FT134: “There will always be poor and oppressed people because someone has to vote for liberal Democrats.” —Old Pithy

Posted by PITHOCRATES - September 7th, 2012

Fundamental Truth

Liberal Democrats would Not Like an America without Poor and Oppressed People

In the anti-nuclear power movie The China Syndrome Jack Lemmon’s character wanted to warn everyone about his dangerous nuclear power plant.  He was a control room operator at the plant.  During one event there was a vibration.  The reactor shut down (SCRAM) safely.  But Lemmon’s character did some investigating and found that some safety reports had been falsified.  And in his quest to publicize this fact people died.  So he did the only thing he could.  He locked himself inside the control room at the nuclear power plant.  Requested that the characters played by Michael Douglas and Jane Fonda come down to put him on the air live.  And threatened to create a nuclear catastrophe himself if that didn’t happen.  That’s right, as dangerous as that reactor was he did NOT shut it down.

Odd, really.  He threatened to cause what he was trying to prevent.  Why?  Well, consider what would have happened if he did everything he did with one change.  Instead of threatening his own nuclear catastrophe he shut down that reactor.  So it was safe and could not harm anyone.  If he did that what do you think would have happened?  No one would have brought that news crew (Douglas and Fonda) to the plant.  And plant security would have just broken into the control room and subdued Lemmon.  But because he left the reactor hot and dangerous they didn’t break in and subdue him.  And they brought in that news crew.  Because his threat of causing a nuclear catastrophe gave him power.  While a safe and shutdown reactor gave him no power.

So what do we learn from this?  Sometimes the thing you’re fighting against is the very thing that gives you power.  A purpose.  A reason for getting out of bed in the morning.  Something that gives you a job.  Something that pays the bills.  And it’s just not disgruntled nuclear power plant operators.  Imagine a world with no crime.  If there was no crime we wouldn’t need any police officers.  Something police officers wouldn’t like.  Just as firefighters wouldn’t like a world without fires or accidents.  Just as cardiologists would not like a world without heart disease.  Just as environmentalists would not like a world without global warming.  Just as advocates of affirmative action would not like a world without discrimination.  Just as liberal Democrats would not like an America without poor and oppressed people.

The Poor and Oppressed are a Favorite Constituency of the Federal Government

The more horrible the things people are fighting against the greater are the need for these people.  The Left makes use of this strategy all of the time.  Falling test scores means we need to spend more on education.  As in hiring more teachers.  And paying them more.  This works the other way, too.  When municipalities are running budget deficits because of costly public sector contracts calling for high pay and generous benefits they place a new millage on the ballot.  And warn the people that if they don’t vote ‘yes’ for these higher taxes they will have no choice but to increase the number of rapes, murders and assaults.  As well as increase the number of deaths from fires, heart attacks in the home and car accidents.  Because if the people vote ‘no’ they will lay off police officers and firefighters.  Instead of renegotiating those contracts that are causing their financial problems.  No.  It’s never cutting back on the things that are bankrupting their cities.  It’s always putting the fear of God into their electorate.  So the public sector workers can maintain their generous pay and benefits.

Of course some will say that our teachers, police officers and firefighters don’t get paid that much.  If that’s true then they belong to some real crappy unions.  Because you join a union to get better pay and better benefits.  And you pay union dues for the union’s help in getting better pay and better benefits.  Also, if we didn’t already pay them very well you would know what their pay and benefits were during these millage requests.  For it sure would help their argument for higher pay if most people made more than they did.  Because, let’s face it, we need good teachers, police officers and firefighters.  If we paid them less than most other people everyone would feel guilty and vote ‘yes’ without hesitation.  But during these millage requests they don’t make public their current pay and benefit schedule.  And it’s hard to find this information online.  Because that’s ‘personal’.  Even though we pay them with public money.  Which should tell you something.  They’re paid better than most people.  Because they’re asking for more without telling us how much they currently make.  For it is hard to get sympathy for your pay level when you make more than most other people.

