Monday, November 27, 2006

Class Warfare...

Really good article by Ben Stein - the conservative lawyer, writer, actor, and economist - in yesterday's New York Times - In Class Warefare, Guess Which Class Is Winning

Stein recounts a recent discussion with Warren Buffett, which turned to the inequity of current US tax policy:
Put simply, the rich pay a lot of taxes as a total percentage of taxes collected, but they don’t pay a lot of taxes as a percentage of what they can afford to pay, or as a percentage of what the government needs to close the deficit gap.

Mr. Buffett compiled a data sheet of the men and women who work in his office. He had each of them make a fraction; the numerator was how much they paid in federal income tax and in payroll taxes for Social Security and Medicare, and the denominator was their taxable income. ...

It turned out that Mr. Buffett, with immense income from dividends and capital gains, paid far, far less as a fraction of his income than the secretaries or the clerks or anyone else in his office. Further, in conversation it came up that Mr. Buffett doesn’t use any tax planning at all. He just pays as the Internal Revenue Code requires. “How can this be fair?” he asked of how little he pays relative to his employees. “How can this be right?”

Even though I agreed with him, I warned that whenever someone tried to raise the issue, he or she was accused of fomenting class warfare.

“There’s class warfare, all right,” Mr. Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.”
Fascinating. Coming from a multi-multi-billionaire, and a conservative economist - an admission that our tax policy is indeed a class warfare...with those at the top giving themselves all the breaks they want. After noting how questionable it is that "the country is enjoying what economists call full employment while we are still running a ... deficit of ... $434 billion for fiscal 2006," Stein goes on to analyze five arguments generally promulgated by right-wing Republicans (many of whom call themselves conservative) on why we should not be raising the marginal tax rates on the wealthiest people:

1. Class Warfare - "I think Mr. Buffett answered that one."

2. Raising taxes actually lowers revenue, while cutting taxes stimulates federal revenue -
In fact, the federal government collected roughly $1.004 trillion in income taxes from individuals in fiscal 2000, the last full year of President Bill Clinton’s merry rule. It fell to a low of $794 billion in 2003 after Mr. Bush’s tax cuts (but not, you understand, because of them, his supporters like to say). Only by the end of fiscal 2006 did income tax revenue surpass the $1 trillion level again.

By this time, we Republicans had added a mere $2.7 trillion to the national debt. So much for tax cuts adding to revenue. To be fair, corporate profits taxes have increased greatly, as corporate profits have increased stupendously. This may be because of the cut in corporate tax rates. Anything is possible.
3. Don't raise taxes, cut spending -
The sad fact is that spending rises every year, no matter what people want or say they want. ... But spending has risen every year since 1940 except for a few years after World War II and a brief period after the Korean War.

The imperatives for spending are built into the system, and now, with entitlements expanding rapidly, increased spending is locked in. Medicare, Social Security, interest on the debt — all are growing like mad, and how they will ever be stopped or slowed is beyond imagining. Gross interest on Treasury debt is approaching $350 billion a year. ...
4. Deficits don't matter -
One would think that big deficits would be highly inflationary, according to Keynesian economics. But we have modest inflation (except in New York City, where a martini at a good bar is now $22). On the other hand, we have all that interest to pay, soon roughly $7 billion a week, a lot of it to overseas owners of our debt. This, to me, seems to matter.

Besides, if it doesn’t matter, why bother to even discuss balancing the budget? Why have taxes at all? Why not just print money the way Weimar Germany did? Why not abolish taxes and add trillions to the deficit each year? ... If deficits don’t matter, why not spend as much as we want, on anything we want?
5. Conservatives cannot argue for higher taxes -
It makes my head spin, and I guess it shows how old I am. But I thought that conservatives were supposed to like balanced budgets. I thought it was the conservative position to not leave heavy indebtedness to our grandchildren. I thought it was the conservative view that there should be some balance between income and outflow. When did this change?

Oh, now, now, now I recall. It changed when we figured that we could cut taxes and generate so much revenue that we would balance the budget. But isn’t that what doctors call magical thinking? Haven’t the facts proved that this theory, though charming and beguiling, was wrong?
Exactly Mr. Stein. If you consider yourself a "fiscal conservative" - which, by the way, I do - you should be shocked and embarressed at the status of the federal budget deficit, and the failure of our tax policy to ask those who are most able to contribute to our fiscal health to do so. Spending should obviously be strictly controlled, but the best way to begin increasing revenues, decreasing the deficit, decreasing governmetntal debt service, and do all that while affecting the fewest amount of people - is to get rid of the irresponsible Bush-gifted tax breaks to the wealthiest individuals and corporations by rolling back the marginal tax rates on the hightest income brackets, rolling back the tax breaks on dividends, rolling back the tax breaks on estate wealth transfers, and finally rollnig back the tax breaks (and additionanl incentives) to big businesses who are making billions quarterly.

Tax policy that would make sense, work toward balancing the budget (which Clinton did consistently), and stop shifting the burden to our children and grandchildren. Why would anyone oppose this? Anyone whose core constituency are the wealthy that are benefiting from these irresponsible gifts.

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