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One thing that united both the Tea Party and Occupy
Wall Street, around 2009, was their opposition to corporatism/crony
capitalism. Someone had committed some very big crimes, and they were getting
away with it. Immense sums were being stolen from taxpayers, mostly by big
banks, around the world. Companies that should have gone bust instead were
bailed out and became even more dominant. Politicians were bought and paid
for by Big Business – not all big businesses, but a relatively small
group of companies whose names we all know well.
This issue has strangely disappeared from official discussion. Now we are
told that the Tea Party wants lower taxes (or at least no change in taxes),
and Occupy Wall Street wants higher taxes.
Divide and conquer.
This is not to suggest that tax policy doesn’t matter. It is one of the
most important things for the long-run (and often short-run) success of any
country. However, none of the events of 2008-present have anything to do with
tax policy – not even the budget deficit. Federal tax revenues were
18.5% of GDP in 2007, about their long-term historical average since 1950,
and more than the 17.6% of 2002 or even the 18.0% of pre-Reagan 1978. Since
then, tax revenues dipped to 15.4% in 2011, but that has more to do with the
sluggish economy than any changes in tax policy.
Occupy Wall Street was diverted by the idea that this small group of
corporate criminals – among a much larger group of honest businessmen
– were “the rich,” and that they should be punished not by
the capitalist outcome of having their companies go bankrupt and then doing
jail time for crimes committed, but rather with higher taxes on higher incomes.
“The rich” were expanded to include anyone who committed the
crime of making more than $250,000 per year, often between two earners.
That’s why “taxing the rich” is non-negotiable among
Democrats, whatever the economic consequences, and however irrelevant the
additional income would be, if it even appeared at all.
This was a nice trick. Faced with this, the Tea Party types were diverted
into arguing that taxes on “the rich” should not be changed.
This whole process was intensified by the fact that the U.S. Federal deficit
was indeed growing quite large, although not because of insufficient
taxation. Mostly, it has been a combination of falling tax revenues (as a
percent of GDP) due to economic stagnation, and rising welfare and
entitlement payouts for existing programs. A couple wars didn’t help.
The Tea Party types were diverted still further by the idea that the liberals
were “buying votes” with their welfare and entitlement policies.
However, except for Obamacare, which even the lefties don’t seem
particularly happy about, there haven’t been any new welfare and
entitlement policies. As far as the public is concerned, they aren’t
getting anything new at all. Nor have Republicans made any real effort to
undertake a major reform of existing programs. Republican and Democrat policy
on entitlements is basically the same – do nothing – at least for
the short term.
Thus, the debate became not only one about taxes, but vaguely about welfare
programs in general. These are genuine long-term issues, as the U.S.
government will have to deal soon with fiscal problems that have been
festering for decades.
This outcome simply shows that the political discussion can be steered and
guided relatively easily, and most people won’t even notice.
Unfortunately, it also suggests that nothing very good is likely to come of
the process. The manipulators themselves don’t seem to have much of a
plan, except to continue doing what has worked so well thus far –
milking the taxpayers for their benefit, and maintaining or expanding their
present parasitic strategy. This simply makes fiscal problems worse, and, as
it leads to higher taxes, cripples the economy as well.
The most likely path ahead is that tax rates will rise somewhat; the economy
will worsen somewhat with a recession in 2013 and generally poor results for
the next decade; tax revenues will disappoint; Federal spending will prove
impossible to tame with existing entitlement and welfare programs; very large
deficits will continue; the crony capitalists will become even more
influential, to the detriment of the general welfare; and the Federal Reserve
will be pressured to take up the slack, with unemployment and inflation rates
massaged as necessary to enable them to do so.
This is a path of ruin. The Federal Reserve has now committed itself to $85
billion of outright monetization per month, which is a very high rate. They
say they have an exit plan, but that is likely to prove quite difficult in
practice.
In times like these, it is good to hold a positive vision of the future. Remember the Magic Formula: Low Taxes,
Stable Money.
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