It’s no secret that government workers get better pay and benefit packages than people in the private sector.  Especially in the federal government.  Where federal employment grows by leaps and bounds every year.  And they create ever new programs to fight against something.  So they can keep hiring more people into the federal bureaucracy.  To reward friends and cronies.  And to endear a growing federal government to ever more people.  So they will continuously help to support and promote that sprawling bureaucracy.  Through their votes.  And by making as many people as possible dependent on the government.  Making the poor and oppressed a favorite constituency of the federal government.  As it has been for a very long time.  Despite the numerous battles to end poverty and oppression.

The Liberal Democrat Answer to Poverty is Not a Job but a Government Entitlement

JFK was a tax-cutter.  Just like Ronald Reagan.  They both believed that you had to create a business-friendly environment to create jobs.  Because if a business did well it grew and hired more people.  That’s why both JFK and Ronald Reagan had strong economic growth and low unemployment during their presidencies.  And they each brought in a lot of tax revenue into Washington.  Even with their low tax rates.  So low tax rates are good.  They help businesses grow.  They help people get jobs.  They lower the price of consumer goods so people can buy more for less.  And they bring in more revenue to the government to help those who need help.  Of course liberal Democrats hate this.  Because if everyone is doing well there is no need for all their agencies and programs.  Or them.

Shortly after the assassination of JFK things changed.  LBJ became president.  Who was a big liberal Democrat.  Who declared unconditional war on poverty.  This was in 1964.  The plan was to explode the size of the federal government.  Which is what he did when he gave us the Great Society.  The war on poverty would become one of America’s longest war.  Longer than the wars in Iraq and Afghanistan.  Longer than the Vietnam War.  Even longer than the Cold War.  The war on poverty continues to this day.  Requiring ever more government agencies.  And programs.  Yet they’ve all failed to end poverty.  Proven by the fact that every generation of liberal Democrats running for office is an advocate for the poor and oppressed who have no voice but theirs.

The liberal Democrat answer to poverty is not a job but a government entitlement.  Because jobs lead to lower unemployment.  And less purpose for a liberal Democrat.  Liberals don’t want jobs and low unemployment.  They want high taxes and high unemployment.  So they can matter.  And make a difference.  So they can have a cushy job with high pay and generous benefits.  So they attack tax cuts.  They attack any lowering of regulatory costs.  And anything else that would help businesses create jobs.  Which would take the poor and oppressed away from them.  They don’t want people to be rugged and independent.  They want them needy and dependent.  And they want as many people as possible to be needy and dependent.  Even if it leads to a little rioting.  Especially if it leads to a little rioting.  For a little level of danger can be useful.  As it can be in a nuclear power plant in an anti-nuclear power movie.  Because it’s very hard to get taxpayers to vote for people that want to increase your taxes and make your lives more costly.  While some liberals genuinely care about making people’s lives better many more are like Jack Lemmon in The China Syndrome.  Who understand that they must maintain a certain level of poverty and oppression in the nation.  Or they will have no power.  As no one will vote for them.  Because if you’re in the business of ending poverty and oppression you need a certain level of poverty and oppression to fight against.  Always.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Sixteenth Amendment, Revenue Act of 1913, Progressive Tax, Marginal Tax Rate, Tax Shelter, Tax Cuts and Decade of Greed

Posted by PITHOCRATES - July 10th, 2012

History 101

Americans find Taxes Repugnant and have a Long History of Making this Repugnance Known

American independence began with a tax revolt.  The ratification of the U.S. Constitution happened only with safeguards against the new federal government from growing too powerful.  And great efforts went to limiting the amount of money it could spend.  For a long time all federal tax revenue came from import tariffs.  Then from sales of federal lands as the population moved west.  It took a civil war for us to impose an income tax.  Our first income tax was 3% on incomes over $800 (or about $20,000 today).  The first income tax was a flat tax.  They passed this income tax to pay for the war.  They repealed the income tax following the war.  Americans wouldn’t see another federal income tax until 1913 when we ratified the Sixteenth Amendment.  And President Woodrow Wilson signed into law the Revenue Act of 1913.

