The American Dilemma and How We Can Fix It

THE GREAT SHAM-WOW!

Now that both Western and Eastern Orthodox Easter have been celebrated, it is time to come back from my sabbatical and turn my attention from the sacred to the profane.  Fortunately, this two week hiatus has provided ample material to consider – the most obvious being yesterday’s Senate vote on “the Buffett Rule”.

Of course, this tidbit of proposed legislation had no chance of passage but provides the President, always the consummate campaigner, an opportunity to point to how the GOP is the party that protects the rich – while he as a Dem is on the side of the little guy.  President Obama made this point in a speech in Florida in which he descried the fact that he pays a lower effective tax rate than his secretary and that raising the tax rate on the rich will put our budget in balance and we will finally all again start living the “American Dream.”

Sadly, the facts suggest something quite different  – so either the President is simply very poor at math or is just misinformed.  In either case, it makes the thoughtful person wonder why they would vote for him this November – at least if that person has an IQ that is higher than your average kumquat.  So, for your review and consideration here are the facts about this proposal – and a brief review of how tax equity really works.  Since this is “Tax Return Filing” day I thought this would be an appropriate subject.

First, “the rule” is intended to get the super wealthy (those individuals earning one million or more a year) to pay a higher percentage of their income in taxes.  This should have broad appeal since most of us who are reading this (or for that matter writing it) don’t fall into that category.  Most of us probably don’t even know anyone who fits into that income level – except perhaps for our tightwad Uncle Percival who has terrible halitosis and won’t even leave an honorable mention of us in his will.  So what could be better than to have these wealthy people balance our budget – rather than taking the money out of our own pockets?

Well, according to all reliable sources, including the independent CBO, implementing this rule will actually raise approximately $47 Billion – over a period of ten years.  According to President Obama, during that same time period, the national debt will increase by $600 Billion.  Assuming that the President’s rosy projection is correct, that leaves a shortfall in revenue of a little over $550 Billion.  (I say rosy because during President Obama’s short three year reign, the deficit has increased by nearly $5 Trillion).

So while implementing “the Buffett rule” might be a step in the right direction, it obviously will not resolve our budget and deficit problems.  The only way that can happen is through a reduction in spending (something the Dems bitterly oppose) or increase taxes on a broader base (something the GOP abhors).  Throughout the history of the world, governments have always taken the path of least resistance – and rather than make hard choices like curbing perks for lawmakers and their supporters – have always chosen to heap additional and inventive new forms of taxation on the rest of us.  Let’s take a quick peek back into tax history in the United States.

This is not the first time that the question of tax inequity has surfaced.  In 1969 the Congress was outraged that certain high net worth individuals were paying little or no taxes.  They had primarily invested their assets in tax free municipal bonds issued by the states and various municipalities – the interest on those investments being exempt from Federal Income Tax.

The hue and cry of “tax equity and fairness” was heard in he halls of the Capitol Building and the Congress passed a change in the tax code so that these people had to pay something into the coffers of the Treasury to benefit the common good.  This change in the tax code was known as the AMT (the Alternative Minimum Tax) – and you may be startled to learn that the number of taxpayers who were actually affected by this was a mere one hundred fifteen people in the entire country.  Compare that to the number covered by “the Buffett rule” – estimated to affect over a million taxpayers initially.

Now here’s the tax history lesson.  The AMT which initially was applied to a mere handful of people now affects over thirty-two million taxpayers.  You see, once government gets a hold on a bad idea, there is no limit to how far they can and will extend it.

The GOP has “trickle-down economics”.  This is a theory which may or may not work.  But the history of taxation in this country is clear.  The Dems have “trickle-down taxation” which, using the AMT as an example, clearly does work.  So before you get on the “soak the rich” bandwagon, consider that you may well be the next in line for tax increases.

Until we get true leadership and honesty both in the White House and in the Congress we will continue to stumble along – putting a bandage here and tying a tourniquet there to try to staunch a gaping wound and a gushing flow of budgetary blood.  But until that happens, perhaps both Mr. Buffett and President Obama can show us real integrity by voluntarily sending the IRS a check for the difference in the amount of their effective tax rates and those of their secretaries.  If they were to do that I would take off my hat and say, “Wow!”

