'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 clock....as 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 once....like 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!

So WHY Do So Many Need the 'Safety Net' Now?

My family back in December, 1957, near Everglades National Park. We sported 5 kids and didn't need government handouts to get by - how come?


The front page article in today's New York Times blared 'Straining the Safety Net', and proceeded to focus on middle class families in Chisago County, Minn. and how they're faring. It seems not too well, since the story relates how dozens of "federal benefits programs" provide $6,583 on average for every man, woman and child in the county.

The particular take was confined to one Ki Gulbranson, who has five kids, and owns a logo apparel shop, also deals in jewelry, and earns only about $39,000/yr. while never having earned more than $46,000/yr even including officiating soccer games on the side (44 last year). Because of this income shortfall he's depending on the earned income tax credit to provide "several thousand dollars" while at the same time signing his 3 school age kids up with another federal benefits program to eat free lunch and breakfast at "taxpayers' expense".

And what does Ki think of all that? According to the piece, he "says that too many Americans lean on taxpayers rather than live within their means."

Huh? How about practicing what you preach, Bud? Oh, and btw, that includes not giving in to the biggest luxury ticket item on record- KIDS! (Which on average require $180,000 each to raise just to college age). Ever heard of artificial birth control? Oh wait, maybe you're Catholic - in which case you ought to be getting those lardass Catholic Blackrobes and their Church to be helping you out!

Talk about cognitive dissonance! But as we knew since the time Tea Baggers came out against Obama's Affordable Care Act ('Keep your hands off my Medicare!") these people can't process two dichotomous thoughts at once without conflation. And true to form, we learn that Gulbranson "printed t-shirts for the Tea Party campaign of a neighbor in 2010".

Some folks never learn. Anyway, amidst all this caterwauling about government benefits, which now the marginal middle class of Gulbranson's ilk appear to be getting more of than even the lowest earning quintile (whose percentage of benefits fell from 56% to 39%) no one seems to be asking why things are different now from say 1957.

At that time, even a family with five kids could manage without handouts. As Exhibit A, I present my dad and mom with the five of their offspring including moi (far left) - as shown in the accompanying photo taken near Everglades National Park, in 1957. We depended on no gov't largesse, and the combined earnings of dad and mom at that time were barely $7,500 a year. We still managed to all go to Catholic School, we had free health care (compliments of the school) and also were able to go out every Friday night for a fish and chips family dining experience at a local restaurant ($5 total for "family night" - all you can eat).

How did we manage that feat, while Gulbranson can't seem to be able to even earning at least 5 times more than my parents did between them?

First, we had the benefit of VA home mortgages back then. Thus, dad (as a WWII vet of 3 yrs. and four campaigns in the Pacific) could make a purchase on our first home, with only $100 down, and 1% interest on a $20,000 loan. (Yeppers, homes cost that little way back then, in Hialeah, FLA).

Second, bank passbook earnings were around 4% so even if you were paying 1% interest on a loan, you came out ahead in the spread if you held anything in savings. Also, because of a decent savings interest rate, you didn't have to take risks in the stock market to stay ahead of the game.

As for gas, that was maybe 26 cents a gallon. If that. Food was also fairly cheap (e.g. pork chops, 22 cents a lb., hamburger 18 cents a lb), because.....hey ....this was at least 35 years before the era of rampant globalization when one had 1 billion Indians, 1 billion Chinese and many other "emerging" countries competing for your grains (wheat, corn, etc.) Oh, and no one was stupid enough to burn food crops like corn (for ethanol) back then which raised the costs because of reducing supply!

Oh, did I forget that the top marginal tax rate was at 91%? That meant that all the rich fuckers had to pay their fair share! They were not able to use their excess capital to speculate in commodities markets, as they do now, driving up the costs of wheat, silver, gold, oil and everything else! In addition, they didn't have so much excess cash left over that they could plow it into super PACs for campaign funding, especially to create noisome TV ads and pass them off as "speech" or that "money is free speech". NO one back then was dumb enough to buy into that horse manure!

Yes, there were some ways by which companies and wealthy scions (living off capital gains from their inheritances) might bring down their actual rates and payments (apart from charitable donations) but that generally meant investing in labor, plant for hiring people. It didn't mean using the money to speculate in "hedge funds", ETFs or god forbid, credit default swaps - none of which existed back then! (The Age of the Speculator and jazzed up stock markets was at least 23 years away!)

Did we five get "free meals" at school? No, we ate our individual breakfasts at home, generally either Sugar Corn Pops or frosted Flakes in a bowl of milk and we took bologna or salami sandwiches with us to school....except on Thursdays. On those days we paid 25 c each for a school lunch consisting of: two dogs, small carton of milk, an apple and Wise potato chips!

If I had to name only one reason why families like Gulbranson's aren't making it now, while ours did back then - it would be because companies have since expanded their power to the level of nation states and can no longer be held accountable to the regulations of countries that host them. See, e.g.
http://www.time.com/time/magazine/article/0,9171,2105976,00.html

This being the case, they can outsource as many jobs as they want, and with those jobs the capital that a country needs to pay its debts and for its benefits - rather than leveraging them. Indeed, since the massive power of nation states has been subsumed by multinationals, a new pact appears to have emerged in which companies and the wealthy are now telling our citizens:

"In the past we helped you out by paying higher taxes, but no more! The extent of our assistance now is to enable you to go into higher debt and hence leverage what you need."

In other words, we have a wholesale abandonment of the social compact. And more specifically, companies and the very wealthy now appear to believe they make wealth - create their own- on their own merits. This is of course an enormous lie, since no one - no matter how big it fancies itself, is independent of the commonweal.

For example, an oil shale corporation or paper mill will use tens of thousands of gallons of PUBLIC water daily to extract its product. Thus, their profits are obtained at the expense of a precious public resource. Similarly, large companies like Walmart whose distributors daily ply thousands of miles on our federal interstates make use of that resource and contribute to decay. Companies that make enormous use of our energy in any form do the same, reducing the amount left for the rest of us.

My point is that the accumulation of wealth is not an isolationist achievement but inextricably bound to extraction of finite public-national resources. Since these need to be paid for, or sustained (via maintenance), it is then clearly logical to expect the wealthy and corporations to contribute their fair share to the tax commons. This is not being done and explains why our infrastructure's crumbling, and inequality (as measured by the Gini coefficient) now approaches that of Mexico and the Philippines.

This explains, largely, why a vast segment of the lower American middle class now depends on government safety nets and benefits like Gulbranson and his family of 5 kids do. It also explains why my family ca. 1957 didn't, because companies at that time still had a pact with their workers not to fuck them over, so long as they worked hard. They did that, and they could expect a decent wage, benefits, even pensions and not come in one morning to see a sign that the company had moved to Guangdong Province, China, or to Bangalore, India, or Mexico. The wealthy were also prepared to foot a higher tax rate because they realized they didn't achieve that wealth by their lonesomes, but had to have extracted a percentage of common finite resources.

The nation, in other words, was more honest back then. It could look forward in genuine optimism with some justification - unlike now, when corporate nation states intend to have us all in the role of vassals working in their fiefdoms. Even as they solidify control of our governments via vast hordes of money which they have the audacity to call "speech".

If Gulbranson is going to blame anyone, he needs to take a deep breath and lay the blame on the real culprits, not those like himself who depend on assorted safety nets in order to live - and are as much victims as he is! And, should he have any time, I strongly urge he read Thomas Frank's book, What's the Matter with Kansas?