Friday, December 14, 2012

'Taxes are Much Higher Than We Think?'- HARDLY!

According to Edward C. Prescott and Lee E. Ohanian ('Taxes are much higher than you think', WSJ, Dec. 12, p. A19) the average American is being taxed senseless.  The authors assert:

"Taking into account all taxes on earnings and consumer spending- including federal, state and local income taxes, Social Security and Medicare payroll taxes, excise taxes, and state and local sales taxes,....the U.S. average marginal effective tax rate is around 40%. This means that if the average worker earns $100 from additional output he will be able to consume only an additional $60."

Well, that's assuming of course that the worker isn't made to work all or most of those extra hours off the at Walmart. More seriously, the authors throughout their anti-tax rant make no mention of the benefits that accrue from the taxes paid!

Hence, in accounting for said benefits - say Social Security monies - which surely assist and fuel consumer spending (at least of oldsters, as well as many on disability), they are off the mark! In truth then, the 6.2% payroll taxes ought not even be part of the mix because it's more a defined contribution plan paid back to beneficiaries. Contributions paid in (with more than a gov't 'match') and later received as benefits go for groceries, health care (e.g. prescriptions) and other components that drive aggregate demand.

Thus, knocking off that 6.2% defined payroll contribution puts the proper tax rate at less than 34% while eliminating sales taxes takes it down even further (given sales taxes are really optional and imposed only on certain consumption transactions). When I therefore use the term "effective marginal tax rate" I apply it to income taxes exclusively, not optional taxes which one avoids by not undertaking the specific transaction (or undertaking it online). This leaves even lower percentages.

The fact remains that even if such adjustments aren't made, Americans are currently taxed at the lowest percentage of GDP for the past 40 years. This as our domestic needs have expanded, including infrastructure repair and alternative energy investment.

Compared to the marginal tax rates of 91% in the 50s, an era which also saw only one parent having to work, and bank interest rates approaching 4-5%, Americans are getting off Scot free. Indeed, if Americans value their future benefits, such as Social Security and Medicare, they ought to be the first to be standing in line to pay HIGHER taxes, and especially to come out both barrels blazing against any further postponement of full payroll taxes- which pay the freight on those benefits!

Bottom line? We simply cannot afford any further extensions of payroll tax cuts, for "stimulus" or any other absurd reasons! The Social Security Disability funds are already bleeding down to zero and while Social Security can't go bankrupt (it has no external creditors) we don't want future seniors to have to live on only three fourths of what current seniors receive!

The authors also claim (ibid.):

"High tax rates, on both labor income and consumption, reduce the incentive to work by making consumption more expensive relative to leisure, for example. The incentive to produce goods for the market is particularly depressed when tax revenue is returned to households either as government transfers-in -kind, such as public schooling, police and fire protection, food stamps and health care that substitute for private consumption."

But it's important to understand what these guys are saying here: To wit, that it's better for each 'Murican to use more before tax income to buy even more cheesy crap to fill his home or storage unit (and that he likely will never use more than that 20-year old 'Tickle Me Elmo' or  Mark McGwire bobble head collection) than it is to put that money toward the common good!

Thus, these two numbnuts rate the consumption -purchase of cheesy crap over paying for police and fire protection, public schooling or food stamps - which actual stats (e.g. by the Economic Policy Institute) show drives aggregate demand and betters the economy far beyond tax cuts.

To put a finer point on it, there is already TOO MUCH private consumption in the U.S. which is infantilizing all of us (See e.g. 'CONSUMED: How Markets Corrupt Children, Infantilize Adults and Swallow Citizens Whole' ). The book depressingly details how private consumption is feeding the capitalists' coffers while converting us all into selfish infants who gotta have their own toys!

One thing that can't be defended, therefore, is enabling more disposable income to dispose of in junk! Taxes therefore provide the incentive and basis for genuine economic growth and quality jobs - as opposed to generating twenty million Bloomingdales' clerk, sales serfs and burger flippers.

Authors James Medoff and Andrew Harless (The Indebted Society, 1995) indeed show that as tax rates increase, aggregate demand is enhanced and job output grows. This is in direct opposition to the specious claims of the tax cutter fetishists like the two WSJ authors. As EXHIBIT A, one need look no further than the 20 million-plus jobs created over the Clinton years when the marginal tax rates were at 39.6% - which we are told now will bring us over a "fiscal cliff".

The true fact is that if the Bush tax cuts (more and more now the Obama tax cuts) aren't fully repealed soon, rampant inequality will continue to grow across the board. How much has it already grown? An Economic Policy Institute  Study reported in today's New York Times (p. A22)  found that between 1983-2010 three quarters of all new wealth accrued to the wealthiest 5 percent of households. Over that same period the bottom 60% actually become poorer.

If we want this travesty to end, we have to be prepared to cough up more of our paychecks for higher taxes....for the common good, and ultimately our own welfare! This is also exactly why ALL the Bush-Obama tax cuts must be sunset at the end of this year - as they were originally intended to when passed in 2001 (actually after ten years) because of the toll taken on the deficit!

We need NOW to get out of this tax phobic state or reap the consequences very soon!

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