We Remain Unstimulated (updated)

George Rebane

The self-serving liars in Washington have attempted for the last two years to convince us that they have injected newly printed and borrowed cash into our economy in order to stimulate it out of the recession that followed the housing bubble.  This has not come to pass.  The economy has struggled to find its feet in spite of the imposed government impediments to weigh it down.

 

In this interval we have executed a Keynesian folly that still portends our economic demise.  Long time RR readers know that I am of the Austrian school persuasion bathed in the evidence of its general correctness describing and predicting the predilections of humanity’s fisc.

The Mercatus Center at George Mason University offers an illumination (here) of the much propagandized stimulations from our nation’s capital, stimulations that have turned out to be a bland prophylactic to what is really needed.  Ludwig von Mises prescribed the correct emetic to purge our system of what ails us – “Do nothing, sooner!”

[update]  Maybe what we now need is more of what a Democratic Congress gave us in 1945 after the war had ended.  FDR and his New Deal had miserably extended the Great Depression through the thirties, and WW2 had been an unsustainable bump in employment that was now going to result in greater layoffs than ever before.  As reported by the Folsoms of Hillsdale College in the 12apr10 WSJ (here), Truman advised Congress to resume FDR’s alphabet soup socialism, but Congress “responded by just saying ‘no’.”  And it was a pretty comprehensive NO.

No to the whole New Deal revival: no federal program for health care, no full-employment act, only limited federal housing, and no increase in minimum wage or Social Security benefits.

Congress cut taxes instead, and in doing so almost eliminated the short post-war recession and gave rise to what today we call supply side economics.  Apparently more than one member in that august body had become aware of F. Hayek’s The Road to Serfdom which came out in 1944.  Then with lowered taxes, the economy exploded and kept expanding for the next twenty years.

By the late 1940s, a revived economy was generating more annual federal revenue than the U.S. had received during the war years, when tax rates were higher. Price controls from the war were also eliminated by the end of 1946. The U.S. began running budget surpluses.

Congress substituted the tonic of freedom for FDR's New Deal revival and the American economy recovered well. Unemployment, which had been in double digits throughout the 1930s, was only 3.9% in 1946 and, except for a couple of short recessions, remained in that range for the next decade.

The Great Depression was over, no thanks to FDR. Yet the myth of his New Deal lives on. With the current effort by President Obama to emulate some of FDR's programs to get us out of the recent deep recession, this myth should be laid to rest.

Comments

[Dixon Cruickshank]

actually what it was used for was a slush fund to supporters

[Wade]

I wonder what the tax rates for corporate / personal income and capital gains were in the late 40s that they spurred so much economic growth and low unemployment? They sure sound like they were at the perfect sweet spot on the Laffer Curve, right? We should use them again, no?

[George Rebane]

Wade - don't know the 1946 rates, do you? But even though the system (our economy) has changed a lot in 65 years, those rates should be a good starting point from which to examine new policy. At least we should understand how/why they supported the subsequent growth.

[Steven Frisch]

The top marginal income tax rate in 1946 was 91%
The top marginal income tax rate in 2010 is 35%

$5,000 in 1946 is worth $54,350 today.

Top marginal rate in 1946 was effective for anyone making over $200,000--which would be $2,174,000 in 2010 dollars.

One would hit a 35% marginal rate at the $100,000 if adjusted to 1946 dollars.

That means that almost everyone making more than $100,000 per year today is paying significantly less in income taxes. The amount less goes up as the amount earned goes up, in other words what used to be graduated upward is now graduated downward if you make more than about $100,000 K.

The share of pre tax household income received by the top 1% of American households had been going down from 1942 until 1989. That trend has reversed since 1989 and we are now back to 1937 and 1929 levels.

The inflation adjusted increase in after tax household income has increased 175% for the top 1% since 1979 and about 5% for the bottom 20%.

If one is wondering why the middle class is shrinking --this should give one a starting point.

http://www.taxfoundation.org/files/fed_individual_rate_history-20091231.swf

http://www.westegg.com/inflation/

http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States

(i'll just sit back and watch George and others claim the data is biased, attack the sources, come up with irrelevant moderating statements, and challenge the idea that a graduated income tax is unconstitutional)

[George Rebane]

Thanks for the good input Steve. Don't yet know about the constitutionality of the graduated income tax - after Abe Lincoln, all kinds of things happened that would let someone expand an existing clause to include such a tax. As you know, I'm for a flat tax.

With regard to the current effectiveness of that historical tax rate history, I would put into our analysis the factor that the US emerged from WW2 as the world's only functioning economy with the wherewithal to supply what the rest of earth needed. Investment risk was very low.

