Do I laugh or cry at the sheer stupidity and hypocrisy?

Yesterday at a McCain rally in Wisconsin, there was an angry man who expressed his anger at "the socialists takin' over our country." He suggested that Obama and Pelosi were socialists.

Of course, McCain just smiled and said that the man was right.

Obviously, this man is unhinged. He clearly doesn't understand what socialism actually is. Folks, he's had way too much Republican hate-monger koolaid.

I suppose the man in the crowd managed to get to the rally on roads not supported by taxpayer dollars. And I'm sure he has not attended a taxpayer-supported school. And obviously, when he gets medical care, he gets it from a doctor that has never received a taxpayer subsidy, directly (via loans and scholarships) or indirectly (like interning at a taxpayer-subsidized teaching hospital or doing research with grant money, etc.) The streetlights that will light his way home at night must have been provided by magical fairies - certainly not taxpayer funds. The medications he takes certainly weren't subsidized by taxpayer funds. My guess is that while the man appeared (to me) to be old enough to collect Social Security and utilize Medicare, he doesn't. After all, he would be using my tax dollars to fund his retirement and health care, right, and that would be socialism, right?

Obama's tax plan returns income tax levels on families making more than $250,000 a year to pre-Bush tax cut levels. In other words, to the same level as during the Clinton years. The same level as during the Reagan (that big socialist!) years.

I'd like to ask anyone, ANYONE, out there, look at the Clinton years, and look at the Bush years, and tell me that we're better off now. I've lost about 50% of my 401k savings in just the last year (and quite frankly, most of the loss in just the past month.) Prices for food, gas, heat, health care, education, and other necessities are way, way up. Incomes are stagnant. Unemployment is up.

The middle class is the engine that fuels this economy. The upper class only loots and plunders.

I'll say it again. You may not agree with the concept of progressive taxation. You may not agree on the appropriate tax rates. Still doesn't make it socialism. Or communism. And if you keep calling it that, you're either ignorant, lazy, or deliberately deceptive.

Progressive taxation, continued

Let's explore some arguments against progressive taxation.

One of the arguments against progressive taxation is that when taxes increase on the wealthy, and in particular, on businesses, job growth is stifled.

Bunk.

Jonathan Weisman of the Washington Post explored this issue in 2004. You can read a copy of his article here. What the article makes clear is that while Republican economists continue to insist that higher marginal tax rates stifle job growth and create unemployment, historical analysis proves that claim to be false. The best claim on this issue made by Republicans, (expressed in the article by Eric Engen, a Republican economist), is that higher marginal tax rates would stifle job growth "if you could hold everything else constant."

Pesky reality. You can't hold everything else constant. And some of those things that are not constant impact how a progressive tax policy, with higher marginal rates, impact employment and the economy as a whole.

When the government takes in more tax revenues, it can use those revenues to do things that fuel the economy and create jobs.

• It can reduce the national debt, thus reducing the amount of our annual budget we pay to service the debt. This means that long term, the government has even more revenues to utilize.
  
• It can stimulate job growth by funding things like infrastructure projects. Someone has to be hired to build roads, bridges, etc. When the government isn't paying for road construction....people that work in road construction are unemployed, or displacing people in other industries.
• It can stimulate economic demand by reducing the tax rates on the majority of the population. This provides them with additional disposable income, which they tend to use to purchase non-essential goods and services, that they otherwise could not afford and therefore would not buy. Again, someone has to be employed to make those lattes and televisions and knickknacks. In turn, the baristas and television engineers, etc., have money to go out and spend on meals out and new cars. Then the chefs and servers and car salespeople can go out and buy books and sneakers, etc. And the best part is that their employers are benefiting too. If a restaurant can serve 200 customers a night, the owner of that small business stands to make more money, even if their taxes are higher. If there is no one who has the money to go out to eat, tax rates could be 0 and that restaurant owner would still go out of business.
  