Woodrow Wilson was a progressive.  The precursor to today’s liberals.  Who thought beyond the limited government of our Founding Fathers.  They wanted to expand government.  To make it a part of our everyday life.  Where the brilliant progressive politicians would make better decisions for us than we ever could.  And their changing of society included the funding of the federal government.  For their income tax was a progressive tax.  Everyone paid a flat tax of 1% on income of $3,000 or more.  About $66,100 today.  Then the progressive taxes came into play.   Adding another percentage to the income tax rate for increasing amounts of income.  The thresholds for these increases were as follows: $20,000 (roughly $440,400 today), $50,000 ($1,101,000 today), $75,000 ($1,651,600), $100,000 ($2,202,100), $250,000 ($5,505,300) and $500,000 ($11,010,700).  The top marginal tax rate on the super rich (earning $11,010,700) was 7%.

Our second income tax was quite controversial.  A lot of people hated it.  For Americans find taxes repugnant.  And have a long history of making this repugnance well known.  But thanks to the American Civil War a generation of men was lost.  And a generation of boys grew up without fathers.  Tended on by doting mothers.  Smothering them with love and affection.  And these boys grew up without knowing the manly hardships of life.  And they entered politics.  Becoming those early progressives.  Who wanted to change the government into a great doting mother.  And now they could.  For they had their income tax.

Few paid the Confiscatory Tax Rates of the Seventies by Hiding their Income in Tax Shelters

The rich paid our first federal income taxes after the Revenue Act of 1913.  And these were very small percentages we had them pay.  Back then the top marginal tax rate was lower than our lowest income tax rate today.  Think about that.  The richest of the rich paid only 7% of their income ($11,010,700 or more today) in federal income taxes.  While today single people earning the lowest bracket of taxable income (from $0 to $8,700) pay 10% of their income in federal income taxes.  Clearly the growth of government exploded thanks to the Sixteenth Amendment.  Much as our Founding Fathers feared it would if they had too much money to spend.

Of course, this is ancient history.  Few know about this today.  For few could even tell you why we fought for our independence.  Or even who we fought for our independence from.  (We fought for our independence from Great Britain because of their policies to tax us despite our having no representation in Parliament.  That’s where the phrase taxation without representation came from).  Today high taxes are sadly just an accepted part of life.  In fact, we have referred to our paychecks as take-home pay.  Our net pay.  Because gross pay is a myth.  No one sees their gross pay.  About a third or more of that disappears in withholding taxes.  So gross pay is a meaningless expression for us today.  (It wasn’t before the Sixteenth Amendment or before the progressives came to power).  Something that we sadly accept.  And we now fund our lives on the take-home pay the government allows us to keep.  All the while accepting these high tax rates.

Government spending took off in the Sixties and the Seventies.  As did our taxes.  If we had once thought that a 7% tax on incomes of $11,010,700 or more was an outrage, we didn’t see anything yet.  In 1978 the top marginal tax rate was 70% on incomes of $351,712 or more.  And there were 25 marginal tax rates.  As shown here adjusted for inflation (sources: Tax Rates, Tax Receipts, and Celebrity Incomes).

 In this example we calculated the average of some top celebrities.  And the top celebrities on average earned about $30,000,000 in 2010.  Using the 1978 tax brackets they would have owed $20,936,506 in federal income taxes.  Or approximately 69.8% of their total income.  Which is pretty much equal to the top marginal tax rate.  Of course, few paid these confiscatory tax rates.  They hid their income as best as they could in the Seventies.  In tax shelters.  And you know they did because despite these confiscatory tax rates the federal government still ran budget deficits.  Having to print money to pay for their explosion in government spending. 

