There is an interesting economics column in the Wall Street Journal on the similarities between the Greek meltdown and our own fiscal policies. I have long been a critic of the wild spending of both Congress and President Obama, including the recent proposal to simply pay for an over $200 million short-range missile program for Israel (here). This article discusses the possible disaster awaiting the United States as our leaders blissfully assume that a recovering economy will pay for their various programs and pet projects.
The column questions the logic of being able to tax their way out of this deficit. While I am socially liberal, I tend to be fiscally conservative and I find the current situation extremely alarming.
This article is interesting for its proposition that higher taxes are not able to close such a gap:
The feds assume a relationship between the economy and tax revenue that is divorced from reality. Six decades of history have established one far-reaching fact that needs to be built into fiscal calculations: Increases in federal tax rates, particularly if targeted at the higher brackets, produce no additional revenue. For politicians this is truly an inconvenient truth.
This is a different take on the problem. I have always been skeptical of the “spend out way out of the crisis” approach — which is an awfully convenient theory for members who are always inclined to spend more and put off payments to the future. Once back in power, the Democrats seemed to immediately fulfill a stereotype of higher spending and immediately turning to higher taxes as the solution. This is precisely the course that led to the last Republican takeover of Congress. In their defense, Democrats faced a crisis left to them by the Republicans and particularly George Bush who was one of the greatest spendthrifts in our history. However, they have shown no serious commitment to tackle these dire economic forecasts — gushing money in Iraq and Afghanistan while watching cities and states shutting down basic programs. Our debt is now growing at a record pace — roughly $5 billion a day (here).
This is not to excuse the Republicans who, under Bush, showed no restraint and left Obama with a massive debt. I simply have little faith in our current economic policies or a sense that leaders are seriously addressing the growing threat to the nation from our growing debt. Various countries have raised alarm over our debt and the similarities to the Greek meltdown, here.
For the column, click here.
[T]he recognition of private property has really harmed Individualism, and obscured it, by confusing a man with what he possesses. It has led Individualism entirely astray. It has made gain, not growth its aim. So that man thought that the important thing is to have, and did not know that the important thing is to be.
~Oscar Wilde
Tony C and Buddha:
I agree with some of what you said, certainly you have no right to injure another and some government is required to act as an “umpire” between opposing interests. I am not an anarchist. I also think there is such a thing as a reasonable level of taxation but a case can be made and has been made for privatization of many aspects of government services.
Anyway back to private property. How is private property acquired? Someone had to use the sweat on his brow. It goes back to Mr. Locke. Taxation is the confiscation of a portion of someones life. It is slavery albeit only partially.
Call me dense or whatever you want but government has way overstepped the authority given to them.
B,
Tony’s answer is correct: the Constitution protects personal property within reason. Your property rights end where they start to interfere with the civil rights or property rights of others. Example: You are free to own real property and you are free to own old refrigerators, but you are not free to leave them about your real property unsecured as they are deemed an “attractive nuisance” that can lure in children who are subsequently trapped in said defunct appliance and die from suffocation. If you do so, you will face both criminal and civil charges. Example: You are free to make a profit off of legitimate business deals but you are not allowed to perpetrate a fraud to make said profit (indeed, an unjust profit is part of the elements of criminal and civil fraud equivalent of the contractual claim of unjust enrichment). Restrictions on personal property rights are well established as Constitutional in American jurisprudence.
@Byron:
I don’t have time to look it up and be precise, but I believe it does protect private property within reason (You cannot use it to cause damage to others, for example, which is what prevents people that own land from polluting it, or cutting off water, or using it to deny access by others to their own private property.)
To anticipate your argument (possibly incorrectly) I would consider money private property. But note we are not talking about the government seizing anybody’s property, we are talking about a tax on income, which is best regarded as a fee for required services.
For example, I assume you, like me, demand that the government enforce binding contracts that were entered into willingly without fraud or deception. You, like me, demand that the government (to the best of human ability) investigate, arrest, try and imprison people that have murdered others in anger, or stolen private property, or rape fellow citizens.
These services cost money, even if you don’t use them. For these services, the government demands the society as a whole pay that money, not just the people that use them. In the latter case, the problem would be a violation of equality, between those that can afford law and those that cannot.
The principle at work in taxing income (although most economics researchers do not put it this way) is to equalize the *pain* of providing society’s services. Not the amount, and not the percentage, but the inconvenience caused by costing money.