[Steven Frisch]

Of course the constitutionality of a graduated income tax has been long decided with the 1913 incorporation of the 16th amendment to the glorious, sacred, immutable constitution of the United States.

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

Income tax for the top brackets in the US was 90% until 1964 and 70% until 1982, and 50% until 1989; and we seemed to do quite well.

Some would say that was the middle of the American century.

The point I am making is that the change in top marginal tax rates is leading to a growing gap between the rich and the poor in the US, the shrinking of the middle class, and our inability to finance the actions of congress. The emergence of a class structure in the US is a serious threat to political stability. It is the income mobility of our society that has allowed us to avoid the political instability of the European system.

If we passed new programs, and had the tax revenue to support it, we would not have a deficit. What we did over the years was cut taxes but not cut services, indeed we grew both government and per capita services by 70% in the last 50 years.

I agree the deficit is a problem, and I think we should cut expenses.

I would start with cutting our defense budget by $350 billion per year and focusing our efforts on rapid deployment forces, counter terrorist forces, and intelligence (human and technological), while retaining enough punch in our navy and armed forces to field a strong counter conventional force and a significant nuclear deterrent. This would necessitate abandoning our "world police" role and pulling out of Korea, Japan, Germany, Bosnia, Kosovo, Iraq, Afghanistan and other dispersed defensive locations and focusing our arms on quick, rapid response to aggression. We could do that with $400 billion per year.

This would cut our 12.3 trillion deficit by $3.5 trillion in 10 years

I would raise the social security retirement age to 70 for both men and women.

This would cut our remaining $8.8 Trillion deficit by approximately $4.2 trillion

I would eliminate caps on SS payroll taxes for the wealthy (above 250,000 K per year)

This would reduce our remaining $4.6 trillion deficit by $1.1 trillion

I would not renew the W. Bush tax cuts in 2011.

This would reduce our remaining $3.5 trillion deficit by $1.6 trillion over 10 years.

I would increase the marginal tax rate from the current 35% to the Reagan era number of 50%

This would reduce our remaining $1.9 trillion deficit by $3.5 trillion.

Hey thats a surplus.

See----I am a conservative!

[Steven Frisch]

Sorry that should read "inflation adjusted per capita services".

[George Rebane]

Wonderful Steve! there is a lot of hopeful intersection in your prescriptions. This is good, and I thank you for the thoughtful rejoinder.

I'm noodling over a foreign policy piece on which I would most welcome your critique when I post it.

[Mikey McD]

I think this line is BS :"Of course the constitutionality of a graduated income tax has been long decided with the 1913 incorporation of the 16th amendment to the glorious, sacred, immutable constitution of the United States."

Constitution says nothing about discrimination based on income earned or any other inclusion of "graduated." Our current immoral tax system promotes hatred between Americans... class warfare. Steven's suggestions would only fuel the flames of our current class warfare.

47% of "americans" won't pay Federal income tax in 2009.

[Steven Frisch]

There are two answers to Mikey McD.

1) I suggest that you make your case against the legality of the progressive (or graduated) income tax with the IRS by refusing to pay it. I await your demonstration of legal purism.

2) According the the Constitution, under Article 1-Section 8, the federal government has the right to impose taxes. The article does not limit the power, other than to require that direct taxes be redistributed on a pro rata basis based on the census. (a strict construction of this requirement would likely lead to a redistribution of wealth from what is now a "taking" of value from blue states as pointed out in another post). The further definition of the power to tax comes from several cases including one that further defined the power to define sources of income for taxation, one that expanded how taxes could be distributed, and one that expanded the definition of allowable distribution. But, as previously stated, there is no prohibition on a progressive tax, thus the power exists. The 10th amendment does not apply since the 10th only deals with the definition of what powers are delegated to the states vis a vis the federal government.

But if I were you I would just refuse to pay my taxes based on your beliefs. It should serve you well.

[George Rebane]

Steve, are interpreting the Constitution to condone and enable taxation without limit specifically for the unearned redistribution of such collected taxes?

[Steven Frisch]

I am not sure if I understand the question due to a possible dropped word in your post.
Are you asking "Steve, are YOU interpreting the constitution to condone and enable... etc"?

If that is the question: I am not interpreting the constitution.

Article 1-Section 8 is what it is: "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;.."

Article 1-Section 9, which qualifies that power, is what it is: "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken."

Article 6-Clause 2, which establishes the supremacy of that power over state statute, is what it is:

"This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding."