The Low Tax Rates of the Eighties created so much Economic Activity the Opposition called it the Decade of Greed

The heyday of Keynesian economics was in the Seventies.  After Richard Nixon decoupled the dollar from gold the Keynesians were free to print money to stimulate the economy.  Which was their answer to ending a recession.  Stimulus spending.  Have the government print money to create economic activity that wasn’t happening in the private sector.  Their policy tool to end a recession was inflation.  By pouring money into the economy people would borrow it and buy cars and houses and furniture.  And everything else under the sun.  Creating a surge of economic activity.  And creating jobs in the process as businesses must hire new workers to meet that government stimulated demand.  With the dollar decoupled from the ‘cross of gold’ the Keynesians were finally able to prove their mettle.  And solve all the country’s economic problems.  It was the dawn of a brave new world.

And that world sucked.  For the implementation of Keynesian economic policy proved those policies did not work.  Instead of replacing high unemployment with inflation they just added high inflation to the high unemployment.  Something that was impossible to happen in Keynesian textbooks.  But it happened.  Stagnant economic activity.  And inflation.  What we called stagflation.  We added the unemployment rate to the inflation rate to come up with a new economic indicator.  The misery index.  The economy was so miserable during Jimmy Carter’s 4 years in office that he lost in a landslide to Ronald Reagan.  Who was a proponent not of Keynesian economics but of the Austrian school.  Or supply side economics.   And the Austrians believed in low tax rates.  For low tax rates would stimulate economic activity.  And the greater amount of economic activity would generate a greater amount of tax revenue even at lower tax rates.  Let’s look at that same celebrity paying taxes a decade later under Ronald Reagan.

 Much simpler.  And more in keeping with the Founding Fathers.  Instead of paying 70% of their earnings in federal income taxes they will only pay 28% (again, equal to the top marginal tax rate.  Which is pretty much the only tax rate the rich pay).  That’s still a lot of money to give to the federal government.  But it’s so much smaller that in many cases it was cheaper and easier to pay Uncle Sam than trying to hide that income.  So economic activity took off in the Eighties.  It was so great that the opposition called it the Decade of Greed.  Out of sour grapes because their policies could never produce anything like it.  But what about tax revenue?  Those on the Left say this economic activity came at a price.  Exploding deficits.  Well, the deficits did grow.  But it wasn’t because of the cuts in the tax rates.

Higher Tax Rates do not Necessarily Increase Tax Revenue 

In 1978 total tax revenue was $1,113.6 billion.  In 1988 total tax revenue was $1,421.1 billion.  So Reagan’s cuts in the tax rates produced $307.5 billion more in tax revenue.  An increase of about 27.6%.  Dropping the top marginal tax rate from 70% to 28% actually increased tax revenue.  So the cut in tax rates did not cause the deficits.  It wasn’t a revenue problem.  Revenue went up.  Spending just increased more.  And it was this excessive government spending that caused the deficits.  Not the tax cuts. 

The lesson here is that higher tax rates do not necessarily increase tax revenue.  Because changes in tax rates changes behavior.  Higher tax rates discourage people from investing in businesses.  They discourage businesses from expanding.  Or hiring new workers.  Higher tax rates may decrease the opportunity costs for hiding income.  The cost and inconvenience of hiding income in tax shelters and offshore accounts may become less that the cost of paying higher taxes.  Like it was during the Seventies.  Where despite confiscatory tax rates the government could not generate enough tax revenue to meet their spending obligations.

Income tax rates grew from a very small percentage on only the largest of incomes to high tax rates on very modest incomes.  And yet our deficits have never been larger.  Proving that our tax rates are either too high and dampen economic activity (as well as encouraging people to avoid paying their taxes).  Or that government spending has just grown too large.  More than likely it’s a combination of the two.  A fact that would shock and dismay the Founding Fathers were they alive to see what we did with the republic they gave us.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,