by Tom Lowe
August 16, 1999
On Sunday, August 8, 1999, the Clarion-Ledger featured a pro-con debate between CPA Paul Breazeale and Robert McElvaine, professor of history at Millsaps College, on the proposed federal tax cut . While Dr. McElvaine's "con" article was very good, it appears that he wrote without benefit of reading Breazeale's article first. The author feels that Breazeale's article, so replete with unspoken assumptions about the economy and the world in general, requires a more specific response. I first met Paul nearly twenty years ago, when his accounting firm occupied the offices across the hall from the small law firm in which I was an associate. While I have the utmost respect for Breazeale's personal and professional integrity and honesty, I believe his ideas on governance and economics to be not only based upon false assumptions but also productive of much mischief, not just to the vast majority of working Americans who would see virtually no change in their tax burden from the tax cut but would suffer the cutbacks and reductions in those essential civic necessities and amenities that keep us healthy and safe and make life civilized, but it would also reduce the security and ultimately the well-being of the class that would immediately profit from the tax cut. So when it may appear that I am attacking Breazeale, the reader should understand that nothing is meant personally; I am merely using him as the symbol for a plutocratic philosophy, that were it to become completely victorious, would impoverish this country except for a tiny minority of powerful and wealthy persons, along with the persons they find useful to promote their interests.
This proposition is behind Breazeale's opening statement that the 1993 tax increase passed by Congress "targeted America's most productive citizens...." Since the tax increase targeted the wealthiest of American's citizens, it's obvious that Breazeale is assuming Proposition 1 without any argument. From the standpoint of a debate, it's a skillful way to obfuscate your weakest points, and he's very weak on this one.
The term "productivity" can be used in a number of ways, and Breazeale understandably makes no attempt to technically define productivity in a newspaper article. There is always the Malcom Forbes definition. When Forbes ran for the Republican presidential nomination, he explained the widening gap in income between the rich and the rest of us by simply stating that the gains in productivity went to the people responsible for them, e.g. the owners of capital. In essence, Forbes defined the most productive people as "who gets the most money." The problem with this definition is that once you have defined productivity in terms of money, then you can't define it in terms of anything else without encountering some problems. For instance, under this definition, a Mafia don is a highly productive citizen, and what he produces, whether it be beneficial or detrimental to the rest of us, is irrelevant. I don't think Breazeale would adopt the Forbes rule. There are too many instances of persons who are produce little or nothing but who legally enjoy a large income: successful gamblers, idle heirs, and land speculators come to mind almost immediately.
Most of us use the term "productivity" to mean useful work; work that adds value to something, whether it be goods or services. In a perfect market, people would be paid according to their productivity in the widest sense of the word, but we all know it isn't that way in the real world. We can get along far longer without attorneys and accountants than grocers and sanitation workers, but the former earn far more than the latter. Why? The answer isn't difficult. According to standard economic theory, the price of goods and labor depends upon the scarcity of the goods or labor and the willingness of persons with sufficient purchasing power to purchase them at a mutually agreeable price. The supply of lawyers and accountants is small relative to demand compared to grocers and sanitation workers. The difference in pay has virtually nothing to do with "productivity" in any reasonable sense of the word.
People with high incomes like to think of themselves as more productive than people who earn less; it's a normal human adjustment to the moral problems posed by the existence of inequality. But in truth, the real value of one's contribution to society often has little to do with what one is paid. Teachers and stay-at-home mothers are very poorly compensated, but their combined contribution to the good of society is probably greater than everyone else's contribution combined. They just don't have much bargaining power.
Consequently, Breazeale's statement that the tax increase in 1993 targeted the "most productive" citizens is neither provable, nor even reasonable, unless you engage in the circular reasoning that such citizens are the most productive by virtue of their high incomes. One could just as easily say that the tax increase targeted the "greediest and most rapacious" citizens and be just as far off the mark.
Looking a bit further into the productivity argument
Reading Breazeale's column repeatedly, as I did in order to get a fuller sense of where he was going, filled me with a great foreboding about even more basic propositions that formed the basis for his column. Subtly, but definitely, appeared the intimation that the public realm is inferior to the private, an infringement, as it were, upon the absolute property rights of those who have property. The contrary assumption, which predates and forms the basis of Aristotle's Politics, as well as the political philosophy of every civilization prior to modern industrial society, namely, that private interests must remain subordinate to the public interest, has become an inconvenience, an impediment, to this millinarian vision of the perfect market economy subsuming everything else--ethics, morality, politics, even religion-- into its calculus of buying and selling.
