One of the arguments that the "supply-siders" use in their campaign to get the vast majority of ordinary Americans to support tax provisions that favor the super-elite is that privatization of services that the government has provided in the past will lead to greater competition and therefore reduced prices and better services, all at a lower tax cost. Privatization and tax cuts, in other words, go together in this crazy "shrink the beast" ideology.
The idea that tax cuts that favor the elite make sense has been shown to be empircally false, and based on ideological propaganda and sound bites, by quite a few different researchers. Another new article worth reading on this issue is one by Burke and McCouch, Turning Slogans into Tax Policy, available on SSRN. The authors examine the Bush Administration's estate tax cut in 2001 and dividend rate cut in 2003. Both were made possible by sunsetting gimmicks--gimmicks because there was no intent, as explicitly acknowledged by the proponents of the provisions, to let the cuts be temporary, even though they were legislated as temporary provisions because of the huge cost of making them permanent. Both were enacted under broad puffery statements about their worthiness that were unrelated to the realities of the provisions. Family famers and small businesses are not lost because of the estate tax; very very few estates in the country are even subject to the estate tax; most items in an estate that is subject to the tax have never been taxed under the income tax because 56% of the wealthiest estates is comprised of stock, which is held onto in life and passed to heirs with a step-up in basis. The slogans about "double taxation" and "increasing dividend payouts" had little to do with the dividend cut, since most of the biggest corporations no longer pay any corporate tax at all, and with 0% and 15% rates, corporate dividends are actually undertaxed compared to the vast majority of Americans' working wages.
Burke and McCouch conclude that "the Administration used dubious economic claims and populist rhetoric to promote tax cuts without considering revenue costs or distributional effects." I'd add that the populist rhetoric was intentionally misleading--the Administration talked about averages when it knew that the vast majority of Americans were not near the averages that apply when you take the enormous wealth of the top 1% into account. The Administration, that is, passed the 2001-2003 tax cuts expressly to benefit the super-elite to which it was beholden and of which it was a part, with a cavalier attitude, a bit like VP Cheney's recent "Sooo?" about Americans' opposition to the war (see YouTube coverage here) towards the disastrous impact of the tax cuts (and concomitant debt increases) on the vast majority of Americans or the economy overall, and thus was quite willing to use misleading slogans and known inaccuracies in describing its programs in order to "sell" them to the American people.
The idea that privatization improves the services that government should provide--and can provide--cost effectively because it is a public good that should not be subject to the vagaries of the markets--has been discussed by quite a few as well. It's relevant now, when the result of eight years of the Bush Administration's attempt to cut taxes for the super-elite while privatizing everything American, from the Army to the IRS, has led to increased cost of government, decaying infrastructure, and a debt burden that will take generations to repay through higher taxes on the vast majority of us. Here are two stories from the New York Times series on local economies that add the human touch to the harms of this kind of privatization that lets corporate heads and their politician friends in office make millions while the real workers suffer: Deirdre McNamer, How Big Sky Went Dark (about the debacle caused by privatization of Montana's public power company) and, Lee Smith, In North Carolina, Really Outsider Art (about the debacle caused by the privatization of North Carolina's mental health services). The following is an excerpt from the latter story.
Local mental health services used to be provided by federal, state and local governments. The reform plan put the counties out of business and forced them to hire for-profit “providers” that offered sometimes specious “community support” services for exorbitant prices. Costs more than doubled, to $1.5 billion a year. Only 5 percent of the money went to intensive outpatient therapy. As a result, our mental hospitals are overwhelmed, while prisons and homeless shelters are filling up with people who have persistent mental disorders.
Peter Kramer, a local social worker, has served Hillsborough’s mental health program for 20 years. The day his program switched from state support to private contractors in July 2006, he says, “A mother called up and said her son was hearing voices, but there was no doctor there to refer her to.” His clinic is due to close entirely. “People are calling us in tears saying things like, ‘What’s going to happen to me? I’ve had my doctor for 17 years, what can I do without him?’
edited for typos 4/10/08
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