The 16th Amendment is what it is: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

The continued interpretation of the Constitution is done by a variety of federal courts in the following cases:

The case establishing defining how taxes are apportioned is Pollack v. Framers Trust
The case establishing how a direct tax is defined is Brushhaber v. Union Pacific Railroad
The case defining taxing power is Commissioner v. Glenshaw Glass Company

In these cases FEDERAL COURTS interpreted the law and delivered decisions, that are precedent. The interpretation is not mine. They are facts to be found in the record.

Finally, whether or not they enable taxation without limit is a matter of precedent. At one time the marginal top tax rate was 91%, which meant that, sans deductions, earned income in excess of $200,000 in 1964 could be taxed at 91%. It is a fact.

The issue of whether or not this constitutes and "unearned redistribution of wealth" is a matter of opinion, not supported by case law. The case law states that the federal government not only can tax at that rate for whatever purpose, they have a precedent of doing so.

For another graph showing the history of the top marginal rate go here:

http://en.wikipedia.org/wiki/File:MarginalIncomeTax.svg

If your question is do I want to see a marginal rate at that level? the answer is no. I neither think it is necessary, nor do I think it would be politically palatable. However, the federal government does have the power to constitutionally tax at that rate, and our current conservative Supreme court seem to be agreeing with that since they have not accepted a case that would challenge the precedent.

[George Rebane]

Steve – Apologies for the missing ‘you’.

According to my lights, these are my thoughts on tax related governance.

• Were it as easy as ‘the Constitution says what it says’. English, and no human language, communicates unambiguously. EVERYONE interprets the Constitution, especially those claiming to speak ex cathedra about it. That the Constitution suffers from this malady testifies to the hundreds of thousands of lawyers and jurists who have always made a good living from this shortcoming, the proof of which is documented in an uncountable number of legal briefs and opinions. So I shall give mine.
• The Founders in their ‘original intent’ writings did their best to constitute us as a democratic republic with a minimalist form of federal government that was sufficient to keep the otherwise sovereign states together, and to assign certain limited functions and the power to fund them to the central government.
• Nowhere did the Founders recommend or anticipate that the federal government would have or exercise confiscatory levels of exacting tribute from its citizens in the several states. The famous ‘takings clause’ of the Fifth Amendment is an explicit attempt to codify and remedy such extreme actions by the government. A person’s money is his property.
• Nowhere did the Founders ever contemplate, recommend, or intentionally provide for the federal government becoming the agent or instrument of wealth redistribution among its citizens. By its seminal nature, such forceful redistribution is an abomination that has caused the many perversions of society that we witness.
• The Founders knew, and sleazebag politicians have paid lip service to the aspect of human nature that is summarized in the Peter/Paul Principle. It is the road to the ruin of democracies (including, especially, democratic republics). We are now speeding down that highway, attempting to overtake the Europeans.
• With Singularity’s advent, I do believe that some means of state-mediated wealth transfer must be established to forestall a bloody luddite revolution. The current solutions trumpeted and pursued by the collectivists are on their face bankrupt, and will hasten the day when our government starts executing its citizens en masse per the exemplars of Mao, Stalin, Hitler, … .
• Better solutions are possible for providing rewarding work to those who no longer can sell their labor competitively. Unfortunately, we have now entered an age wherein for MOST people education is no longer the panacea that it was even as little as fifty years ago.
• Near term prophylactics to employ the maximum, hold off the debt dragon, and provide for the aged/infirm are all based on a ‘fundamental transformation’ of the US tax code that includes the establishment of a 11-13% flat tax on ALL personal income. Corporate taxes should be abolished since the taxes they pay are nothing but an accounting perversion to soothe and garner the votes of the mal-educated.
• There MAY also have to be a consumption tax (e.g. some form VAT?). There should be no tax of any kind on assets, since every assets tax, from inflation to real estate, is ultimately confiscatory and in the interval promotes dissatisfied social classes.
• Taxes should be collected as locally as possible – in short, where people live and spend. Also, local jurisdictions should then send appropriate portions to higher jurisdictions in proportion to actual benefits/services received from such higher jurisdictions.

There is more, but that should be enough to chew on for a while.

[Wade]

George -

Of course I know what the rates were in 1946. I'm on the internet. Just being a bit facetious... It is weird to me to hear that rates of 38.6% or whatever will stifle capitalism forever, kill grandma, and replace the stars and stripes with crescents and sickles while at the same time you can easily see periods of extremely robust growth while top rates ranged from 70%-90%. What gives?

[George Rebane]

With regard to those post-war rates Wade, in an above comment I said,

'With regard to the current effectiveness of that historical tax rate history, I would put into our analysis the factor that the US emerged from WW2 as the world's only functioning economy with the wherewithal to supply what the rest of earth needed. Investment risk was very low.'

