Sunday, December 05, 2010

Politics Uber Alles

Sail on O Ship of State
Unless it has become too late
To save us from plutocracy
In the name of our democracy
As we edge to immolation
And pick this mighty nation
Apart to little bits
While playing politics

I don’t know about each of you, but I feel that we have reached a point in our democratic republic when we need to reassess the mechanics of governing. For the past two years, The Democratic party has “enjoyed” sizable pluralities in the House and Senate as well as holding the bully pulpit of the White House. The majority did not rule. They were attacked constantly by a noisy minority that has used every technique available to delay, defer, deny or otherwise thwart the will of the people. And here is the rub. We need to protect the minority so that the majority does not simply trample on the rights and needs of a minority that may also have the interests of the nation at heart. The majority perhaps could have been more forceful or even more creative in framing the issues that are at stake, but, save a miracle, the outcome would not have been altered a whit because we are engaged in a partisan struggle of the powerful and wealthy versus the great but shrinking middle class people of our republic.

Interestingly in the latest election, the interpretation of the votes has been made a measure of propagandistic effectiveness instead of fact or reflecting actual opinions and votes. When voters were questioned regarding continuing the tax break for the top 2%, their overwhelming opinion, regardless of party, was that the break for “millionaires and billionaires” should end. Republicans have claimed an entirely different message and have simultaneously called for extension of the tax break and also for reduction of the national debt that will be worsened by $700 Billion over the next ten years if the tax break is extended. So Democrats have used language indicating “millionaires and billionaires” when the actual line is $250,000 for joint returns. That was oversimplification. Millionaires and billionaires would get the break up to $250,000 as well as those who earn less, but Republicans ignored that subtle fact. That is careful word choice. Republicans say that this is not the time to increase taxes on the wealthy since the economy is in decline and that (here we go again) giving the tax breaks to the wealthy will trickle down to the ordinary people and create jobs.

The Bush tax breaks have been in place since 2001 and have not created jobs except in the government sector where about 1.2 million jobs were created and this by the party of smaller government. The private sector gained about 670,000 jobs before the recession. In other words, we proved again that trickle down does not work and that wealthy people do not spend their money where it gets multiplied in the marketplace. The estimate for the multiplication factor for tax breaks for the top 2% of earners is about 9% while the same action for the middle class is about 65% and still higher for folks on unemployment compensation. The claim that we need to rein in spending while splurging $700 Billion on people who don’t need help and who will not improve the job market seems hollow, especially for the additional millions of people who may lose their homes if the unemployment compensation is not immediately extended. There is a claim that small businesses that are not incorporated could be impacted if the Bush cuts are not extended to the highest 2% of income earners, but that, too, is highly suspect since only 1% of small businesses earn more than $250,000 per year. Just who or what is the “Bush break” aimed at? Let me present a theory that you are free to challenge. Republicans are acting as though wealthy people are somehow more worthy because they are wealthy or plutocrats. It is even more ironic that many of these plutocrats don’t pay taxes anyway because they have the wherewithal and tax attorneys to avoid them. The owners of the LA Dodgers, Frank and Jamie McCourt spend an average of $20 million per year and yet have paid pay no income taxes for the past ten years or so. Others may be more socially conscious, but their taxes are gracefully lower anyway. Hedge fund operators pay taxes “earned” at 15% despite huge profits. Surely you would agree that hedge fund investors are more worthy than engineers or schoolteachers or truck drivers, but would engineers, teachers and truck drivers?

Our current tax rates are the lowest since 1950, but in 1950, America's wealthiest 10% held only 30% of the wealth. Today, the top 1% holds about 40% of the wealth. In other words, the share of pie has increased about ten-fold for the truly wealthy. “Trickle down” has actually bubbled up and the only thing that the middle class feels trickle down is the sweat burning down their necks when they cannot pay their mortgages, or maybe a little pee down their legs when their kids go hungry. The middle class has shrunk as though all this were a zero sum game, but it does not have to be zero sum with more enlightened tax burdens. The top marginal tax bracket during WW II was essentially confiscatory at 94%, but citizens felt a need to support the nation at war. Even as late as 1980, the top rate was 70%. In the thirty years since then, the wealth of the richest few has skyrocketed while the income for middle class Americans who are wage earners and not major investors or inheritors, has barely kept up with inflation. Unfortunately, the bottom 10% have not even been able to keep up with inflation. The logic offered by many Republicans is that fairness means that everybody gets the same break. But the question remains, how do we measure equal breaks? Clearly, percentages have not done that job. Many taxes are absolutely regressive. The sales tax affects the poor far more than the wealthy. If your marginal income is at the poverty level and you need a tank of gas or disposable diapers, the local 8 or 9% sales tax may mean cutting down on food or other necessities. For the wealthy it means nothing, sometimes literally, if they have access to corporate sales tax exclusions for their personal use.

We have seen societies in history that were essentially plutocracies and they were often unstable or ruled with an iron fist. The health of a nation is related to the wealth of a nation, but only insofar as the wealth is distributed well enough to avoid great pain or obvious un-merited inequity. As long as we have inequity of regressive taxation on necessities then the income tax needs to be realistic as well as a balancing factor for the perception of fairness. The obvious endpoint of the current trend is a banana republic where a few families control the fates of the remaining families. We can avoid that and can look to addressing inequities by addressing the factors that create the widening gap. Fairness can be measured partly on the ability to pay. Fairness can be measured by reining in costs for things like education that drive innovation and growth for the entire nation. It is in the best interest of the nation to encourage education and to avoid additional regressive burdens such as the newly proposed elimination or reduction of the mortgage exemption or we will quickly shift into a landlord class of great control that will mimic Dicken’s England. It is ironic that this very day, we are celebrating the highest corporate profits ever and yet we have a national average unemployment of 9.8%. We have had constant and consistent productivity growth over the past 30 years and yet fairness in sharing those productivity gains has escaped the workers in both manufacturing and service industries.

Americans are essentially fair-minded. Statesmanship demands fairness and not temporary political advantage. Politics in absence of fairness is not only temporary, it is folly that risks our basic structure. We need to reward those who create jobs that stay in the US and stop using labor costs as a trump card to eliminate good jobs. Incidentally, just look at Boeing. They decided that cheaper labor would save their market for the 787 “Dreamliner.” Boeing is 3 years behind schedule and counting. Cheap overseas labor was no solution and is no solution. Instead of a “Dreamliner,” they got a nightmareliner that will not go away. Obama: use your veto. Travesty will surely follow the right wing capture of the House of Representatives. Class warfare has progressed and the Middle Class is losing.

George Giacoppe
05 December 2010

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