This is why we have a progressive tax system: For people that earn minimum wage, the amount of pain caused by taxation is so great the rich would have to give up everything to suffer equivalently. So we establish a lower limit on what income will be taxed, and theoretically it should be set so that people are not taxed until they can pay the tax without causing hardship. The rich get taxed more, not because they can afford more in any absolute sense, but because they can tolerate greater losses without any significant change in their lifestyle.
In my 30’s my consulting job put me in frequent contact with the reasonably wealthy (multi-millionaire business owners seeking my kind of help), and most of their excess income was just a number on a statement. If their tax tripled, it wouldn’t cost them a car or an employee, it would just be a smaller number. The only hardship they would endure would be angst over a number; they wouldn’t have to give up a thing.
Heavy taxes on *income* would not prevent somebody from becoming rich, or saving, or owning a company. It is not a tax on assets, it is a tax on income, which is a rough approximation of the benefit one enjoys due to living in a “rule of law” state instead of armed anarchy.
I will also say that those that think taxes are too high are probably correct. Our American government is corrupt, captured by corporations, incompetent service providers and beholden to the wealthy. I keep pointing this out because I don’t want people to think I endorse the current situation, and I do not endorse this hypothetical socialist democracy we are discussing as a solution to the current situation. I am just trying to make the distinction between what the Constitution says and what it does NOT say.
Tony C & Buddha:
Does the Constitution protect private property? Excluding of course the taking of land for public uses such as roads or parks.
Tony,
As ever, one lives to be of (humorous) service.
@Buddha:
That’s funny. Awesome quote.
“The ingenuity of self-deception is inexhaustible.” – Hannah Moore
That one’s just for you, Byron.
>> … I don’t understand how that is possible.
I do not believe that claim. You truly do not understand how some document, which is nothing but the agreement of a committee of a few dozen people debating issues two hundred years ago, can fail to comport to your personal vision of freedom?
Why would you think the Constitution does *everything* you think it should or everything you want? What makes you think the founding fathers were infallible, or created some perfect government with perfect liberty and perfect prediction of the current society?
It is ludicrous for an adult to claim that everything they want to do must be legal and everything they do not want done to them must be illegal.
It is the central point of representative government to prevent coercion and exploitation of some by others. It is what makes the difference betweeen a government that serves the people and a government that exploits the people for its own gains.
I can agree that we are leaning toward the latter in recent decades, but that is beside the point. The point is that in order to prevent the strong (financially speaking) from abusing the weak, controls must be instituted. One such control, which I do not endorse, is limiting how strong any individual can *become* financially.
At this point if you refuse to believe the Constitution would allow some limit on the income of individuals, I will require a Constitutional quote that would refute me. I don’t care what you *think* the Constitution says. It says what it says. Produce some fact, not your opinion of how reality *should* be.
You’ve been chasing your tail long enough.
Are you about to catch it, B?
Byron,
I’ll let Tony answer for himself, but I do believe the topic that “governance” and “commerce” are two distinctly different endeavors that operate on different premises and by different rules is the exact point you’ve been missing. That commerce is directly controllable by the government? That’s explicit in the Constitution. The Commerce Clause is found in Art. I, Sec. 8, Cl. 3 which states Congress shall have the power “[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”. If commerce is trampling upon the civil rights and liberties of others (which it is now thanks to the graft of the campaign contribution system and K St.) then the government has every right to regulate or even terminate those lines of commerce due to the Equal Protection Clause (the 14th Amendment). Again, the rights and needs of the many outweigh the desires of the few or the one. This includes the desire for unlimited profits at all any cost – socially and/or economically.
Tony C:
So as long as we are free to speak and assemble and carry guns and not be subjected to unreasonable search and seizure and as long as we are entitled to due process we can be taxed on all our income or even most of it?
So we can be free politically and not economically and that jibes with the constitution. I guess I am a dumb ass because I don’t understand how that is possible.
In my mind that is the same as saying if I jump off a cliff I wont fall to the ground.
Byron,
The really sad thing here is Tony isn’t beating you with a new stick. It’s the same stick we’ve all been beating you with, albeit from different angles, for about a year and half now.
Is the light starting to dawn yet?
Unlimited and unfettered greed is not protected by the Constitution.
Now where have I heard that before?
Personal freedom consists of freedom of speech, your rights to habeas corpus, your right to vote, your rights to due process, a trial, your freedom of religion, your right to bear arms, your right to assemble, your right to petition. Read the Bill of Rights, all of these are in there; but of course you have the other implied rights granted in the Constitution by virtue of them setting out procedures for citizens to elect representatives, senators, the president and vice president, etc.