In fact, Breazeale's attitude may be fairly summarized by his phrase "the government has its ever-present, greedy hands deep in my pockets," completely ignoring the manifold benefits he receives as a citizen of the United States, as well as the fact that for those in the higher earning brackets, taxes have been going down for years. Those citizens not quite so fortunate have, on the contrary, seen regressive taxes, such as payroll taxes and sales taxes rise precipitously. Such taxes literally take food off the table. The moral principle behind the imposition of a progressive income tax is that discretionary income, money that people can do without, ought to be taxed first and that taxation of the income of persons living at subsistance level should be avoided, if at all possible. A flat tax, paid at the same percentage rate by the fabulously wealthy as well as the penurious, evokes the famous dictum of Anatole France:
The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.This unwillingness to pay one's fair share of one's discretionary income for the common good ignores the fact that we are all interdependent; that we are part of a web of complementary and mutual relationships so complex that no one can say "I did it myself." We are not hermits. We all stand on the shoulders of others. We constantly depend on others. If we are wealthy, it is likely because we were born wealthy; if we are poor, it is likely that we were born poor. If it were otherwise, more poor people would become rich and more wealthy children would eventually descend into pauperism. There are exceptions, of course, but they are few and far in between.
Breazeale's view of the Federal Government seems primarily emotional, a vision of a government that has no capacity to do right, only the ability to do evil. The belief that everything I earn is mine, that I got it all my myself, that nobody else has a claim of right to one single dime of my "hard-earned" money and that I owe nothing to the general welfare because I did it all myself, is the very attitude guaranteed to plunge us back into a Hobbsian state of nature--war of every man against each other.
This may be true if you are one of the fortunate people in the top tax brackets, but I still haven't figured out how this is a greater increase than Roosevelt's tax hikes in the '30s that raised the top bracket to 90%. It also fails to top Reagan's raise of the payroll tax in terms of percentage increase. In any case, now that the wealth of the top 1% of the population amounts to 40% of all the wealth in the country, it's difficult to work up much sympathy for their plight.
True, but irrelevant. The conservatives wanted, nay demanded, a balanced budget. They got it. The reason it is balanced is because of the tax increase in 1993. Setting aside the fact that the GDP is a misleading measure of the economic health of the nation, the future surpluses are predicated upon agreements made several years ago to phase in spending reductions over a period of ten years. These cuts, if actually carried out, would eliminate virtually all discretionary expenditures of the federal government, and therefore they won't be made. Congress won't do it and shouldn't do it. In addition, budget surpluses never last. Never have. The result of a tax cut now would be an immense deficit in several years and another Republican call to slash expenditures to balance the budget, except, of course, for defense, prisons, law enforcement and corporate welfare.
Walter Mondale warned the American voters of the problems with the monstrous deficit in the early 80s, but was sneered at and shouted down by the very same Republicans that were so vociferous ten years later to balance the budget. We are being set up for the same scam once again, and this time the cuts will cause unconscionable suffering and privation among the least powerful and fortunate of our citizens.
Whaddoyoumean "We?" Most of the people of this nation haven't enjoyed the "bountiful benefits" of a 17-year economic expansion. As a matter of fact, there hasn't been a 17-year expansion. Remember the recession in 89-91? A lot of people do, especially George Bush. It cost him the presidency.
Let me list just a few of the other people who haven't enjoyed the "bountiful benefits"
I could go on a lot longer, but I think the point has been made.
- the bottom 80% of the population that has seen their share of the income and wealth of the nation reduced and appropriated by the top 20% and mostly the top 1% of the population;
- the armies of middle managers who saw their careers come to an untimely end with the orgy of corporate mergers and downsizing, and who ultimately found themselves underemployed at jobs with far lower salary;
- municipal workers fired from their regular jobs and then put back to work at the same job under the "welfare-to-work" rules at a fraction of their former salary with no benefits;
- full-time minimum wage workers whose meager income puts them below the poverty line;
- parents who work at three different part-time jobs to support their families but, because they can't get full-time work, have no medical insurance and can't afford private insurance with their meager earnings;
- children attending sub-standard and dilapidated public schools that their districts cannot afford to repair;
- the taxpayers that bailed out hundreds of looted Savings and Loan associations as a direct result of the Reagan administration's push for deregulation and its refusal to intervene when the inevitable results of its irresponsibility began to manifest themselves;
- the families of central Los Angeles, mostly African-American, who had to abandon their homes and literally flee from a crack cocaine epidemic that now appears to have been organized and protected by the CIA to finance its illegal support to the Nicaraguan Contra army, all with the knowledge and blessings of President Reagan and his administration;
- the wage-earning workers of America who enjoyed virtually none of the Reagan tax "reductions" but were privileged to pay a gigantic increase in their payroll tax and see the real purchasing power of their wages eroded by inflation and the government's tight monetary policy that assured high unemployment and stagnation of their wages.
