ataxingmatter

Right-Wing Tax Rhetoric--defining a tax increase

Grover Norquist, a right-wing propagandist who is pushing the no taxes/starve the government/redistribution to the owners and managers of multinationals agenda, seems to define anything as a tax increase if it involves 'his people' paying more.  Cutting subsidies for the poor-- Social Security benefits,  medicare,  medicaid,  unemployment--those aren't tax increases.  But cutting tax expenditures in the Code that function the same way as subsidies for the wealthy--those are tax increases in Norquist's anti-tax book.

Look, folks.  Everybody thinks that some government spending is wasteful, we just don't agree on which things.  And Nobody really likes to pay taxes--we'd all rather spend money on ourselves, our families, even our favorite charities than not have it to dispense ourselves.  But when you get down to it, there is no such thing as a good society that doesn't have a workable tax collection system and a workable social consensus that trusts government, relies on government representatives to make the mostly difficult decisions about spending and tax collection, and pays taxes willingly because there are so many good things that taxes support that we cannot do for ourselves as individuals and can only do acting collectively through government--like public transportation, public schools, food safety, water safety, environmental protection, natural resource protection, parks, and similar public infrastructure.

So we need taxes.  And then we need a fair way to collect them.  Getting rid of subsidies in the tax code that coddle one group unreasonably--i.e., with no commensurate gain for the public good--is a good idea.  Talking about it as a "tax increase" is a bad idea, because it increases tax fairness to get rid of it.

Norquist calls all such things tax increases because his propaganda machine wants Americans to think poorly of their government and think poorly of taxes.  When that happens, it is easier for the elite at the top (owners and managers of most of the financial assets and wealth), to gain control of the system and pass more and more tax cuts (and tax expenditure subsidies) favoring themselves, while eliminating more and more of the social programs that take the edge off brutal vcapitalism and render democracy possible in a mostly capitalist economy.

Tom Coburn is at least challenging his own party to recognize this truth about elimination of tax expenditures.  Eliminating a tax break shouldn't be viewed as a tax increase, even among die-hard right-wingers sworn to keep taxes low for arbitrary or proven wrong reasons.

Read Rubin's article on "Chicken Breeders Face Tax-Cut Hawks in Senate Ethanol Showdown, June 14, 2011, Bloomberg.net.  Note that S 782 was defeated by a 40-59 vote.  See Senate Rejects Bid to Kill Ethanol Tax Break, Bloomberg.net, June 14, 2011.

Thinking about Inequality and Fairness in Tax Policy--Part I

As most of my readers know, the underlying theme of this blog is democratic egalitarianism--the idea that institutions within our society should pay attention to inequalities and that policies to redress inequalities are supportive of true democracy.  It is not that we will achieve perfect economic equality--that is not possible and likely not even a desirable end.  But we do need to counter the tendency of human systems to concentrate desirable attributes in a tiny powerful elite.  That is, human systems tend to redistribute desirable attributes upwards.  Income, wages, wealth, health care, housing, natural resources, human capital opportunities--all these things that people need to live a decent life tend to be redistributed and allocated to those who already have more of them.  Property begats property, and putting the owner class first begats a situation in which the owner class owns even more of whatever is valuable to own, and therefore commands, even more, the ability to keep the majority of the population in a state of quasi-servitude.  In a democratic society with a primarily capitalist economy, one of government's primaryh purposes is to enable individual freedom for all by countering the brute power of the capital-owning elite and redistributing those resources downwards.

One way that a majority of Americans has favored for achieving this necessary justice result is progressive taxation policies--taxing the wealthy/higher income at a higher rate (or even on a broader base--to wit, the corporate tax).  When there is progressive taxation, the gains that the elite have made merely because they are in the elite and hold the keys to power are marginally restrained.  But more importantly, those revenues then can be used to fund government programs that expand public goods and create opportunities for the vast majority with significantly fewer resources, through programs like unemployment compensation, health care, public education from K-12 to university, public transportation, etc..

So we need to ask a few questions about our system today.  Is it working or is the tendency for income, wealth and other favorable attributes to accumulate at the top overpowering the means of redress that exist?  And does the population have a clear understanding of the democratic egalitarian principle, so that people will vote in the best interest of the continued functioning of a democratically premised society?

I fear the answer today in the US is no, to both questions.  The US has long used its military might to support its wealthy elite and their multinational corporations.  Today, that seems even more exaggeratedly so. 

Think about the invasion of Grenada, Iraq, Afghanistan and the continuing erosion of human rights (read--the rights of ordinary Americans to go about their lives freely choosing how they will live and where they will go and what they will do) which has inevitably fed the military-industrial complex of arms manufacturers, private mercenary outfits, natural resource extraction, financialization of the economy and general globalization trends, all of which are part and parcel of the corporatist agenda for ensuring continuing power to Big Business and its owners and managers. 

And the populace is ill-informed about the true mechanisms of individual freedom.  They have been sold a bill of goods by the right-wing so-called "think tanks" supported, by and large, by wealthy owners of Big Business and the multinational corporations that benefit most by keeping the population ignorant.  The fantasy concept of a "free market" has been pushed as the answer to all ills, even though there is no such thing as a free market.  (And in fact the wealthy elite and Big  Business have benefited from scores of policies designed to provide them distinct advantages, from CIA and military support against popular leftist regimes in Latin America that threatened multinationals grip on natural resources and labor there, to tax and spending policies in the US that favor large corporations over small, localized businesses.)  The people have been told that if only the government will support the "competitiveness" of its multinational corporations, jobs and good fortune will eventually trickle down to them, even though of course the immediate observable result will be additional wealth to the owners and managers of the multinational corporations.  The jobs and good fortune don't trickle down, however.  With no commitment to place or people, multinationals and their owners and managers take the rentier profits and shove them into their own safes (often more investment in exploitative industries in third world countries and private equity ventures that exploit workers by dividing and conquering to eliminate unions).