Otherwise, it’s hard for me to look at their statements as little more than a sham.

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Comments on: "THE GREAT SHAM-WOW!" (10)

  1. Actually the US is in serious trouble, or should I say future retirees are in serious trouble. The retirement fund is so far underfunded that future retirees should be very frightened indeed. The hidden tax is the one to be feared most of all. That tax happens when money supply far exceeds the gross national product. Lets hope all those dollars held by overseas countries are not converted into their own currencies as the resulting devaluation of the dollar may be good for exports but as much of what is bought in the supermarkets and malls originates overseas it comes at a higher cost in many ways, even when purchased from China which sees it’s currency is undervalued. Middle class and poor will find their dollar buys much less than it used to even though foreign goods may be cheaper than those produced in the US. Foreign imports affect US jobs as US firms cannot compete price wise, so you have high unemployment and the downward spiral. That in a sense is a tax on middle class and poor. But the really big problem is from politicians from each side of the political strata who are more interested in power and compromise to maintain that power than they are in making consensus decisions, hard decisiions, which will get things on track again.

    • Sorry, Ian about the delay in responding. I couldn’t agree with your assessment more completely. You have given a textbook (but understandable) definition of inflation. And, of course, that is the hidden tax.

      Interestingly, today Procter & Gamble announced that they are moving their personal care division to Singapore. While this will only result in a reduction of 20 jobs, it does go to prove the point that capital flows to where it is treated the best. The corporate tax rate in Singapore should result in a 25% increase in profit for P & G. That is a lesson that our “leaders” in Washington would do well to heed.

  2. 1. “…we will finally all again start living the “American Dream.”
    What “American Dream?” There is no American Dream. It’s a myth for all but the wealthy 1%.

    2. “The GOP has “trickle-down economics”. This is a theory which may or may not work.”
    It doesn’t. Nothing to think about.

    3. “…putting a bandage here and tying a tourniquet there to try to staunch a gaping wound and a gushing flow of budgetary blood.”
    Amen to that! A wound inflicted a decade ago, and constantly having the scab ripped off repeatedly with new administration ‘zeal.’

    • 1. I think most American’s think the “American Dream” is hitting the lottery or filing a law suit. With that mentality it is not surprising that so many are despondent.

      2. Okay. I’ll agree that “trickle-down economics” is a theory. However, “trickle-down taxation is a reality – and it will be used by any government (led by whichever party) in order to gain more and more of the peoples’ funds so that they can squander them.

      3. I think it’s more like three decades – with no signs of change coming anytime soon.

  3. During the Eisenhower administration the top tax rate was 91% and after deductions the most anyone paid was about 52% of their income in taxes. Kennedy lowered it to 70% and Clinton to 39%. During the years the income tax was highest the economy grew at the fastest rate ever in American history. The interstate system was built and NASA put men on the moon. In the 80’s Reagan deregulation policies led to the return of the boom bust cycle that is the hallmark of conservative economic policies.

    • Your historic view of income taxes is exactly correct. The one omission in your analysis is that the conservative President Eisenhower was the driving force behind the interstate highway system and that the revenues which were collected were actually spent in a useful manner. Government was one third the size of today – so we were actually spending money on infrastructure and not on bloated bureaucratic salaries and benefits. Since then we are looking at the complete reversal of the work undertaken in the 1950’s. Our bridges are collapsing, our water delivery systems are in serious need of repair and we are wasting a great deal of what we collect rather than dedicating it to worthwhile projects.

      • Such as the two wars under Bush and the foreign aid Conservatives love to give away to foreign dictators.

      • You would do me (and I think other readers of this blog) a great service if you would define the term “Conservative” as you use it. I look forward to your response.

  4. nearlynormalized said:

    “When you have nothing you have you freedom” Try to live with that…Maybe if I walked on the streets with a cup in my hand–might do.

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