[Mikey McD]

No one mentions the fact that we are taxed on EVERYTHING we do... not just our income... remodel the house-taxed, buy a beer-taxed and taxed, buy a car- taxed-taxed-taxed, own property-taxed, have a business-taxed.... Income tax freedom day maybe in April or May, but add in all the taxes and tax freedom day moves closer to August. Don't get me started on the inflation tax (thanks Nixon).

Today, unlike the 1940's anything that moves is taxed.

[Steven Frisch]

The point I was making by saying "it says what it says", is that I am counting on the interpretation of the federal courts, and the jurists that made them up over the years, to make my case. I am not stating it solely as an opinion. Every one has a belief about what original intent was, granted, but the power of your ability to convince others of your belief lies in the ability to support it with facts, those pesky things. The facts I bring forward is the original language, and the interpretation provided by history. There is precedent and good legal thought behind the ideas that I was putting forward. Every one of those federal judges was a reader of the Constitution and the Federalists Papers, as well. They knew what they thought "original intent" was. It was their job to interpret it.

Want a good example of original intent about the federal governments power to tax--and by extension where that power lies? try Federalist Number 33:

http://www.constitution.org/fed/federa33.htm

George may talk about what he thinks the original intent was, and Mikey McD, may complain about it, but sometimes it is nice to go back to the people at the time that were clearly debating the original intent.

And the case made in Federalist 33 pretty clearly is that the power itself implies that Congress has the power to tax and to define that power itself.

The founders, who George states designed us as a limited government delegating power to sovereign states, also anticipated that the limited function of the federal government would change over time, and designed into that government the mechanism to change it, through interpretation of the constitution and through amendment. If the founders intended the constitution to never change, they would have further restricted the mechanisms to change it. They did not. It was designed to change.

Unfortunately for George the 5th amendment takings clause has never been interpreted as the restriction on taxation. The relevant clause "....nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation." It restricts takings without "just compensation". The courts interpret that to mean that the provision of services by the government itself is a just compensation. If people don't like that, or disagree with the interpretation, the mechanism to change it is to amend the constitution.

George contends that the founders never considered the federal government as having the power to redistribute wealth, but "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;.." this is wealth redistribution, and the general welfare clause embedded in it is at its core.

Want to reverse the general welfare clause--amend the constitution.

I won't even address the comparison of those that George proclaims are "collectivists" with the worlds experience with Hitler, Stalin and Mao--it implies that people who interpret the constitution this way are the functional equivalent of the followers of those famous totalitarians. It is their constitution too. The constitution was not written for George Rebane to interpret alone--it was designed to govern all of us, even those he may think are collectivists.

Want to change the constitution, and how it is being interpreted by the duly authorized courts and federal judges, change it through the established process--amendment. We all have that right.

Wade is astute---we had much higher marginal tax rates in the past and we prospered. To equate the worlds competitive situation at the end of WWII and 1987 is a little silly. We may have had a strong competitive position vis a vis Europe in 1945, but our advantage had been wiped out by the 70's.

I do think we could have some common ground on VAT and flat taxes. These could be done under the current law, and within the current interpretation.

Corporate taxes--do me a favor, if you are going to celebrate a corporations right to act as an individual person and have right to donate money as a "person", they are going to have to take on the responsibility of being taxed as a person.

[George Rebane]

Steve - I think we have made our positions clear. For the record, I don't think that the last judicial or internally procedural interpretation of the Constitution has yet occurred. It is still a dynamic document with the forms of its desirable dynamics debated. You seem not to have understood my point about the effect of taxes in the unique post WW2 world. And you are ascribing beliefs to me that I have neither embraced nor stated. But a corollary to all this has been to highlight the forces that are taking us to the Great Divide.

[RL Crabb]

You know, back at the beginning of this conversation I saw a glimmer of hope that perhaps there could be common ground between the two competing philosophies. It didn't take long to degenerate into the usual arguments.

There are many reasons why so many Americans are leaving the two party quagmire. For some, the Dems aren't liberal enough or the Repubs aren't conservative enough, but I still believe that there are a lot of us who would like to see more cooperation than confrontation. Compromise doesn't necessarily mean we will trade away all our freedoms.It will always be a more perfect union, never a perfect union.

Keep at it boys. There's still hope for the future as long as you're willing to talk about it.

[Steven Frisch]

These are the competing philosophies that framed our constitutional debate from its beginning and have framed the American political debate for 220 years. It is the debate of the Federalist versus the Democratic-Rpublican, the Democrat versus the Whig, the Republican versus the Democrat, writ across the years. As all else has changed, national authority versus local authority and the general welfare versus the individual has always been at the core of the American debate. It speaks to the wisdom of the founders that they understood this tension and designed a system to allow it to ebb and flow. These are not the usual arguments, they are the original arguments.