Think about the current focus of the ultra-right House leadership and Senate minority and the ultra-right governors in many of our states today.  They use divisiveness to turn private workers (long deprived of any real rights to associate in unions by law and practice, and therefore suffering through a decades-long diminution in both their wages/incomes and their general welfare  from health care, pension rights, and job security) against their public counterparts who have generally maintained somewhat stronger unionization and and benefit rights, in order to justify even further curtailment of public employee unionization and benefit rights.  They argue deficits (after supporting costly militarization and warmongering in Iraq and Afghanistan, privatization, deregulation and other legislation intended to push us into the greatest deficits ever) in order to stifle all government programs existing to aid the non-elite classes, such as Social Security, Medicare, Medicaid, and unemployment compensation.  They suddenly find a problem with increasing the debt limit, after borrowing trillions to come to the aid of their bankster cohort, without imposing conditions that would require the banks to treat ordinary Americans fairly.  They argue for the elimination of the little progress made from 2008-2010 in enacting a weak form of health care reform (weak because it favors the Big Insurance companies and their managers and owners' continued rent profits rather than including some form of single-payer, such as the "public option" in the national exchanges) and financial reform (weak because the Dodd-Frank legislation failed to create a fully independent consumer financial protection agency and failed to restrain sufficiently banksters' ability to gamble other people's money to make windfall profits out of a proprietarily managed system that operates to their favor and results in privatization of gains with socialization of losses).  They stand at a line in the sand against all tax increases for the wealthy, on the claim that the wealthy are the people who create jobs (see Eric Cantor on the position that no debt limit increase is possible without a guarantee protecting the wealthy from tax increases), even though the wealthy are not entrepreneurs, have sufficient wealth to invest in their businesses even with high tax payments, and don't do it. 

New jobs will be created when there is a broader middle class with extra money to spend on things that make life better, not when the wealthy have even more money to sock away somewhere because they can't possibly spend all they have.

So if we ask the question--what, then, is a fair tax policy, isn't the answer fairly straightforward?  In any context, it is the policy that favors the most redistribution from the elite to everyman while raising sufficient revenues to provide adequate investment in public infrastructure that moves everybody forward and human capital development (like public education).

Readers, what say you?

If not, why not?  Readers comments welcome.

Fundamental injustice: Charles Hugh Smith's Take

 Yesterday I commented on Robert Reich's book, After Shock, in which he urged us to recognize the fundamental cause of the 2007-2008 Great Recession lay in our imbalanced economy in which income and wealth is becoming more concentrated and consolidated in the hands of wealthy elites, while the vast majority of Americans are stagnating or struggling just to hold even.  Others have noticed the long-term consequences of such substantial income and wealth inequalities.  For example, Charles Hugh Smith writes, on of two minds.com, Apr. 20, 2011, about "The Fundamental INjustice that is Poisoning the Nation."

There is a fundamental injustice that is poisoning the soul of the nation, and if it is not openly addressed then the nation will face the explosive consequences of institutionalized injustice. (bolding in original)

Simply put, it is this: those responsible for the nation's financial crisis and its catastrophic after-effects are not paying for the consequences of their actions--it is the innocent, those who were not responsible, who are paying the price.

You can call it whatever you want: the Anarchy of the Super-Rich (as per Paul Farrell), the Financial Power Elite, the financial Oligarchy, Plutocracy or Corporatocracy, or the unprecedented concentration of financial wealth and political power in a financialized post-industrial economy. Whatever you call it, we all know this class of financiers and its minions got away with high financial crimes.

The biggest quibble I have with this is that it limits the "crime" to the "financiers and its minions."  In truth, the guilty are the entire upper crust--CEOs, CFOs and other high-priced managers of multinational corporations and the wealthy elite who own most of the stock, municipal bonds and other financial assets--who continue to benefit extraordinarily from the low cost of borrowing, offshoring, de-unionization, privatization, deficit-focus, and "entitlement narrowing" mentality that has been pushed by right-wing think tanks who still proclaim that just getting government out of the way (including by use of the favored three: deregulation, privatization, and tax cuts) so the free market decides winners and losers will create jobs and stimulate growth.  Of course, in this age of "truthiness" rather than truth-telling, none of the pushers bother to acknowledge that the favored three policies have apparently had exactly the opposite effect throughout the four decades of the reagonomics experiment--more concentration of wealth and income at the top; puny economic growth; and fewer jobs (and especially fewer good jobs) for the overwhelming majority of Americans.

 Smith goes on to make the point that I have been hammering with my focus on democratic egalitarianism--unless we ride herd on the forces that are consolidating wealth at the top, using tax policy and other policies to do so, we face the rapid deterioration of the institutions that make possible a democratic society.

[T]he really catastrophic losses are to the foundations of democracy and the economy. Democracy has been subverted--...--and the economy has been incentivized to favor poisonously addictive financialization and the shadow institutions of corruption, fraud, embezzlement, favoritism, collusion and misrepresentation of risk. This might be summarized as the protection of vested interests, engineered and overseen by the partnership of the ever more intrusive Central State and the nation's Financial Power Elite.

There is a second part to this fundamental injustice: look who will pay for the bailouts, guarantees and the interest on the borrowed trillions. ... Those who the Central State can easily tap: taxpayers who earn most of their income from wages, and those politically weak players dependent on government payments.

Now that the bills of the bailout are coming due, the State isn't going after GE for more taxes.  ...  No, the politically easy thing to do is raise taxes on wage earners and trim entitlements, because all the government needs to do is send down the orders and it is done: the taxes are withheld and the bennies trimmed.

Republican "spending reduction act of 2011"--out with federal workers, OECD...

Those of you who share my intense skepticism of the current Republican party's goals and plans for the federal budget are aware of my evaluation of such ideas as repealing the current (modest) health care reform law and replacing it with a hodge podge of purported "free market" based "competition-fostering" initiatives like cross-state sales of insurance (inspiring a race to the bottom for regulation of insurers) or tort reform (resulting in a dearth of real remedies for actual harm).

What about their plans for the rest of the federal government?  I worry in particular about the renewed calls for "tax reform".  Like "tort reform", I suspect that tax reform will be treated as a way to further corporatist goals of lowering corporate taxes even further without acknowledging or considering the expanding array of rights given to corporations by the activist Supreme Court, which rights are directly related to a deterioration of democratic voice for individuals.  The Republican tendency to favor very low corporate tax rates and territorial tax systems  is favorable to big business and furthers the corporatist agenda with which the Republican party is most closely associated.