We've already covered that. Prediction of budget surpluses "as far as the eye can see" is contrary to good sense and history. Congress simply isn't going to make the cuts it has promised itself it would make. No way. It shouldn't. Economic booms don't last. They never do
Only if the surpluses continue "as far as the eye can see." If the economy goes south two or three years from now, we will hear the Republicans complaining that we can't afford the luxury of a defined benefits pension system that is Social Security. It's time for the American people to come to their senses and realize that the Republican Party doesn't like the whole idea of Social Security; the Republicans have for years spread the falsehood that Social Security is bankrupt when it doing fine. It doesn't need saving. The plutocrats that call the shots in the Republican party want two things with respect to Social Security: 1. They want the revenues to go to Wall Street, where the lucrative brokerage fees will enrich them and their colleagues; 2. They want a less economically secure American worker; one more pliable and obedient. Any shred of a social safety net to which a worker can cling is a strike against an employer's absolute authority. Look at the history of our century: Every single program to ameliorate the lot of the ordinary person--every single one--has been met with cries of outrage by the moneyed class and the shills who are their mouthpieces. Where shall I begin? Social Security, OSHA, product liability lawsuits, the progressive income tax, unionism, the Civil Rights Act of 1964, the list is endless. All bitterly opposed
Show me one person whose "achievement" has been threatened by having to pay taxes. What symphony hasn't been composed? What novel hasn't been written? What oil well hasn't been drilled? What small, defenseless nation hasn't been bombed?
Give me a break.
Maybe to the wealthiest 1% of the population, owning 40% of all the wealth of the nation and the best Congress money can buy isn't enough of an achievement, but for the most of us, a little less "achievement" of that kind would be a welcome relief.
Twenty-seven years ago, when I proposed to the woman who was to become my wife, I don't recall worrying about the tax structure. We've never given it much of a thought since. It certainly hasn't created a strain on our marriage. I have never met a single soul that posponed his or her marriage on account of the marriage penalty. On the other hand, I am an attorney by training, not a CPA, and perhaps CPAs are more likely to check out the numbers before plunging into matrimony. But I think not.
Yes, there is a marriage penalty, although it is not onerous. It's been around for a long time, and the last time I looked, people have been getting married the same as ever. Propositions like this originate, I suspect, in the minds of economists who cannot conceive that humans do anything other than for financial gain.
True. That means that nearly one-third of all American households earn pitifully little, just barely enough to stay alive, if that. Eighteen percent of all households are below the official poverty line. If the minimum wage had the purchasing power it did in 1969, far more of those households would be above the poverty line and paying income taxes. Being below the poverty line correlates with a high infant death rate, high teen pregnancy, and a host of other social ills. It is not benign.
Just because they don't pay income taxes doesn't mean, however that they don't pay taxes. They all pay flat taxes: the Social Security payroll tax, the medicare tax and, of course, the ubiquitous sales tax, usually running between 7 and 8 percent. If you count the employer's portion, or figure it with self-employment tax, that amounts to a flat tax of between 22 and 23 percent before we talk about the income tax. And there are no deductions or exemptions on those taxes, unless, of course your income is over the maximum.
Taxes that take 22% of poverty-level earnings actually do take food off the table.
We've already covered just what those households pay in taxes, and unless one has quite a bit of money, the benefits of being American are increasingly becoming less valuable. It is no accident that the poverty rate is increasing; it was a deliberate policy decision.
What about corporations that pay little or no income tax but enjoy the benefits of doing business in America? What's so fair about that?
The numbers are correct, but misleading because they ignore the fact that the top five percent of taxpayers receive 31.3% of all income and much of that income is unearned, meaning that it is either capital gains or investment income. It is not unfair that the part of the population making nearly 1/3 of all the income pays nearly 1/2 of the taxes.