But I remain disturbed by Georges point. He is in effect saying "The government is out of control, it has moved too far to the federalist and general welfare side of the equation", but he eschews the mechanisms necessary to change that within our legal norms.

He avoids another point by saying I fail to understand his point about post WWII America. I understand it well, he means that we overcame high taxes because we had limited competition in the wake of the war, but fails to address my point that we prospered when we did have competition AND high taxes under Eisenhower, Kennedy, Johnson and Ronald Reagan.

He states that I ascribe beliefs to him, without stating which ones and how they are misinterpreted.

See...he is done with this conversation because he is wrong, and he knows it, so now he must move on to something else.....

Here is the core point from the beginning---Conservatives are lying when they say that we have high relative taxes today--they are actually lower than any time in the modern era. Conservatives are lying when they say that it is America's tax burden that is ruining the nation and responsible for the deficit. It is the lack of an appropriately graduated tax that is creating the deficit, coupled with too much spending. As a liberal I am willing to state that we spend too much money, and propose ways to reduce the deficit. As conservatives they are not willing to say that the upper echelon retains too much untaxed income.

[Steven Frisch]

By the way George just can't get past the FACT that marginal income tax rates in post war America were in the 90% range. It is a fact---the economy expanded rapidly and income taxes were high at the same time.

[Mikey McD]

Steven, your comment/attack is dead wrong ("Conservatives are lying when they say that we have high relative taxes today"). Everything that moves is taxed today and taxes (inclusive of income tax but including ALL other taxes) are up from any other time in history. As a young producer I feel suffocated by the infinite taxes/regualtions on my shoulders and years ago decided to lay off employees, cut production and focus on status quo instead of growth which is against my natural will and in my opinion a government forced (manipulated) dis-service to my fellow man. The Laffer curve in action. I did not live through the '40's I only know that everyone sane in my generation feels overwhelmed by the tax environment (again not just income tax but ALL taxes).

[Steven Frisch]

Mikey, the point is that taxes are relative. I would agree that we should be reducing taxes in some areas. But taxes are relative to other revenue, spending, services provided, and growth in the economy. To just state that taxes alone are responsible for a growing deficit or economic malaise, or are "the problem", is simplistic.

I am wondering if the people who did live in the US through the 40's felt overtaxed when we were rationing food, almost every consumer good, and gasoline, spending 15% of our income on war bonds, controlled wages and prices, had a 90% marginal tax rate on incomes above $200,000 and were running up the biggest relative deficit in American history? That is a fact, not an opinion. No. They were contributing to a society that was fighting fascism and winning our freedom. But make no mistake about it, they were taxed to the hilt.

The question is what do we get in return for our taxes, and is the ability of the government to provide services relative to the tax burden proportional, or the most efficient way to provide services?

I want to see the federal deficit reduced as much as you do. So how are we going to do it?

I am more than willing to say that at times I DO NOT believe that the services provided are worth the cost of government. In that case though the issue is that government, and how services are provided, needs to be reformed. I agree wholeheartedly that if government is not the best way to provide services we should consider, and at times implement, alternatives. I work with government on a regular basis and I think we need to change a lot about how those services are provided. I am even active in trying to change it.

I supported calling a new constitutional convention in California to create performance based budgeting, sunset provision on agencies and laws, require a pay as you go policy, and potentially shift the tax burden to a flat value added tax. That is a pretty damn moderate to conservative agenda. In exchange I get called a "collectivist" and told I don't have the brain power to understand Georges point. That is counter-productive.

The case being made by George is different. His case is that the government does not have the power to tax. And that is just simply constitutionally wrong. The evidence is in our system itself, it is the interpretation of the law conducted through the processes we have established in our constitution, it is in the sober judicial decisions made by dozens of jurists over 220 years. If we want to change that we have a mechanism to do it.

Instead of demonizing government perhaps we should dig in and fix the real problems. Lets reform the system using the system itself, as it was designed to do, instead of sitting on the outside and throwing rhetorical bombs, demonizing our opponents and contributing to frozen governance. That sort of activity just leads to further alienation from our government and potentially leads to anti-government violence.

I was at the Tea Party gathering in Sacramento for part of the day on Thursday and it was amazing how anti-government the rhetoric was. But nowhere was there a "solution" agenda. No booth collecting ideas for positive change. No one telling stories of how to fix the system. Nowhere was there a discussion about ideas. It was an entirely negative discussion.

You want in the arena--get in, instead of dropping out like a deadbeat. Lets debate the issues and work out solutions.