The House leadership seems fairly clearly to have painted a target on federal employees and wants to cut federal spending by cutting payments to federal workers.  Pay freezes and workload increases by shifting workload from workers that leave--all appear to be in their sights under the Republican Study Committee document outlining their "Spending Reduction Act of 2011".  That's wacky in a period of recession--we need competent federal employees, it costs more to hire and train new than to retain old, and freezing pay for 5 years across-the board (without regard to increased workload becaus of the no-hire policy) abrogates the contractual relationships that the Republicans treat as sacrosanct in other circumstances (i.e., when it involves the rights of the wealthy/managers/big business--just remember the KPMG issue about providing the most sophisticated defense for partners involved in tax shelter planning and the outcry from the right about "rights" even though there was no contractual arrangement for KPMG to provide legal defense in all situations).  Hypocrisy for sure.

The programs that this Republican study wants to target include many that are critical to the country--Amtrak of course is on their hit list, even though we have subsidized automobile transportation for decades and the Amtrak assistance is minimal.  Public Broadcasting, the Humanities and Arts endowments, Legal Services, Medicaid funding, stimulus funding, technology innovation, high-speed rail grants to cities (essential for Detroit), Title X Family Planning--the Republicans want to cut everything, it appears, that might just help someone who is actually poor or even in the middle class or some program that isn't a subsidy for Big Oil, Big Pharm, or managers of private equity funds with a billion a year in "carried interest" treated as capital gains.  Moreover, the Republicans want to sell "excess" federal properties.  Do they want us to work like third world countries where sales of federal properties resulted in oligarchs with even more wealth (Carlos Slim comes to mind, with his monopoly over telecommunications)?  No support for the UN panel on climate change, they say, so it appears the Republican Party will continue to be an ostrich with its head in the sand when it comes to making the changes we need to make to limit the harm from global climate changes related to human energy consumption.

The Republicans also want to cut $93 million a year that the US contributes to the funding of the OECD.  That organization is one of the very important organizations that works to achieve enough harmony in tax rules and cooperation among government to ensure that our tax laws won't be undercut by other countries' willingness to serve as tax havens for US citizens actively engaged in tax evasion.  OECD provides important information about REAL relative tax burdens--it is one of the organizations that has shown us that in spite of our statutory rate for corporate taxation, we actually are a tax haven compared to other countries--down there with Mexico and only a few others at the bottom of the OECD nations.  A US pullout from OECD would be counter to all notions of accountability and responsibility--things that Republicans claim to stand for.  

There may be a few of these proposed cuts that would be good ideas, but most strike me as short-sighted, mean-spirited, or plainly stupid.   Not surprisingly, the study claims that Keynesian policies have been discredited and implies that its own free marketarianism is the way to go.  Of course, the reverse is true.  It's "free market" rules as practiced by Republican administrations that has been proven faulty--including the casino banking that led us into the Great Recession, which was a direct result of letting go the reins of regulation.   Another dose of that deregulatory oligarch-favoring medicine is likely to kill the American middle class once and all.

Post-Election Blues: the GOP, Dems, and Corporatism

One of the worrisome results of the 2010 mid-term elections is the increasingly radical fringe that is now installed in the House (and in state houses and in some Senate seats).  Witness the possible head of the House Energy and Commerce Committee, Shimkus of Illinois (Republican), who has asserted that it's a waste of time and effort to worry about global warming, because he happens to believe that God has promised not to flood Earth and so it just won't happen.  See Stromberg, In the GOP's House, God Won't Allow Global Warming?, Washington Post, PostPartisan (Nov. 12 2010).  (This is like the wishful thinking that the biggest oil spill in history hasn't really done any harm to the oceans--ignoring, of course, our inability to measure the impact in most cases, our ignorance of the long-term effect of the dispersant chemicals used, and our willful blindness to existing problems on beachers, in marshes and in the warmer waters near the mainland.)  Instead, Shimkus and his ilk will likely try to use the House's investigative powers to put a stop to sound regulatory advances at the Environmental Protection Agency and other departments.  

Meanwhile, the irreality train of Sarah Palin's influence on right-wing politics rolls on forward, with her infomercial running on "The Learning Channel" (a clear misnomer in this case, unless learning how insipid Palin and her family can be counts as "learning") as a backdrop for her continued influence in the 2011-12 Congress and the 2012 presidential election.  This is a person who takes pride in meaningless homilies, quit the only challenging job she has ever held when it either got too stressful (various ethics challenges) or not remunerative enough (various fashion challenges), has a hit-or-miss education that she hasn't bothered to improve with self-educational efforts (like reading 2-3 of our major national papers or reading various nonfictions works, etc.), and is content using the "sling dirt whether true or not, support it with lots of corporate money, and hope some of it sticks" techniques developed in the Reagan campaign and perfected by Bush's "turd blossom" karl Rove.  Americans will continue to hear that "real Americans" care about the things Palin cares about and that the cures for what ails us are more of the same policies that made us sick in the first place, stated as simplistic slogans that evoke dreams of personal liberty and frontier rigor, and nightmares of government corruption and Pentagon $7000 toilets.  As a fellow blogger Maxine Udall has noted:

Whether we like it or not, our technical solutions are competing in a morality play scripted by interest groups and mama grizzlies who in 25 words or less conflate small government and something they imagine to be "free markets" with individual liberty, a key justice principle. Most sound techocratic solutions are difficult to convey, must less motivate, in 25 words or less (and the motivation is often moral as well as technical: more for most, more for less, prices as reliable signals of marginal social cost, reducing unemployment, increasing inflation to discourage saving and stimulate spending ... you get the idea). But the larger problem, I think, is that allegedly "amoral" economists view the moral sequelae of sound economic policy, such as banksters' gains (at taxpayer expense), as "side issues" that are irrelevant to restoring the economy, while some of "we the people" view it as one of the most important issues. We end up with....the Tea Party (or, at least, with a large portion of the population who are extremely resentful and angry at being unemployed and underwater while the economy romps upward at least for those whom we bailed out).  Technocratic Solutions and Moral Dilemmas  (the preceding, by the way, is just a very small excerpt of an interesting piece on the problem with what I have called "mathaholic"  economics and the failures of the Chicago School's approach to setting policy based on a theory so infused with unrealistic assumptions that the policy prescriptions amount to suggesting that Alice drink a counter-potion to undo her shrinking in size and fall through the rabbit hole).

