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As noted in the sidebar, John McCain and the Counterrevolution are at it again, bringing up the t-word. McCain’s TV ad, which has run incessantly through the Olympics so that I think I’ve seen more of it then Michael Phelps is based on the following rather dubious equation: taxes lead to more spending, which leads to less jobs. As I noted in the sidebar try to tell that to FDR (or Ronald Reagan, who raised taxes).
The argument, of course, is absurd. Without taxes we’d not only have less spending, we’d have no government, no roads or bridges, no schools, no airports, no post office, no Internet, no hospitals…Maybe that is what McCain and the Counterrevolution want: a world where most of us live worse than that TV caveman and the rich can buy whatever they need.
Actually if you check the facts, quite the opposite has happened. Lower taxes have led to less spending which has led to higher unemployment. Lower taxes have also produced a scenario starting to strangely resemble the one above: bridges falling into rivers, schools with inadequate restrooms and no textbooks, health care that is in serious trouble. The so-called Bush tax cuts were supposed to produce the opposite, but they have failed miserably.
As I have periodically noted in this blog the rich have spent their tax cuts on various dubious luxury purchases including $1,000 bottles of wine, barbecues big enough to heat quite a few of the homes that will face a heating crisis this winter if fuel costs stay where they are, and luxury boxes for sports arenas that have more space and amenities that many Americans live with.
But then F. Scott Fitzgerald said the rich are different than you and I. Lately I’ve been spending a lot of time back a century ago researching the beginning of what came to be termed the American Century. Back then the rich were no different than they are today–with one exception. I do not believe their conspicuous consumption was as visible or absurd as it has become today.
During the Gilded Age the rich tried to outdo each other in building outsize mansions, but none of them could light a candle to the “homes” of Bill Gates or Tiger Woods. During the Gilded Age, the rich drove ostentatious carriages, wore hats with giant egret feathers and played croquet. Yet for all this they had none of the ridiculous hubris of today’s tycoons.
It was as if they did not want to go too far. The plutocrats of the Gilded Age received nicknames like duke and baron and the wimpy Democrats of the time were known as Bourbons (after the French royal family), reflecting longings of the purveyors of the Great Barbecue to be seen as the American equivalents of European aristocrats. Andrew Carnegie even bought himself a Scottish castle, a purchase some of his colleagues emulated at a time when castles and manor houses sold at bargain basement prices as European aristocracy went into decline.
Today’s rich seem to want to flaunt their bling. Their idols are not European dukes and duchesses but Liberace–in other words Hollywood. Andrew Carnegie and his sidekick Henry Frick would be positively apoplectic about Sanford Weill’s infamous Wall of Me. Both collected art and founded great philanthropic foundations rather than collecting memorabilia about themselves. If they used Weill as the model for Citizen Kane, Rosebud would have the place of honor.
This leads to an interesting statistic I came across in an 1892 speech by William Jennings Bryan. According to Bryan:
You take the statistics furnished by Mr. Shearman in the Forum, and he shows that 25,000 people own one-half of the wealth of this country, and 65,000,000 divide the other half between them.
Obviously that statistic had Bryan seething, along with a goodly number of his progressive contemporaries, but what would Bryan make of the following:
Bloomberg.com recently reported on a study showing that “top private-equity and hedge fund managers made more in 10 minutes than average-paid U.S. workers earned all of last year.
Bryan was the first politician to propose an income tax and make it part of his platform when he ran for President in 1896. Therein lies a story of how distorted the t-word has become. The original income tax as Bryan envisioned it was exactly the opposite of what it is today. What do I mean by that?
When Bryan first introduced the income tax as an amendment to an 1894 tariff bill it taxed only those making over $4,000 (a princely sum at the time) at the flat rate of 2%. The bill and the tax passed but were overruled by a 5-4 vote of the Supreme Court. Whereupon the Democrats added the income tax to the 1896 Democratic Platform. Bryan bluntly defended it:
When I find a man who is unwilling to bear his share of the burdens of the government which protects him, I find a man who is unworthy of enjoying the benefits of a government like ours.
The 1896 platform read:
The burdens of taxations may be equally and impartially laid, to the end that wealth may bear its due proportion of the expenses of the Government.
It took until 1913 and the passage of the Sixteenth Amendment to make the income tax law. Today Bryan’s idea that “wealth may bear its due proportion” has been turned on its head. Curiously the people at the Brookings Institution just released recommendations of fixing the current system that reached a similar conclusion.
In “Distributional Effects of the 2001 and 2003 Tax Cuts: How Do Financing and Behavioral Responses Matter?,” researchers concluded:
In the more complete analysis that incorporates financing and behavioral responses, a large majority of households are made worse off by the tax cuts, especially in the lower three income quintiles. Only in the top quintile, and especially in the top percentile, do people experience substantial gains.
In other words, the exact opposite of what Bryan envisioned happened under George W. Bush. Further on the report notes:
There is little doubt that the 2001 and 2003 tax cuts were regressive on a lifetime basis as well as an annual basis.
A commentary by Brookings Vice President William Gale advised:
Here’s one other major issue facing framers of tax policy: making taxes more progressive, so that poor people aren’t kept poor. People who don’t earn enough to pay income taxes still should have the advantages of tax incentives for education and other social benefits. This can be done by giving the same cash payment (or “refundable tax credit”) to everyone eligible for the benefit. Then middle-income individuals, too, would reap the same advantage as upper-income individuals. In the present system, tax deductions are more of a boon to people in the highest tax brackets.
As for the McCain and Obama positions on taxes here is what the nonpartisan Tax Policy Center had to say:
The Obama plan would reduce taxes for low- and moderate-income families, but raise them significantly for high-bracket taxpayers. By 2012, middle-income taxpayers would see their after-tax income rise by about 5 percent, or nearly $2,200 annually. Those in the top 1 percent would face a $19,000, or 1.5 percent, reduction in after-tax income.
McCain would lift after-tax incomes an average of about 3 percent, or $1,400 annually, for middle-income taxpayers by 2012. But, in sharp contrast to Obama, he would cut taxes for those in the top 1% by more than $125,000, raising their after-tax income an average 9.5 percent.
Obama would raise revenues by about $600 billion over the decade, while McCain would lose $600 billion.
In short, we’ve seen this scam before, we have the data on what it did to the average American, and frankly we do not want any more of it. Bryan provides the last word:
Backed by the history of every nation that has gone down, I say to you no people can continue a free people when the great majority of its citizens are tenants of a small minority.
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