I laid out more than a half dozen things we can do to reduce our deficit and reform how services are provided up above.

Instead of digging in on solutions people like George want to focus on the supremacy of their view of original intent. They want to sit back and pontificate on meaningless blogs and spread lies through faux protests while they collect their social security, medicaid and benefit from the very services and security they attack. This is not citizenship. Citizenship means taking the responsibility to contribute to the solutions.

[Steven Frisch]

Here is George's "great divide". He is encouraging revolution and I am encouraging working within the system to correct its flaws. George is a radical and I am a moderate.

[Mikey McD]

Steven, that was a rich comment. I think we first must consider what services a government should provide. I don't believe that medicare, ss, education (as it exists right now), health care are programs that a government should provide. I would gladly opt-out of medicare and social security and find a more productive and less enslaving savings vehicle with my 20% saved (if it was legal). Again, we must debate what services a government should provide before we talk about deficits and taxes. The "solution" from us on the right is less government. The crux of the matter today is that collectivists believe that they are entitled to the fruits of another man's labor and have given our government the immoral 'right' to take it.

what % of folks made $200,000 in the 1940's? Income taxes as a % of GDP have been consistently between 7-9%, but, we now have sales taxes, car taxes, gas taxes, building code taxes, development taxes, electricity tax, soda can tax, etc etc in addition.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205

"Instead of demonizing government"- government demonizes itself.

[George Rebane]

We’ll leave the “lying” charges aside, and I’ll try to amplify some of the points considered in this thread. The motivation here is not to attempt to change firmly held progressive views, but to more completely state the basis for my world view. Several local voices (with limited horizons?) continue to believe these and other points of my socio-political credo to be unique to me, or perhaps to the benighted few. Such voices, for example continue to interpret Great Divide as revolution, and strongly feel that spontaneous political movements like the Tea Party are not working within the present system. I have ceased all attempts to disabuse such beliefs.

• The political spectrum was simpler during the Founders era viz a strong central state vs distributed power among lower jurisdictions. The historically strong central state model was always concerned with maintaining the wealth accumulation social structure, and never concerned itself with wealth redistribution. Wealth redistribution abetted through strong state was a new dimension of governance which found its modern philosophical underpinnings with Marx & Engels in 1849+.
• We were dominant in all areas of trade through the 1960s, and that affected how well we were able to accumulate wealth under the then various taxes and tax rates imposed at all levels. For example, Japan did not start providing competition until the late 60s early 70s, Europe never did until later. A one-to-one argument for the return of such rates is problematic.
• As I have described in these pages, the real impact of globalization occurred with the so-called Great Doubling in the early 90s. This reset America on the path of wealth accumulation primarily through advanced technology, while our previous forte, mass manufacturing in all sectors, moved overseas. The under-educated American workers suffered, and vainly sought to maintain parity through various state interventions and a decaying public education system.
• Increasingly during the last twenty years, the state and various favored NGOs have assumed the ‘employer of last resort’ role, which strategy supports the progressivist movement of the last century and the collectivist agenda for the land.
• America’s ‘wealth classes’ have always had a mobile and dynamic membership. Inter-generationally few have stayed rich or poor. People make and lose money, and in this process have created one of the most beneficient hallmarks of the American economy. My own life is an anecdotal confirmation of this truth.
• Wealth accumulation more than ever has favored the (technically) educated. Today this is more confirmed than ever. The only other educational class able to keep up has been the lawyers who are primarily engaged in the wealth management and redistribution business (but that’s another story).
• I have written much about the workers’ dilemma we face today. Socialism has sought to solve it with various kinds non-market nostrums including ‘rubber rooms’ for the unqualified and redundant. Conservatives have yet to grasp the requirement for wealth redistribution, leaving the field open for the destructive and unsustainable solutions from the left.
• I know of no sustainable system of economic egalitarianism that is able to provide the quality of life to the poorest that a free-market system does albeit with its attendant skewed distribution of wealth. The more an economy is operated under state enforced egalitarian strictures, the less wealth it produces for all. For graph readers, the Gini Index (http://rebaneruminations.typepad.com/rebanes_ruminations/2009/03/our-new-course-is-declared.html) is an excellent way to illustrate this notion (tutorial here http://sesfoundation.org/TN0903-1%20Gini%20Index.pdf). Our schools still teach that equality and freedom can concurrently be increased.
• I join with those who believe that America is in a sea change with respect to its national dialogue on governance. As a classical liberal (now called conservative) I see no clear path to resurrecting the multi-cultured value system that made this country state. We have entered the ‘bread and circuses’ phase during which the state will maintain its growth through the Peter/Paul purchase of votes. The masses have always cheered the forging of their chains. (see Caplan’s ‘The Myth of the Rational Voter’) The tipping point has been passed.
• The Tea Party movement is both historical and the only visible political aggregation that may blunt the headlong rush toward collectivism, and conserve the Union as it now exists. A decidedly low probability event but still worth my support (“stubborn ounces” and all that).
• Absent an unprecedented reversal of progressive sentiment, those of us who still value a the vision of the Founders (as distilled in the Bastiat Triangle) seek the Great Divide as the only solution for us and our progeny. That dialogue grows daily, for example see ‘Altered States’ in the 17apr10 WSJ.
• Totalitarianism is the most stable form of governance, and a technology based totalitarian state will be the most stable of them all.

