Taxation

“Supply side” pundits and politicians tell us that cutting taxes for high income individuals will stimulate the economy and increase government tax revenue.  They say removing the taxation of dividends and capital gains will also stimulate the economy and increase government tax revenue.  They say the “Laffer Curve” proves this theory.

I say we should call their bluff.  We will stop paying taxes on dividends and capital gains.  But, to be fair, we will also stop paying taxes on wages.  After all, you have to actually WORK for wages.  And there will be no tax on inherited wealth.  Paying taxes on money you didn’t work for is an outrage, right?  And while we’re at it, let’s stop taxing corporations, and all businesses, hedge funds and banks.  Lets abolish ALL taxes.  According to “supply side” economic theory, the government will have so much money we can declare war on the whole world and never worry about borrowing money from China to pay for it.

President Bill Clinton was actually paying down the national debt.  Now we have a $12.5 trillion national debt.  What happened?  President George W. Bush’s tax cuts happened.  9/11 happened.  Afghanistan happened.  Iraq happened.  The global credit crisis happened.  The global financial system collapse happened.  The global financial system taxpayer bailout happened.  And then, the Great Recession happened to lower tax revenue. 

But let’s ignore all that and blame unionized government workers.

It has been said that we could fire every government worker and that still wouldn’t fix our national debt crisis.  And if we did fire every government worker, where would they work?  The private sector has stuck us with a 9.5% unemployment rate (despite sitting on $3 trillion of cash.)  What will happen to the laid off government workers?  With no jobs and no unemployment insurance, all those unemployed government workers and their families could live on charity.  That’s better than “government handouts” in the form of unemployment insurance, isn‘t it?  And, of course, all those people living on charity would really create a lot consumer demand and spur economic growth.  

The supply-siders claim that cutting taxes always increases tax revenue.  When asked why the deficit increased in spite of the tax cuts, they reply that increased spending caused the deficit to increase.  There is a simple supply side solution to that problem.  Just increase the tax cuts to bring in enough extra revenue to pay for the increased spending.  Why didn’t I think of that?

The notion that cutting taxes increases tax revenue is so counterintuitive that it is surprising that  virtually every conservative honestly believes it’s true.  There must be a reason, a logical argument, that underlies this belief.  And there is.  It’s called economic blackmail.  It works like this:  When the private sector wants to punish the government for what businesses consider excessive taxation, capital is withdrawn from the economy.  This slows down economic activity, jobs are lost and unemployed people don’t pay taxes.  This is exactly what is happening today.

This is called capital flight, a capital strike or economic blackmail.  When the politicians become fearful of being turned out of office because of a weak economy, they lower taxes on dividends, capital gains and inherited wealth.  This causes capital to flow back into the economy resulting in an “economic turnaround.”  Workers are called back, stocks prices go up, dividends are paid and, presto, tax revenue increases relative to an artificially lowered base line.

Is there really a net increase in tax revenue over the long term?  Many experts say no.  But then, those experts are probably liberals.

The message on CNBC, Bloomberg, Fox Business and C-SPAN from the private sector and conservatives to the American people is clear.  Businesses want tax cuts, no regulation, no oversight, maximum profits and cheap labor.  If they don’t get what they want, we will have a permanent recession or a jobless “recovery.”  The other “benefit” to be gained from a lousy economy is that it will help the Republicans gain more seats in the House and Senate and maybe even take control.  If the economy is wrecked bad enough, we might even get a Republican in the White House.  Sounds like a plan to me. 

It was the 2007 crash, the Great Recession and the wars that caused the tax revenue shortfalls for federal, state and local governments.  But the general population is expected  to endure pain and austerity because of the financial mess caused by Wall Street.  It was the 2007 crash and the Great Recession that caused social security to go into the red.  Now we are supposed to accept cuts to the social security system.  We are told we have to privatize social security because the politicians are raiding trust fund money and the system is going broke.  Is this a Wall Street/Washington squeeze play?  The ideas that the politicians should stop raiding the money and working people should make higher wages so they can put more money into the social security system never comes up in the discussion.

We are told that social security is in the red for the first time in thirty years.  Social security went into the red in the 1970s when the private sector gave us stagflation and social security money was used to pay for the Vietnam war.  Social security went back in the black in 1983 when the Reagan/Greenspan Commission “reformed” the system.  There are two questions that nobody ever asks.  If politicians started raiding social security in 1970, how much money had been “borrowed” in the thirteen years from 1970 to 1983?  How much of the red ink was caused by the disappearance of the borrowed money?

Here is an interesting thought.  The $2.5 trillion “borrowed” from the social security trust fund and spent by the politicians was SPENT BY THE POLITICIANS.  Doesn’t that mean that they owe the money to the trust fund?  Let’s see, maybe we should take what the politicians owe us out of the their pay checks.

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The amount I pay in taxes is irrelevant.  It’s how much money I have to spend after taxes that matters.  If I clear a million dollars a year, I’m going to complain about taxes?  When you are poor, taxes are a burden.  When you are rich, taxes are just an annoyance.  But it seems like it is the rich who complain the most about paying taxes.  Conservative radio talk show hosts are a perfect example of this fact. 

There was an interesting call on C-SPAN recently.  The subject was taxes and the issue of “high marginal tax rates” came up.  The caller identified himself as a very high income individual.  He said most of his friends are very wealthy too.  But he also said that he didn’t know anybody who paid the top marginal tax rate.  He said that anybody who does pay the top rate should get a better accountant.