 

And then there are the right-wingers arguing for a full austerity budget in the US, which supports, primarily, the idea of cutting Social Security and Medicare benefits while letting military costs continue to rise unabated and for reducing corporate taxes so that Big Business (read--U.S. multinationals) can "compete" more successfully globally without the "burden" of US taxes.  See my earlier post on the Peterson-Pew "deficit crisis" mentality and the Bowles-Simpson commission.  And then look at Robert Samuelson, How to Avoid Japan's Economic Mistakes, Washington Post (Nov. 15, 2010).  Samuelson asserts that the time for stimulus is long past and the only thing to do is to get the private sector going.  He claims to base this urgent assertion on Japan's experience, when it continued to borrow to fund public spending, but overall growth has been anemic.  He asserts Japan's problem is two fold:  1) a "dual economy" where robust exports had to make up for anemic domestic consumption, an economic model which folded with the yen's appreciation in the 1980s and 2) an aging, declining population with low wages and insecure jobs.

His prescription of course, is the same old right-wing prescription--less regulation, more support for big business to remove "uncertainties" (which has become a euphemism for lowering taxes/helping US MNEs to "compete").

So Japan's economy is trapped: A high yen penalizes exports; low births and sclerotic firms hurt domestic growth. The lesson for us is that massive budget deficits and cheap credit are at best necessary stopgaps. They're narcotics whose effects soon fade. They can't correct underlying economic deficiencies. It's time to move on from the debate over "stimulus."

Economic success ultimately depends on private firms. The American economy is more resilient and flexible than Japan's. But that's a low standard. Neither the White House nor Congress seems to understand that growing regulatory burdens and policy uncertainties undermine business confidence and the willingness to expand. Unless that changes, our mediocre recovery may mimic Japan's.

Samuelson conveniently skips over three important things--two a big difference between the US and Japan, and the other a similarity.  First, Japan had a historically high savings rate and, though that has gone down with Japan's economic decline, it meant that Japan didn't have the kind of domestic spending pattern that could sustain a low-export economy for any length of time.  So making interest rates low didn't help, and government spending couldn't be sufficient to overcome.  Second, the US has already embarked on various "quantitative easing" solutions that should have a positive impact--the loosening of the money supply will provide more money floating through the economy, allowing private and public job creation to take place more easily. 

Third, both countries share the stagnation of middle class wages--and what is worse in the US is that we have at the same time huge increases in inequalities as the "investor/manager class" continues to reap all the rewards of the economic system and be favored by the tax system so that it reaps most of the subsidies provided that way as well (the huge part of the benefit of the extra large housing mortgage interest deduction is enjoyed by the wealthiest Americans, who itemize and who have sufficiently large and numerous homes to easily use the full deductible interest limitation of $1.1 million combined acquisition and home equity loans; the benefit for various manager-level retirement plans is enjoyed primarily by the rich; etc.).  Until that problem is resolved, it will be unlikely that the US will recover the kind of broad-based growth that provides a sustainable economic environment and quality of life for all.

The reason all of this is worrisome, of course, is that the two-party system (with the avid assistance of the Tea Partiers) is heading towards unanimity on the biggest problem facing us at this time, and their answer is the wrong one, one that fails to understand the long-term damage to the economy of rampant increases in inequality along with stagnation or worse for the middle class.

 The problem is the corporatist agenda--"Big Business" using its money and power to write the laws to suit it, and the owners and managers of Big Business using their money and power to ensure that all of the rewards of the economic process go to the top, while programs intended to buffer the ill winds that blow for the middle class and low income Americans are decimated.  (An agenda made all the more easy because of the right-wing-dominated Supreme Court's recent decisions, including Citizens United.)  Money has become the be all and end all of politics, and Big Businesses--especially the big financial institutions-- generally have the money to buy the politicians and the laws that they like.  Courts and legislatures favor business over individuals.

Obama is not apart from this--he has never been a real progressive, and his policies are in the same tepid, center-right position that Clinton occupied or even slightly to the right.  As a commenter on a Washington Post article on Palin's TV infomercial noted,

[Obama largely] insists on continuing Bush's policies, or insufficiently curbing them. It is policies that serve the rich that are destroying us; these are policies that are traditionally identified with the Republicans, but in recent decades, the Democrats have learned to bow and scrape for big money from the lobbyists and either party is as abjectly servile to the wealthy as the other.

*****

[T]hose managing [Palin] as a media creation are using her to push the perceived center further to the right than it already is, which will allow real candidates for the Republican nomination to recycle the radical orthodoxies of the far right and still seem "moderate." Candidates for the Democratic nomination will be required to similarly hew further right, so as not to seem like the "socialists" or "communists" they have already been labeled by the rightwing lunatic fringe.

Palin makes big bucks and doesn't have to actually learn or do anything, while becoming the philosophical lodestar for the right, and our entire political system is transformed into a battle not between left and right but between right and extreme right.  Robert 1014

There is no reason to expect that tax cuts for the wealthiest 20% of the country will do anything to support job creation for the rest of us or to help stem the tide of the recession.  But the GOP will push for tax cuts for their primary constituents no matter what the cost. There is no reason to think that changing our tax system to assist US multinationals in grabbing a larger market share in Asia or Africa in the name of "competitiveness" will do anything to help ordinary Americans in the middle class here at home.  But both parties will continue the disastrous mix of tax cuts for corporations and policies that pull back on anti-trust and make unionization more difficult in the name of helping companies compete.   Obama and the mostly spineless Dems who don't ever stand up for their purported policy positions--whether in contesting the appointment to the Supreme Court of radical rightwingers like Alito and Roberts or in battling with the GOP for a public option in health care reform or in fighting to preserve a highly progressive income and estate tax--will likely just roll over and play dead while the wingnuts on the right move our country more and more into the radical right of the Bircher Society, Clausen, and Milt Friedman's radical "free market" agenda that socializes losses and privatizes gains.

If Dems go Down--outlook for taxes, financial industry, military and war, unions and public employees...

I voted this morning in the mid-term elections.  Did you?  I am nonetheless a frustrated citizen who is deeply worried about the future of my city, my state, and my country.   And while I am deeply disappointed in the Dems' ability to translate progressive ideas in to working legislation and change, I am even more deeply disappointed in the loss of a moderate GOP voice and the way most of the GOP candidates embrace the corporatist agenda.

While I understand and even empathize with some of the anger and frustration expressed by the Tea Party groups, I am very worried about their impact on this election in light of their apparent lack of comprehension about the essential problems facing us and their failure to understand that it was the four decades of Reagan-inspired policies of deregulation, militarization, privatization and tax cuts that got us deep into these problems culminating in the Great Recession of the Bush Administration and the too-lax TARP bailout provisions for banks.  (The bank bailout was, I believe, necessary by that point, but it could have been handled--as I argued at the time--by methods that would have exacted a much higher price from bank managers and shareholders, without the Paulson-originated, bank-friendly provisions that allowed bankers to retain (privatize) their gains while casting on us (socializing) their losses.) 