[Wade]

It is curious to me that there is always some sort of caveat to the actual history of high(er) tax rates and robust economic growth. In order to maintain the fiction of supply-side dogma that says high top rates are bad for the economy, there must always be an excuse. Post-WWII era was "different," the 90s were "different," etc.

Currently we have historically low top rates (and cap. gains) coinciding with an extremely weak economy the defining feature of which is massive unemployment. Supply side dogma says low taxes are the *only* way to create jobs and yet... once again it's not working. The answer? Pretend taxes are actually high instead of low.

Re: Peter / Paul and the Great Divide. The Pauls think they are Peters. How else to explain Alaska - a state in which everyone (a majority of which consists of rock-ribbed Republicans and self-styled individualists) receives a direct welfare check from the government even while they suck the Federal teat at rates far above any other state in the union all the while decrying "socialism?" How else to explain the Teabaggers, 1/3 of whom are beneficiaries of Social Security, Medicare, or both, versus 1/5 of the general population? How else to explain the sizable agricultural welfare "income" of Michelle Bachmann? The government health care of Sarah Palin? The cognitive dissonance is simply staggering.

Bring on the Divide. Please...

[George Rebane]

Wade - I think that is the proper attitude to have; a confident feeling that your side will do better without having to drag the anchor that is the other side. Let's try to figure out some kind of framework for the GD that might be acceptable to both sides.

[Steven Frisch]

There is a big difference between what George was doing here regarding interpretation of the constitution and what I was doing here. I was stating primary sources--court cases and the actual constitution--not much more primary than that.

Regarding wealth redistribution and federalists v. democratic-republicans--the federalists supported internal improvements through national road building and canal building, they supported creating a national bank to support national infrastructure objectives to increase internal trade, they supported targeted protective tariffs on manufactured goods to create US industries, they supported a strong national government and national defense. The Whigs, who followed, continued those policies on a national bank and infrastructure and worked to create a national manufacturing economy. It was a simpler time, but the effect of federalism, and Whig leadership, and the stated intend according to Adams letters to Jefferson and Henry Clay's writings about the growth of the American economy, was to create a broader distribution of wealth. These were all evident before the European driven revolutions of 1848 and the writings of Marx and Engels in 1849. Good source, which I just read, the book "What Hath God Wrought", by Daniel Walker Howe.

We may have been dominant in trade in the 1960's, but the demise of American dominance on trade was not just a result of tax policy, as George goes on to say in his third point. As a matter of fact some of our biggest competitors today have higher tax rates. George's point appears to be that we could have higher tax rates in the 1960's and 70's because we were dominant in trade.
Well whose policy led to the "great doubling" and the rise of globalization?--it was a bipartisan policy. (A policy I still question and believe was responsible for the destruction of the American manufacturing economy) I agree with George that the "great doubling" led to a change in how we accumulate wealth. It required that we change policy to compete more effectively on the world stage. Investments in research and development, technology, training, human capital, and education became even more important. Unfortunately American companies did not reinvest their profits from becoming global technology and finance leaders into these needs. And just when we needed those investments the government walked away from that responsibility. And who walked away from it? the Republican party. Starting with the sainted Ronald Reagan, and the imposition of "Reaganomics", the Republicans began arguing for the reduction of government investments, reductions in income and capital gains taxes, reduction in regulation, and tightening the money supply. We walked into a global world without the policy in place to compete properly. Consequently we got a deregulated economy, lower taxes for the wealthiest, with a temporarily tight money supply, and no investment in the human capital necessary to compete in the global marketplace. We put in place the "benefit" for corporations and the top 10% and began the greatest transference of wealth from the middle class to the upper class in US history.

