced government spending. How does that hurt you?

  5. …and I am glad to hear that you have maintained the same gross margin on the same product mix for your entire career as an entrepreneur Tommy. It is truly remarkable; and studies aren’t done in a vacuum, they are done in the real world by real managers and owners.

    I appreciate the conflict (as always), but I am comfortable standing on my not insignificant experience in small to mid-sized enterprise. As I will not question yours, we arrive (as usual LOL) at an impasse.

  6. Mike, I like you, but wake up. In the real world, when expenses go up, business have to charge more or go out of business. I run a small business. I’ve been self employeed my whole adult life. Studies are one thing, but reality’s another.

  7. No Tommy, they won’t. Its called pass through, and in competitive markets businesses will jockey for position by deciding how much of a new or increased tax, regulatory expense, or operations expense to pass on to their customers.

    On that subject, there are, literally, tens of thousands of independent case studies, journal articles, and books that document the practice.

  8. You do that, and they just redirect the tax burden to their bottom line. They won’t make less of a profit, they’ll just increase the price of their products. We’ll be paying the tax, not them.

  9. We continue to “redirect” income, in the form of taxes, into the infrastructure that supports “those who make it”. Higher income individuals can afford higher marginal tax rates; a concept that was embraced by pioneers of our system like Adam Smith (The Father of Capitalism) and Thomas Paine.

    To me that means tax rates similar to the 1990’s on individuals. A bigger concern is the growing tax free business model of multinationals. One of my great gripes of Republicans over the years is that they talk about supporting small business, then give all the breaks, credits, and loopholes to corporations whose revenue is far more than the median local business person.

    Most of the largest corporations are paying lower effective tax rates than the average small business, and many are lower than the average individual. This despite paying lower wages, walking away from pensions as a rule, and paying a fraction of the property taxes to the local governments whose jurisdiction they operate in.

    These interests are taking sales and profits, and returning little to either the democracy or the economy. There is, I feel, an opportunity to shift tax burden away from small business (i.e. self-employment tax for sole proprietors, lower revenue taxes, and perhaps a sliding employer FICA contribution); and onto larger corporations (read: publicly traded or privates in the 100’s of millions in annual revenue).

  10. Tommy you are always good for a pointed and insightful comment. Thank you. I don’t think there is a “grand plan”, but I believe it is purposeful. There is at least nothing unreasonable in the idea of ensuring that the rich can get richer. Plan, purpose, or no, wealth is flowing to the top and away from the working class. That isn’t a construct of an elite media, and it isn’t a slogan from “someone who’ll stand to gain from it”, it is a fact.

  11. I take it that you think the “wealth redistribution” is purposeful; the result of some grand plan. Maybe it is. Maybe someone has figured out that if the educational standard is lowered enough, fewer people will have the skill to attain wealth. Those with enough drive will fight through this barrier and achieve their financial success, but most will not. The divide will grow larger.

    I wonder who would benefit from such a plan? Could it be the wealthy? I don’t think so. An unhappy workforce would not only not benefit them, a poor workforce would not buy their products.

    No, if anyone is going to wish for a scenario of class envy, it must be someone who’ll stand to gain from it. I just wonder who that could be?

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