The Tea Partiers, in other words, have muddled ideas that forecast wrong-headed policies on taxes, finances, income inequality, the role of unions in protecting the U.S. middle class, and the role of the big multi-national corporations in influencing government to favor their own businesses and the rich who own or manage them (via lobbying and especially since the Supreme Court's Citizens United case, via the use of huge sums of money to influence elections and essentially buy legislation made to order).  The Tea Party groups in particular misinterpret the corporatist agenda that pits large corporations and their wealthy managers and shareholders against the vast majority of hard-working, middle class Americans and that casts unions (in spite of their undeniable flaws and failures)  almost as evildoers, rather than what they actually are--the only successful means that the middle class has to create a level playing field so that workers can get their fair share of productivity gains mostly produced by them.  Further, the Tea Party groups seem incapable of recognizing that their visibility and influence is being bought by those very powers that consistently work to suppress middle class gains--the anti-tax, anti-union, pro- "free market" purported think tanks and lobbyists and wealthy businessmen and the right-wing media empires of huge corporations such as the Sinclair stations, the Murdoch media empire (Wall Street Journal, Fox News, etc.)-- such as the Koch brothers and Dick Armey's so-called Freedom Works. 

"Free market" is in quotes because there is no such thing as an absolutely free market: to the extent that we shift the balance too far towards business "freedom" and too far away from consumer--and environment--protecting restraints, we take away everyone's freedom to live decent lifestyles in a sustainable economy within a sound environment.  Markets are wonderful, but the ability of businesses to compete "freely" in fact requires a number of restraining and opposing influences to avoid the inevitable development of self-perpetuating monopolies and oligarchies from asymmetries of information combined with the natural biases and follies of humans (including the corruption from money and power, the self-interested actions that can cause significant detriment to others from sheer greed), not to mention the vulnerability of ordinary people left to suffer from the brute-force harms of such "free" markets.   Government regulation/remedies (administrative and judicial) and worker unions are two necessary restraints on unbridled corporatism. 

So let's hypothesize that many of the right-leaning GOP and Tea Party candidates are elected.  Here's my prediction of the policies that will be pushed by this right-wing coalition. 

1. Taxes:  likely passage of various bills reducing corporate taxes either temporarily or permanently, including 100% expensing, repeat of the 2004 almost tax-free repatriation of foreign profits, further extension of tax-free restructuring provisions (the Bush Treasury through regulations practically gave away the store, and there appears to be a wholesale commitment to continuing the rush to make gain recognition as a part of a tax-free reorg a thing of the past, and make loss recognition as a part of a tax-free reorg a thing of the present); likely attempt to make the Bush tax cuts permanent for everyone including the wealthiest amongst us or at least to extend them for another 2 years until the 2012 election possibly restores a GOP president to make them permanent; likely renewed attempt to repeal or sharply reduce the estate tax that even in its pre-Bush form was paid by a tiny minority of estates each year and paid at a very low effective tax rate by many of those few that paid it; discussion of tax cuts by the GOP/Tea Partiers won't address the role these cuts play in creating deficits or in reinforcing a harmful level of income inequality that threatens the very heart of democratic governance.  We definitely won't get legislation cutting the carried interest entitlement out of a right-dominated Congress--the capital gains and deferral advantages that private equity and hedge fund managers glean through their interpretation of the partnership rules for "profits-only" interests would be allowed to continue, generating multi-million dollar low-taxed income and encouraging a continuing distortion of the allocation of endeavor towards this high-income, low-tax-producing work and away from other endeavors that would be better for the economy (such as engineering rather than financial engineering, etc.).  In other words, we can expect a resurgence of the many-times-now-proven-wrong-"freshwater"-economic-free-marketarian and Laffer-style budget and tax ideas, carried out even more extremely!
2. Dodd-Frank financial institution regulation:  attempt to undo or deeply eviscerate many of the protections for the financial system disliked by the Big Banks, particularly the (limited) ban on proprietary trading, potential for naked credit default regulation, and  the existence and powers of the Consumer Financial Protection Agency (which is the primary part of the bill that addresses the way that big banks use their clout to collect from customers at every opportunity while making it enormously hard for customers to fight back when they are treated unfairly by the banks)
3. Social Security:  drive to dismantle post-war protections for the poor and elderly, through partial or whole privatization and reduction of benefits; use of the worries about the deficit as the power for wielding the ax cutting old age security benefits (in spite of refusal to forego any of the Bush tax cuts which will cost $5 trillion over ten years, if extended). Job creation will be touted as a rationale for most of this, though it is a very unlikely outcome.  (There will be no further stimulus package of public infrastructure spending which would have a decent chance of saving, creating jobs.)
4. Health care:  drive to dismantle the progress made towards a fairer health insurance system out of a distorted understanding of the way that non-insured individuals require insured individuals to cover their expenses and a failure to comprehend the way that health insurance companies benefit from the ability to arbitrage 50 states' rules to select those that serve them best and serve ordinary Americans least
5. Environmental and Global Warming Efforts: drive to dismantle anything already done to address the significant harms from global warming and environmental pollution (including toxic chemicals in our land, air and waterways); attempt to open the Arctic National Wildlife Refuge to oil drilling; attempt to give all the rest of the US reserves to the oil companies along with even more tax cuts for the natural resources extractive industry (which will be touted as "incentives" for development); attempt to peel back protections for endangered species, particularly wolves and small creatures whose protections are seen by the right as "threatening" lucrative developments in wilderness settings; attempt to ensure that the National Forest Service serves the forestry industry with even more roads and cheap sales, rather than putting forest and wilderness protection goals above commercialization/privatization of the national forests
6. Gun laws:  attempt to peel back gun registration provisions--moving even closer to the absurd "wild west" model apparently sponsored by activist right-wingers on the Supreme Court providing for open carrying of handguns in bars, coffee shops, stores and public meeting places
7. Unions/public employees:  attempt to ensure that the corporatist agenda succeeds in the workplace by continuing the process of distorting American's views of the role of unions in protecting workers from corporatist power and by weakening even further American workers' ability to organize and by giving employers even more "rights" in the context of a union drive; in particular, at the state level we can expect drives to cut public employee pension benefits and cut state funding of pension plans, and at the national level we can anticipate continued demonization of federal employees as lazy bureaucrats protected by public employee unions from merited discipline and firing
8. Elections:  refusal to pass laws forcing full disclosure of all corporate donations related to elections on the corporations' financial statements, SEC filings and on publicly available filings of all 501/527 organizations receiving corporate donations; refusal to write disclosure rules forcing public information regarding major individual or other noncorporate donors to organizations engaged in election campaigning
9. Military/war:  little or no commitment to removing the impediments for gay servicemen and women;no commitment to cutting military expenditures and even likely some support for pushing the Pentagon to continue with expenditures that it has already determined are inappropriate and wasteful; little commitment to pushing for a pull-back from foreign invasions/occupations and even possible push for renewed "surges" in Afghanistan; likely commitment to increasing military support for Israel in spite of its continuing violation of international law on colonization of occupied territories; likely push for aggressive response to Iran, including warmongering