It is true that America has always had remarkable mobility in wealth and income. Many would argue that this was as much a result of having an "open" continent to populate for the last 500 years. Unfortunately the past is not always indicative of the future. Since roughly 1980 the gap between the rich and the poor in the US, as measured by the GINI index, has been widening. In most of the western world the GINI co-efficient has been going down. I will let your readers decide if the US spread of wealth looking more like Mexico and Brazil and less like England and France is a good thing. Regardless, if we are investing less in the technological and scientific education of our workforce and the right is coming up with no solutions to fill that gap, aren't you just contributing to the problem? I think you are making a good point here when you say the right has failed to deal with the issue. If there is a better way to achieve the investments in our human capital necessary, get in there and propose them, and work with others to test them and put them in place. SOLVE THE PROBLEM should be the watchwords here.

http://en.wikipedia.org/wiki/File:Gini_since_WWII.svg

Your not going to get me to support the rubber room here. Incompetent employees should get fired. I do not support any rules, be them union rules or corporate welfare, saving them.

From here on you are into the deep end--the "great divide" and the "bread and circuses phase", I mean really? There is actually a lot we could agree with embedded in your comments, and I am willing to work on solutions, but if you want to split from this country, go, but go somewhere else. I am not ready to give up on my country. I find your language about the Great Divide destructive and silly. In essence you are saying, either adopt the conservative worldview or we are going to demand our own state. You and your progeny don't have the right to succeed. This is where the "revolutionary" comment to describe your position comes in. By advocating succession you are a radical. I ask your acolytes here? Do you want to succeed?

I am ready to stand to keep my country, work across ideological and party lines to make it a better place, and use the democratic processes we have in place to continuously improve it, reinterpret it, and honor the vision of our founders. I am ready to put solutions on the table and debate them. I am ready to try new things and even adopt what could be considered "conservative" policies to see how it goes.

You say yourself that you seek the Great Divide. That, my friend, is revolution. It is also advocating the violent overthrow of the US government. It is a much surer path to totalitarianism than debating the policies you fear.

[George Rebane]

SteveF, you could not have made my point any better than in this last essay. Your interpretation of the federalist policies as being the progenitors of today's redistributionists policies, I find perverse. Nowhere in my readings have I discovered where the Founders either promoted or even conceived of taxation policies that took from one group to give to another. Again, different histories.

As for solutions, I have offered mine in these pages and tire of having to remind you of this. Since we have seen nothing specific from you, I presume 'your' solution to be expansion of the current tax and transfer policy.

And your continuing to characterize the GD dialogue as the outpouring of one fevered brain in these mountains is remarkable, and must needs confirm my explanation for such behavior.

Finally, the notion that promoting discussion of GD is violent revolution is perhaps the greatest goad one can think of to recommend that people of good will put their minds to it. Those with whom I join are apprehensive of you and yours who would (by force?) deny us consideration of GD as the constitutional alternative to your prescriptions for our country.

As I have said many times, and find broad agreement from many other students of the American scene, a peaceful GD *may* be the best way to save America. Most certainly a post-GD United States obtained under the provisions of our Constitution would not surprise any of the Founders. But I maintain that their witnessing your proscription of such a dialogue would disturb them greatly. And thus your stance doubly reinforces the need for such a dialogue and explains why it is already under way.

[Steven Frisch]

George you are just not reading history in depth. The federalist theory of national investment in infrastructure, funded through taxes and borrowing, backed up by a national bank, was a direct attempt to spur national economic growth and spread wealth through a broader cross section of the population. It was core to the theory and included in the writing of every major federalist from Alexander Hamilton to Henry Clay. You are simply counting on the stupidity of your followers to not fact check.

That is not a different history, it is a historical fact. You do not get to make up facts.

You have seen several specific proposals from me in this thread, that your readers can see. My own words above attest to the untruth in your statement. I proposed at the federal level: reducing defense appropriations, increasing the SS retirement age, indexing SS payments, eliminating the Bush tax cuts, and increasing the marginal tax rates on people making about $250K per year, and graduating upward from there. At the state level I proposed performance based budgeting, multi-year budgets, pay as you go, and sunset clauses.

There is no constitutional or peaceful way to have a "great divide". It is succession. In short George we have already fought one civil war preserving the union, and the policy you are proposing has been determined to be unconstitutional. WE, as a nation, had this dialogue. Your seeking to perpetuate a second civil war, based on cultural differences, and claiming a constitutional right to do so, is nothing short of insanity. It is un-American and dangerous, and would lead to the loss of millions of lives.

We do not live in the 18th century we live in the 21st century.

You are a dangerous radical.

[Steven Frisch]

Actually George I just realized that the policy you are advocating has a distinctly European root. It is more akin to the struggles of Yugoslavia and the Baltic states than an American mind set.

Are you sure you are not the "Estonian" Candidate?