Friday, November 07, 2008
The Governator Goes Regressive
California’s “grade-B” Governor, Arnold Schwarzenegger, has just announced his solution to the state’s fiscal crisis: a steep increase in the Sales Tax. The Governator, who swept into office in a recall election on the basis of his allegedly superior skill at balancing the state budget, has never been able to balance it at all. In the past, he has resorted to borrowing via huge bond issues whose billions will need to be paid off for decades. Now he has proposed a 1.5% increase in the state sales tax, as well as upwards of $2 billion in cuts to the education budget. This hews to his conservative bias: when the state needs a bailout, go regressive, making the poor and middle classes pay.
Here is how that works. In 1913, the United States finally agreed that the Gilded Age had to come to an end. The conspicuous wealth of titans like Rockefeller, Morgan, and Carnegie, living in their munificent palaces, contrasted too visibly with the lives of the poor barely able to eke out a living in city slums. It also made a mockery of the nation’s creed about “equality.” The 16th Amendment, therefore, legalized a tax on individual income. The tax rate was modest, with the top bracket paying a rate of only 7% of their income. Then, in 1917 during WWI, the rate for the top earners rose to 67%. Income tax had thus become notably “progressive,” the idea being that those who earned the most, and therefore derived the most from government services, should also contribute the most. This was seen as the only fair way to tax. Of course, the wealthy never fully accepted this, and by 1929 they had lobbied successfully enough with Republican administrations to get the top tax rate down to 24%. Then the economic roof caved in. Franklin Delano Roosevelt, to mitigate the vast inequality that had set in before the Depression, then raised the top tax rate to 63% in 1933. With the coming of the Second World War, the need for government expenditures for arms and men led to an even higher top rate of 94% by 1944. The top rate remained high throughout the next decades, lowering some to 70% in the 60s.
Then came the Reagan revolution, with its free-market ideology and its theory of “trickle-down” economics, which said that when the rich do well, the benefits trickle down to the rest of us. Accordingly, Reagan lowered the top rate to 50% and then to 38.5%, and George H.W. Bush lowered that to 31% in 1992. His son, George W. kept it at about the same level, 35% today. The result has been the greatest transfer of wealth from the poor and middle classes to the rich in our history.
The point of all this, here, is that even with the radically unequal policies of the most die-hard neoconservatives in the Reagan-Bush administrations, the policy, if not the willingness, has remained firm that the wealthiest Americans should pay a progressively higher portion of their incomes in taxes than the poor and middle classes. The point is also that while income taxes, since their inception, have been graduated, or progressive—i.e. those with the highest income pay higher rates—sales taxes are REGRESSIVE. That is, every single person who buys a pencil or a book or a car or a TV set or shoes must pay the same percentage as a tax. The same tax rate. This, of course, means that when a wealthy person like the CEO of Google, with a personal fortune in the billions, pays a sales tax, its effect on his income is negligible. Like an elephant bitten by a mosquito, he hardly feels it. A middle class or poor person, however, feels the sting of the sales tax bite far more keenly. If he must pay an extra $8 for each hundred dollars he spends, and now an extra $1.50 on top of that, that $1.50 is a much higher percentage of his disposable income than it is for the wealthy person, who may barely notice an outlay under $100 or $1000 or even $100,000. In other words, for the rich, sales tax is barely an issue, while for the poor, it can make the difference between purchasing a needed item and going without.
It is for this reason that the sales tax is always the refuge of scoundrels like Governor Schwarzenegger. He knows he can get the rich to agree to it. He also knows that they would balk at any suggestion of an increase in their income tax, or, god forbid, in their property taxes. For in those areas, they would pay noticeably more than the poor. So where at one time, a popular mantra said “soak the rich,” in our time it has become “soak the poor.” And that is exactly what the Governator is proposing. For not only is he proposing an increase of 1.5% in the regressive sales tax (many areas will now have to pay over 10% in sales tax!), he is simultaneously proposing a reduction in expenditures for the public schools. And this is also regressive, and a key indicator of what conservative and Republican party policies have come to rely on. For the wealthy, who are the core constituency of Republicans, the public schools are already a matter of indifference, indeed, a bothersome drain on their finances. Most send their children to private schools in any case. Therefore, to let the public schools and those who rely on them wither and die suits them just fine. But there’s more. As Naomi Klein points out in her Shock Doctrine, the wealthy have now decided that they can privatize just about everything, including security services for their gated communities and, indeed, whole townships where they can live walled off from the nasty realities of the riff-raff who inhabit cities. With everything privatized, including companies to help them get away in case of natural disasters like hurricanes (which do not respect the gates that keep out the poor), they can live truly virtual, sanitized lives.
This withering away or privatizing of government services has been a key element in the conservative program of the last forty years. The latest proposal by California’s Governor fits right in with this program. It only remains to be seen if the Democrats, who control the majority in the California legislature, cave in once again to this latest heist, this blatant attempt to make the poor bear the burden once again, or if they wake up and say No. No way. No how. There is either going to be fairness, or there is going to be resistance, non-cooperation, and whatever else it takes to right the balance of power.