That is personal freedom. None of these gives you the right to capitalism, or the right to be free of taxes, or the right to be free of rules and regulations. In the USA we have had marginal tax rates of 94% on all income over $200K (1945, to help pay for the war) and over 90% on all income over $200K between 1945 and 1964. Note, by the way, that 20 year period was a boom for the stock market, the Dow rose an average of 9.1% a year, or 568% over the course of those two decades when the rich were in, according to you, “slavery.” That beats OUR last 20 years (403%). (To preempt the obvious argument; inflation over that period averaged 2.76%, vs 2.5% for OUR last 20 years, so these high marginal tax rates were not accompanied by an unusual amount of inflation).
Slavery is not about income; slavery is about coercion to work a job you hate, or in a specific place or for a specific company or at a specific job. Slavery is the removal of your choices in the conduct of your professional and personal life. The 100,000 girls in our country being forced to have sex 12 times a day are slaves. It isn’t because they get zero money from these exchanges; an adult women that *chose* to have free sex 12 times a day with strangers would not be a slave.
Slavery is about coercion and exploitation. In a pure socialist economy, which can be a democracy, our Bill of Rights could still apply. You could still work where you want, at what you want, and not worry about being without a home, food, clothes, health care, dental care, education, transportation or heating or cooling, even when unemployed. Your income would be essentially for your personal entertainment and used to buy your personal property. That might include upgrades to your housing, food, clothing or whatever, or for vacations, or a big TV, or going to the movies, or buying sports equipment. You can be free to do as you please without the freedom to earn unlimited amounts of money.
I will point out the median FAMILY income in the USA is about $50K, and taking away taxes and the costs of living (housing, food, transportation, health care) there is very little discretionary income left.
I am not advocating for pure socialism in this example; I do not believe it is a good approach to government. But it would not be prohibited by our Constitution, and in fact we already have approached near 100% rates in the past, and it was not Unconstitutional. Ignorant opinion is always that the law and Constitution prevents whatever it is they hate. It doesn’t. Socialism is not un-American, if one defines “American” as adherence to constitutional law in America.
Tony C:
“Economic freedom is not personal freedom.” It isn’t?
I guess the entire Constitution and the Declaration are just words that don’t mean shit according to your statement. So how are we personally free if we don’t have economic freedom? If I make $1,000,000 per year (which I don’t) and I get taxed all but 50K how am I not a slave?
Now how much were tea taxes?
Please tell me how you come to that conclusion, I am all ears.
@Byron:
P.S. Since you seem to me to be more enamored of authority than logic, here is a multi-billionaire that agrees with me.
http://dealbook.blogs.nytimes.com/2010/06/10/the-full-soros-speech-on-act-ii-of-the-crisis/
Also, I do sub for professors once or twice a year when they have had to be absent during regular school days for professional (conferences) or personal reasons. But I do that as a favor to them, it earns me no extra money beyond my salary and I am not ever required to do so by anybody.
@Byron:
You seem to think I am a professor, and I am not. I am a research scientist. Full time. I work at a University, they pay me, but I teach no classes to anybody, not freshmen, not graduates. I have in the past worked with other researchers as co-authors for various papers or projects, and some of them have been professors and some of them have been graduate students, but in such circumstances we are peers.
Now, why don’t you know shit? The root of that problem is probably an inability to admit that what you WANT to be true is simply not true. Because of that inability, you must search for and seize upon some exception to even the most glaring and obvious examples of how your beloved fundamental ideal of “free markets” fails in practice.
It makes no difference whether China can shut down free markets. In fact the practical consequences of such a move would be a massive depression and chaos within China, including alienating some very critical trading partners they have and causing their businesses to violate billions in contracts, so in practice, they cannot do as you say. They are capitalists and cannot go back.
But even theoretically, if they could stop it, that doesn’t mean they aren’t practicing free market capitalism RIGHT THIS MINUTE. Their businesses are doing so just as though this capitalistic economy is going to continue indefinitely. What that means is the negative consequences of free market capitalism in China are just what we’d expect to see if free market capitalism were practiced anywhere else.
AS IT IS IN INDIA, which is a representative democracy, with representatives directly elected by the people. They are also modernized, with English speakers, and high tech jobs, and all the rest. I was just there this year, visiting a university (in my professional capacity, not socially).