Worth noting:  if the election results in the GOP controlling the House and the Dems the Senate (and presidency, of course), we will likely have gridlock.  The GOP agenda won't be likely to be enacted because of that gridlock.  Accordingly, everything above is in terms of where their attempts, commitments will be, not what they will succeed in doing.  But what will they actually do?  Mark Thoma, Economist's View, Gridlock? Not in Politics (Nov. 2, 2010), speculates that they will "take advantage of this by introducing legislation they know won't pass but scores political points by forcing Democrats to vote against it...then use the noise machine to talk about how terrible this is for America.  We'll see Tax Cuts for Working Americans (where you give a few pennies to the masses, much, much more to the upper echelon, then, since there are so many people getting small breaks, claim that the majority of the tax cuts go to the middle and lower classes), the Deregulation of Apple Pie Act (which somehow turns into an attack on the FDA, financial regulation, etc., etc.,), we'll see poison pills attached to legislation that must be passed to operate government...."  Thoma also castigates the Dems (appropriately, I think) for failing to "take its arguments to the public and convince them that they were, in fact, fighting for their interests. ... Instead, they allowed the other side to take the initiative and demagogue the policies without much of a challenge."  When will the Dems ever learn?

Tenneco CEO's Wall St. Journal on "American Capitalism"

Gregg Sherrill, the CEO of Tenneco, Inc., seems to think that Capitol Hill and the White House are "bashing" the "entire free enterprise system"--saying that the business world has "taken a pounding on Capitol Hill and at the White House" but except for the copmanies that were part of the "easy credit and disguised risk that so spectacularly collapsed", American business "has nothing whatsoever to apologize for."  Speaking up for American Capitalism, Wall. St. Journal Op-Ed, Jul. 15, 2010, at A17. 

But the op-ed is a straw man argument tilting at windmills. 

First, Sherrill notes a study cited by The Economist that finds that most Americans "prefer the free enterprise system to any collectivist alternative."  Reading that, you'd think that there was a major debate in this country about switching from capitalism to socialism.  But there's no such thing going on.  Nobody is pushing a socialist agenda, in which the government would permanently take over means of production.  Many politicians are reluctant to speak out strongly for the traditional American values of a market that is regulated for the common good rather than allowing corporate titans (and their wealthy elite shareholders) set the laws to suit themselves.  In fact, the push for the last four decades (dating from Reagan's swearing in) has been the opposite--to change America's system of tempered capitalism to one of no-holds-barred "free markets" along the lines espoused by the Chicago School's Milt Friedman, who didn't care much about democracy but did care a lot about starving government and letting capital have a free reign no matter what the detriment to ordinary folks.

Second, Sherrill himself explicitly acknowledges that business cannot function "without the appropriate regulation and incentives government can provide."  That is what tempered capitalism is all about--encouraging people to establish and run businesses but restraining the more harmful aspects of rent-seeking profitmaking.  Key to decent democratic government is the role of government in protecting consumers from overweening corporate power and the public interest from the kind of reckless private greed that can lead to the "socialization of losses, privatization of gains" that we have seen in the causes of our Great Recession.  Forty years of Reaganomics bred negative attitudes towards government regulation fostered within government itself and gave brutal, greed-is-good capitalism a chance to wreak havoc on the economy and on the lives of vulnerable Americans not in the elite upper quintile.

But most of the rhetoric in the piece is straight from the "starve the beast", free marketarian guidebook of the Cato Institute and other think tanks pushing the Chicago School version of "free enterprise."   It uses the rhetoric of "the moral case for free people and free markets."  It argues against enlarging government "in a way that would fundamentally shift its level of involvement in our overall economy."  Yet Sherrill knows that there is no such thing as "free" enterprise--since without contracts and social networks and societal restraints, his corporation would be nothing but a local business, involved in a dog-eat-dog world with everybody enabled to act like the Mafia and exact whatever "protection payments" brute force permitted.  He also knows that "free market" is not synonymous with "free people"--in fact, there is a good deal of tension between the two terms, since a people is only free when the democratic freedoms that underlie our way of life are not subordinated to the power of megalithic market enterprises. Unrestrained markets with monopoly players are antagonistic to genuine human freedom:  labor is treated as quasi-property (remember Lochner) and wealth is treated as quasi-god. 

And finally, he knows that there is no consideration in the offing for an enlargement of government in a way that would "fundamentally shift its involvement in the economy."  First, government is inherently "involved in the economy", since government must make decisions about revenues, expenses, programs and public interest every day, and every decision about taxing, spending, punishing, rewarding and encouraging behavior has economic consequences.  second, corporations like Tenneco push avidly for government to fundamentall shift its involvement in the economy with every lobbying dollar spent, which is intended to influence government to enact business and corporate-favorable programs.  Subsidies of the oil industry that exist right now--that's government involvement in the economy.  And the oil companies are fighting to retain all of them.  Implicit and explicit guarantees of the financial system--that's an incredible involvement in the economy, providing cheap funding for banks.  And investment banks clamored to be eligible for the largesse, even as their version of casino capitalism spun out of control.  So while the rhetoric warns about government involvement, the reality cozies up to government subsidies and merely frowns when government involvement means acting to balance the relationship between business and consumer, as in the fight against the consumer protection agency provisions of the financial reform legislation and the intensive lobbying by the auto dealer industry for an exemption (i.e., for permission to go on ripping off auto consumers as they have frequently been doing).