That has already been answered. Unless Breazeale has some solid research behind his bald assertion that couples avoid marriage in order to save taxes, this statement cries out to be dismissed in light of the common experience of humankind, that the decision to marry is usually made for love and usually in the heat of passion without regard to financial matters. In fact, would not most of us regard a person who declines to marry because of a possible tax liability as a little less than human?
Spare me. The federal and state estate taxes have never thrown widows and orphans on the street. This is ridiculous and Breazeale knows it fully well. If fact, this is pure prevarication.
First: The term "death tax" is a clever misnomer for the federal and state estate taxes. There are huge exemptions, growing each year, to the extent that only millionaires' estates will shortly be subject to federal estate taxes. Generally, every individual can transfer a total of $650,000 in assets during life and/or at death without paying any federal estate or gift tax. Above this threshold the estate and gift tax rate begins at 37 percent of the gift or taxable estate (gross estate less deductions for funeral and administration expenses and claims against the estate). The maximum estate and gift tax rate is 55 percent. The estate tax on a million dollar estate is roughly $134,500.00; on a two million dollar estate, the tax is roughly $569,500.00.
Second, the estate tax is actually one of the fairest of all taxes, and there is no reason why estates should not be taxed at a far greater rate than they are today. The tax does not take a penny from a person while he is alive, and, through the exemptions, it leaves the spouse plenty of money upon which to live. The children, true, are deprived of a portion of the estate, but they contributed nothing to its accumulation, and in justice are not entitled on the basis of merit to any of it. For the exponent of a political philosophy that holds that one should work for what one gets, this solicitousness for the welfare of the children of the wealthy seems a bit inconsistent, if not disingenuous.
In 1996, the federal government collected $17.6 billion in estate and gift taxes. Although that may seem like a lot of money, keep in mind that the same year the government collected $934.4 billion in income taxes. It should be obvious that nobody is going to spend "billions" of dollars just to avoid estate taxes. Estate planning is not cheap, but it is not outrageous, either, and only the extremely wealthy incur those expenses on account of the estate tax. They have done extremely well over the past 20 years. They are deserving of no one's sympathy.
Only if by education you mean private schools for the better-off. Our public schools, once the pride and strength of our nation, have been the target of the privatizers for twenty years now. The tax bill is merely one more ruse to drain away public support from the public schools. Another widening of the gap between rich and poor.
There is plenty of money for investment. The stock market has thusfar found all the money it has needed to finance a raft of IPOs. The provisions of the bill that are supposed to strengthen saving are nothing more than sops to financial institutions and real estate holders. The reduction of tax on capital gains will do precisely what it has done in the past: raise real estate prices and virtually nothing else.
All too true, and for the reasons set out above, should not be enacted.
We are now in la-la land. Need I say more?
Perhaps I should. The way to restore love within families is to pay wage earners a decent wage so that they are not compelled to work three part-time jobs and can take the time to enjoy one another and raise their children.
The way to restore love within families is to reduce the stress and privation that they have suffered from being the target of a vicious but undeclared class war waged by Republicans, conservative Democrats, and their corporate bankrollers for the past 20 years that has transferred wealth, income and political power upward at an ever-increasing rate. Anyone who doesn't believe this is invited to look at the U. S. Census website: http://www.census.gov/income/ and review the historical tables. One does not have to be a statistician to appreciate the damage that this political juggernaut has done to this nation over the past 20 years.
I'm not sure exactly what he means by this. Why would a few more dollars (which is what the tax cut means to most Americans) encourage families to make better financial decisions? As Breazeale has already pointed out, a third of the households in America don't make enough money to pay taxes. For these people, having a tax-exempt educational savings account is like having a free ticket to a Broadway play but no way to get to New York. If people can't afford the premiums for medical insurance, what difference does it make if the expenses are deductable?
Holly Sklar said it best:
If your family saved up money by neglecting your kids, going without health care and ignoring needed home repairs, would you say you had a budget surplus? Now imagine giving much of your "surplus" to the wealthiest people in town. That's what Congress wants to do.
The truth is that the Republican tax cut will not help the average American. It will enrich the already rich and dispense goodies to the biggest and most powerful corporations. It will produce, as explained above, staggering deficits in the coming years and furnish the opportunity for the Republicans to begin all over the litany to reduce spending beneficial to the general public, to further shred what little social safety net is left after the last onslaught, and to complete the third-worldization of the United States that was begun by Ronald Reagan.