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When taxes go up, we all fall down
By Angie Vogt, political commentary
Economics and politics have a lot in common with regard to the power of rhetoric.
Politicians use phrases and slogans to incite an emotional reaction from constituents. Politics is more like a game than science, with the various players building alliances and strategic moves in opposition to those competing for their office, for power or favors.
We hear sneering comments like tax cuts for the rich to incite class warfare and envy. We hear no blood for oil to incite cynicism and distrust with regard to the two wars were engaged in right now.
Economics, even while dealing with numbers and facts about money, income, debt and commerce, is also highly subject to the use of rhetoric. The news outlets begin blaring reports about job growth, unemployment and that ever-alarming gap between the rich and poor without ever spending much time explaining what is meant by poor and how these trends look in the lives of real people.
The poor in America are better off than the middle class in most every other industrialized nation. Nearly all Americans own refrigerators, stoves, microwave ovens, cell phones and other amenities. We are certainly not hungry, as the biggest health problem among Americas poor is obesity, which leads to most all of the other most common health problems like diabetes and heart disease.
Likewise, few of the politicians who use and recycle the tax cuts for the rich will actually define what they consider rich. It was used to describe Ronald Reagans tax policy (when he cut the tax rate on upper incomes from 70 percent down to 39 percent) and is spouted ad nauseam from liberal politicians regarding President George W. Bushs tax cuts.
If the Bush tax cuts are allowed to expire and the next Congress does not extend them, we are facing the largest tax increase (25 percent) in U.S. history, according to a Wall Street Journal column by Columbia Business School economist, Glenn Hubbard (The Coming Tax Bomb, April 8, 2008).
A common mistake most people make (including the class warfare mongers) is to think of rich and poor categories in terms of personal income, rather than assets. Therefore, people earning over $150,000 might qualify as rich. Never mind that the person could lose their job and, literally overnight, be forced to sell their house and downsize. Instantly they go from rich to middle class, or worse, lower income and indebted. I suggest that having a higher income does not classify someone as rich.
People like Ted Kennedy or Bill and Hillary Clinton (who recently released some of their income statements) are properly thought of as rich, since they have self-sustaining sources of income through investments, private property and, in the case of the Clintons, lifelong pension benefits from Mr. Clintons tenure as President. Should Hillary Clinton lose her job as U.S. Senator, she can take her time searching other job opportunities, as income from her books, speaking fees and investments will continue to keep her well sustained.
Even after stripping away misleading and emotional classifications of rich, we are left with some incorrect assumptions about the role of taxes and government revenue as they pertain to paying off our national indebtedness. Many assume we need tax increases to fund the increased spending from the wars in Iraq and Afghanistan as well as needing to accommodate new spending for the Homeland Defense, a cabinet position created by President Bush. Once again, these assumptions lead us into rhetoric rather than good policy.
The truth is, that historically speaking, tax cuts lead to increased government revenues. How? During the Reagan years, the number of people reporting annual incomes of $500,000 or more skyrocketed from 16,881 to 183,240 a tenfold increase. In 1980, this group paid $8.1 billion in taxes, or 3 percent of all federal income tax collections. By 1989, they paid $59.4 billion, or 14 percent of the total.
In the past four years, with the Bush tax cuts in effect, the federal budget deficit was recorded as 1.2 percent of GDP, half its average level over the past four decades, in spite of the binge spending of Congress. If these tax cuts expire, a new Congress will simply spend the expected increase in government revenue, while private consumer spending, investing and saving will go down.
An initial increase in government revenue from the tax increase will be followed by a newer, bigger congressional spending spree on entitlements (as promised by two of the three presidential candidates) along with a sudden downturn in the national economy as personal incomes decrease (proportional to their higher tax bills).
The expected late 2008-early 2009 recovery from our current recession will come to a grinding halt and we will find ourselves in the thick of the Jimmy Carter years. It will be déjà vu all over again
Federal Way resident Angie Vogt: email@example.com. For past columns and further commentary, visit www.soundupdate.com.