But the most pernicious part of Sherrill's op-ed is his warning that "people will buy into the false perception that government can fix our current crisis, which will lead to policies making our economic recovery more difficult."  Business can't fix the crisis alone, because business as usual has become too short-sighted and too intent on rentier profits.  However, government, with economic stimuli targeted to those at the bottom who are hurt the most, can do much to avert the harm of the Great Recession for its people and to provide a path for a sustainable economy out of the recession.  But this blather about fearing that people will depend too much on government covers an agenda on the right to make sure that government isn't there to make a difference for the people, so that Big Business can continue its self-interested focus without the kinds of restraints that make democracy and the economy sustainable.

Buyer beware.  Much that comes in the guise of setting the record straight about American capitalism is just more of the same attempt to mislead Americans into distrust of their government and reliance on Big Business instead. 

Newt Gingrich's Vision of a religious, brutally capitalistic, and corporatist America

Newt Gingrich wrote an op-ed in the Washington Post April 23, 2010, How American became a 'secular-socialist machine', in which he purported to rebut Norman Ornstein's defense of the Obama Administration against the radical right's smears asserting that the administration is a "secular-socialist machine."  The Gingrich op-ed defense of the smear is yet another smear.  First, he conflates historically powerful political "machines" like Tammany Hall or perhaps Chicago back in its one-man rule, where a single man could order people throughout governmental hierarchies and expect them to follow his will, with with astute political negotiations by claiming that the US Congress's passage of a stimulus bill in within a few weeks of Obama assuming the presidency represented machine politics.  Yet without that stimulus package, weak as it was because of the Republican effort to convert most stimulus to more tax cuts for big corporations, the US economy would likely be stagnated, with no jobs and no growth prospects.  The package was passed after considerable debate and public discussion of the pros and cons-- a transparency that would cause a political machine to shudder its last gasp.  It was a majority decision in Congress and bore the stamp of the Congressional negotiations in the shape of the details.  His use of the term "machine" is like the freshwater economists' use of the term "efficient markets"--the winning out of pipe dream theories over the reality on the ground.

Second, he uses the term "socialism" to mean, apparently, "any government action I don't like."  In a socialist economy, the government owns permanently and runs for the public good the primary means of production.  Communist China before the opening in the latter part of the 20th century was run as a socialist economy (and as a political dictatorship), with "state and town enterprises" that provided jobs, homes and permanent care to the workers.  Socialist policies, of course, can co-exist with capitalism.  Both European and American capitalist economies typically include some number of socialistic measures to dampen the harsh realities and strong failure potential of "pure" capitalism, where the "dog eat dog" greed over everything mechanism will otherwise bring brutal consequences for large majorities of ordinary folk who don't start wit sufficient capital (human, physical and financial) to have a significant stake in the race for profits.  We have thus tempered our economic arrangements with social justice mechanisms from the beginning, when churches and communities gathered together to help the most vulnerable, and we have done so since the beginning of the 20th century through our tax policies (progressive taxation that purports to take more from those that have the most in order to have enough to achieve state goals without sacrificing ordinary folk at the bottom of the income distriution), through our corporate policies (anti-trust mechanisms that break up large corporations that gain too much power) and through our human capital policies (Social Security, Medicare, Medicaid, arts funding, education funding, disease control and research, etc.). 

Gingrich plays on people's ignorance about our own history, economic systems generally, and the importance to the US of our tempered capitalism when he mislabels as socialisms the government's establishment of temporary mechanisms to deal with the fact of the government's temporary ownership of private enterprise as a result of a bailout necessitated by the Reagan revolution's actions to deregulate/privatize/militarize/and cut taxes or the reinstatement of the pre-Reagan status of aid to students through direct government loan programs administered by colleges rather than through guaranteed indirect loan programs administered by colleges but through banks that receive a substantial subsidy direct from the government (and were another place where banks resorted to financial shenanigans to keep getting higher interest rate reimbursement from the government than they were entitled to).  The irony is that the bank subsidies under the indirect loan program have much more socialistic elements in them than the direct loan program, since the government is directly paying banks essentially for doing nothing but acting as conduits for government money.  Gingrich also labels as socialist government regulation of industry pollutants like carbon output.  This response of government to a strong majority's preference for protection of the population in ways that individuals clearly cannot protect themselves is the epitome of democracy in action to achieve public good, even at the cost of some limitations on private enterprise.    Gingrich argues with absurdities--"if government regulates every aspect of our use of power, it has regulated every aspect of our lives.  What is that if not socialism?"  Bunk.  The government doesn't pretend to regulate every aspect of our use of power--it doesn't tell you whether you can turn a light on or a fan or an air conditioner.  It does regulate appliances that use power (not enough) and it does regulate the production of power (not enough--witness the Gull Oil Macondo Well Disaster).  Environmental protection is the essence of government responsibility to its people, the same as military defense.That is action in the political system, that happens to have consequences for the economic system, in that no enterprise can do whatever it wants to make money if it hurts everybody. the entire polity.

Gingrich's third term "secular" describes the kind of government this country has had from the beginning.  While there has been a strong religious element in American life, we have recognized the need to prevent  a merger or even a perceived merger of religion and government, the need to maintain a separation between the state and religion.  That vision developed in the states--particularly in Massachusetts and Virginia, and then the Founders incorporated it into the First Amendment to the Constitution in which they strove to protect the kinds of individual liberties that they had fought for in the Revolutionary War.  That protection is not just against establishing a "a national religion", as Gingrich suggests, but to protect the people--whether religious or non-religious--from any entanglement between church and state.  Gingrich uses the term "secular" as though it were an epitaph; I can only shudder to think of living in the "religious" state that he would apparently prefer.

Job creation--tax cuts are not the right tool

Not unexpectedly, the "think tanks" that claim to be nonpartisan but that conduct research sponsored by corporate interests and support "capital market" solutions to economic problems are at it again pushing more tax breaks for the huge corporations that just gained more legislative clout with the Supreme Court's foolish decision in Citizens United.   See, for instance, the Milken Institute's, Jobs for America: Investments and policies for economic growth and competitiveness (Jan. 2010) (sponsored by one of the biggest of the "bad guys" pushing corporate tax cuts all the time, the National Association of Manufacturers). 