Yet you ignore that example to focus on some completely extraneous fact about Chinese government, which is not just being ignored by me, but BY THE CHINESE billionaires practicing free market capitalism!
Economic and political freedom are NOT corollaries. One does NOT demand the other. A monarch can rule over a capitalist society where nobody has political freedom; and a democratic representative socialist society can have no economic freedom despite the political freedom to elect their representatives and having freedom of speech. Economic freedom is not personal freedom. If the USA imposed a 100% tax on every dollar over $50K in income, it would be entirely Constitutional and would not change *any* of your civil rights. It might change your motivations, but not your freedom. The freedom of citizens in the United States, guaranteed by the Constitution, does not guarantee any right to capitalism, or the ability to earn a profit, whatsoever. You will not find that anywhere in the Constitution, I assure you.
I am sure it will never happen, but at least theoretically our Congress and President could make the USA socialist tomorrow, without violating a single sentence anywhere in the Constitution. But even with unanimity they could not abridge your freedom of speech without violating the Constitution. Now they *might*, Bush and Obama have been violating Constitutional rights for ten years now, but they are clearly violating the Constitution in doing it.
tony C:
“It is entirely plausible (and implemented in China) to have a capitalistic economy without democracy. I honestly don’t think you understand shit. We DON’T have relatively free markets, we have literally THOUSANDS of laws on employment, termination, compensation, sexual harassment, discrimination, hiring, required paid leave, and on and on. We actually need more, but China has NONE OF THAT. Which is a freer market?”
The one thing that you don’t mention is that China can stop that “free” market tomorrow if they so choose.
So how is that a free market? I may not understand shit but I know the difference between slavery and freedom. A human is not free if the master lets him experience “freedom”.
Why don’t I know shit? Because I disagree with you? Good point. Go back to beating up freshmen who need a good grade and cant argue back.
economic and political freedom are corollaries, to have one you must have the other. So you see this not just about free markets but free people as well.
@Woosty:
We don’t have to actually limit it; just make it so a majority of the shares must vote for it if it exceeds, say, $500K a year in 2000 dollars. Not just a majority of those that bother to vote, but enough to represent an absolute majority of outstanding shares. And make that cover all compensation, including stock options and bonuses and perks not available to at least 90% of employees, both full time and part time and contract.
And finally, repeat that vote every two years. If somebody owns their own corporation then they can do what they want and pay themselves what they want. If they sell off less than half their stock, and buyers are made aware that they do not control the salaries, that is their decision to make.
The problem is C-suite predators in corporations paying themselves most of the profits of the corporation without the permission of the shareholders that own those profits. In most cases I have seen, if shareholders could veto this egregious compensation then the majority would do so. The problem is that the board and officers of the corporation are violating the trust of shareholders and acting in their own self interest instead of doing their duty as employees to act in the best interest of shareholders.
Free market shmee market.
We live in a corrupted market environment.
Regulate the amount that CEO’s can scrape out of the equation and see what happens. The part of the market that should be free is supply and demand, within a marketable border…get all the greedy parasites out of the equation and the markets will correct and hum and quality of product will once again become an essential factor. Off shoring is evasion. Right now the corporations have global carte blanche….clip their f*cking wings. At some point the ‘global’ environment will be regulatable, that is a long way off…this is the time ,right now, to hold people to accountability…we are in a time where those who are vulnerable are MOST vulnerable and those who are irresponsible are HARMFUL to those who are vulnerable.
I can’t think of one thing that is a negative consequence to regulating CEO compensation to a REASONABLE exponentiality of what the employees get,(and there are plenty of think tanks out there espousing this with numbers and everything!) and then you can even factor in that even those crooks with the thickest heads can begin to see that creating goodwill with and recognizing the essential aspect of those that do the labour and make the products are their REAL ASSETS.
Have you seen what choking labor in China is doing to the suicide rate? And lets not play word games and kid ourselves…the dynamic here is fast approaching the same.It already exists here underground.
http://www.businessweek.com/news/2010-06-02/foxconn-workers-in-china-say-meaningless-life-sparks-suicides.html
‘China now is censoring suicide-related news about Foxconn, so it may be difficult for labor activists and others to determine if higher salaries and access to counseling are effective in reducing deaths.’
http://www1.voanews.com/english/news/economy-and-business/Analysts-Salary-Increases-May-Not-Ease-Southern-Chinas-Labor-Woes-95888554.html
Regulation without ENFORCEMENT is like a fish wanting a bicycle in the Gulf…