The Milken report wants the government to do the following:

• reduce the corporate tax rate  (The section 199 manufacturing credit--which amounts to a significant rate reduction for most US companies--has already been passed by Congress under the same argument that reducing taxes will result in job creation. but there not much in the way of new jobs to show for the tax reduction; this report claims that reducing the rate to 22% versus the current statutory rate of 35% would cause a .3 percentage point growth in GDP from 2011 to 2013, with an increase in employment of 2.13 million.   These sorts of claims are made for all kinds of tax cuts, but seldom pan out in practice.)
•  increase the R&D credit (we've already done that--the R&D deduction was made a credit and it didn't have a significant impact on job creation.  It's a stretch to think it would, since the research is either going to be done anyway or just tweaking around the edges in ways that doesn't require significant expansion of research facilities.  Most of the basic research done at universities is much more important to the core of job development and innovation expansion.
• let companies export technology products to produce products abroad (that will help overseas job production, but will essentially increase the flow of jobs to low-labor-cost countries and do nothing to create jobs here)
• invest in infrastructure projects (now, that one has real potential, butprobably NOT the projects recommended here, which include an expansion of offshore drilling and onshore exploration and coal usage--projects that do nothing to move us towards better use of energy and prevention of global warming). 
  

The Milken report, in other words, espouses many of the same policies applied by the Bush II administration.  They didn't create jobs under Bush and there's no reason to think they would be more successful now--in fact, we've tried tax cuts as job stimulus for years without success.  A recent Congressional Research Service (CRS) report notes that business tax incentives don't do much to stimulate the economy.  See Hungerford & Gravelle, Business Investment and Employment Tax Incentives to Stimulate the Economy (Jan. 22, 2010) (available on BNA).  The report notes that the February 09 economic stimulus package included $286 billion in tax cuts, many directed towards business, and that the administration has advocated futher business incentives.  However, it reports that "the evidence ... suggests that a business tax subsidy may not necessarily be the best choice for fiscal stimulus."   It considers, for example, the idea of tax credits--the two most common of which are investment tax credits and accelerated deductions for depreciation.  While studies suggest that such credits have some potential for increasing employment, they have not proven to be effective in practice.  Reasons for ineffectiveness include the complexity of credits, the uncertainty of credits prior to tax filing time, the lack of awareness about the credit til tax filing time, and the fact that "product demand appears to be the primary determinant of hiring."  Firms may not invest even with investment tax credits, if they are already at excess capacity.  In fact, the report notes empirical evidence from recent studies that suggest that the induced spending is less than the cost of the tax subsidy.

Let's face it.  Businesses will always demand tax subsidies, because the managers and owners benefit when they pay less in taxes.  But tax subsidies may do little or nothing to stimulate the economy or provide jobs.  This CRS report suggests that tax subsidies don't act as a stimulus for hiring, but rather as just another windfall for businesses.  The report notes that to the extent an investment subsidy isn't used to stimulate investment it may well simply be used to pay down debt or pay out dividends to shareholders.

Programs that create jobs are the ones that directly create jobs--not the ones that just put more money in the hands of already wealthy CEOs and shareholders who will likely sock the money away in some investment overseas.  We need to be creating jobs programs like those in the New Deal era--real jobs that can make the country better by building infrastructure and make the lives of the people directly affected better.  And we need to be very selective about the infrastructure projects that we fund.  Providing additional subsidies to Big Oil and other extractive industries is a 19th century solution to a 21st century problem. 

Will Congress be able to do anything other than the bidding of the big corporate interests and their managers and owners--especially after the right-wing Court in Citizens United overturned multiple precedents to find that corporations can spend whatever they want to buy elections, in the guise of claiming that such ill-founded judge activism furthers free speech rights?  Will Congress be able to show any concern for ordinary Americans?  It seems increasingly doubtful, unless Americans become better informed and able to vote in large blocks to disempower the corporatist agenda.  We must remove politicians that simply put in place the policies that the big multinationals want.  Those policies almost always will serve the managerial/owner class and not ordinary Americans.

Who's rich? what's going on with those freshwater economists? and more posts Worth Reading

Every once in a while there are posts that should just be allowed to stand for themselves--worth reading, for anybody that enjoys my posts.  I'll list a few here.  A wealth of riches to greet us in the New Year, I guess.

Tough Times in Chicago, The Economist, Jan 5, 2010 (hat tip to Brad DeLong who listed this in his ten posts not to miss)--this post covers the John Cassidy piece in the latest New Yorker  on the impact of the economic crisis on freshwater economics (and economists), in which Cassidy pulls some amazing and "not very pretty" statements from current Chicago School adherents and then goes on to look at the Wall STreet Journal op-ed by Gary Becker et al, which is "pretty lame" in suggesting that uncertainty created by the government is the major problem in the recovery from the recession.

The Rich *Are* Different, Tom Bozzo, Angry Bear, Jan. 5, 2010--this post deals with the question of just who is "rich".  Bozzo notes a "key factor of a qualitative change in the structure of income" and illustrates it with a great graph showing sharp decline in wage income at the same time of a steep increase in capital gains and interest/dividends income--around $200,000.  He concludes that "if you can provide yourself with a better-than-average living without working, a very rare luxury indeed, you are in fact rich."

A Tax Policy Determination Clue, Mauled Again, Jan. 6, 2010--Jim Maule takes off on the issue of wealth and the fact that Congress isn't exactly representational on that score (something I've noted in several postings myself).  44% of Congress members are millionaires, compared to about 1% of the American population.  Bad news for ordinary Americans.

Does IRS Notice Allowing TARP Recipients to Save Billions in Taxes Cost Ordinary Americans?, Citizens for Tax Justice, Dec. 18, 2009--this is an older post, but an important one.  The Obama Treasury is doing the same old stuff the Bush Treasury did--voluntarily refuse to apply the statutory law to "too big to fail" banks, letting them save millions in taxes as a result.   As he says "Though we do have taxation with representation, it surely isn’t taxation with representation of all. It’s taxation with representation of those who can afford to pay for the influencing of legislation, including tax legislation, and especially tax legislation."  Read and weep.

Krugman has a post on metro area density "Desert Bubbles", following a post on Bernanke and the Bubble (Jan 6, 2010) that has one line dripping with post-crisis free-marketarian humor that must be repeated for the smile of the day:  "On one side, we’re supposed to believe that markets are efficient and wonderful; on the other, we’re supposed to believe that anything which constrains buildable land — which, you know, sometimes happens for entirely natural reasons — will send markets into wild irrational swings. Those poor, fragile, omnipotent markets, able to handle anything except mild government intervention …"