• It can provide a social safety net that also serves to stimulate the economy. As an example, let's look at the issue of subsidizing low income housing. A person who cannot afford housing on their own lives on the street. He or she is unlikely to be able to maintain employment. He or she contributes no money into the economy in the form or rent or a mortgage payment, thus, no profits for a landlord/mortgage holder. If the government subsidizes the cost of housing so that the person can afford a place to live, they provide profit to the landlord/mortgage holder. They are more likely to be able to maintain employment, and thus, pay taxes. They are more likely to be able to send their children to school, which in the short term creates teaching jobs, and in the long term, produces a contributing member to society.

In addition, a reality check on jobs is needed. Let's take the example of the restaurant. If a restaurant doing brisk business needs a total of 50 employees, that is how many will be hired. If the restaurant owner has the 50 employees they need, a decrease in marginal tax rates will not induce them to hire any more employees just because they have higher profits. They will only hire the number they need.

The restaurant owner is also not going to base decisions on whether to expand (by opening another location, for example) based on tax rates alone. If the economy cannot support expansion (i.e., there is not a suitable location, or there aren't enough potential customers, or the market is over saturated with that product/service) then the owner will not expand. If the economy can support expansion, the owner will expand.

Another argument is that progressive taxes decrease savings rates. However, this too is not borne out by historical analysis. Our savings rate in 2006 was the lowest in 73 years (yes, that's since 1933). Yet, marginal tax rates were decreased in 2001 and 2003. How could this be? Again, it's a matter of the "all other things remaining constant," i.e., pesky reality. The combination of deregulation of the markets and the consumption bubble fueled by deceptively cheap credit served to create an environment of negative savings, even in the midst of lower marginal tax rates.

Another argument is that progressive taxes lower the incentive to work and gain wealth. Again, I cry bunk. When higher marginal tax rates existed under Clinton, the wealthy did not suddenly say "Oh, forget it. I'm not investing anything." They enjoyed the prosperity fueled by the stock market just like everyone else. When we all do better, we all do better. The wealthiest 5% fared better under Clinton than Bush. So did the rest of the country. If that's the result of the wealthy having no incentive to work and invest, well, that's fine with me.

The final argument I will address is that the rich pay more in taxes, as a percentage of total tax revenues, than the middle class or the poor.

Well, yes. Under a progressive tax system, that's kind of the point.

But is it fair?

Well, the top 20% of the US owns 84% of the wealth in this country. Meanwhile, they shoulder 63.5% of the total tax burden in the country. So no, it's not fair. They should be paying more.

When Republicans make the argument that the wealthy pay more than their share in taxes, they talk about federal income taxes. Federal income taxes are the most progressive tax we have in the U.S. They conveniently forget to mention property taxes, state taxes, gas taxes, sin taxes, sales taxes, and governmental "fees." Why? Not because they don't exist. It's because those taxes are regressive, and therefore, damage their argument.

Republicans also rarely discuss another dirty little secret of the wealthy - tax avoidance through diversion of income. The wealthy have access to tax shelters (legal or illegal) that are not available to or practical for the middle class or the poor. Some examples: off shoring, complex trust agreements, and phony business transactions. Thus, the income reported by the wealthy is very often much less than they actually received. This makes it seem like the percentage of taxes they pay on their income is higher than it actually is.

Now, of course, there are limits. If the government took 100% of income in the form of taxes, sure, that would decrease job growth, and discourage innovation, and stifle the economy. Good thing that no one actually proposes that. It is reasonable to argue about what the ideal level of taxation is. It is not reasonable to suggest that every tax increase, or indeed, any tax at all, is socialist, marxist, communist, etc.

Socialism - oh my!

It drives me absolutely up the wall when people say that Obama, or Democrats in general, or progressive economic policies, are socialist. I can only guess that people say this because of one of the following three reasons:

1) They don't know what the actual policies of Obama/Dems, etc. are.
2) They don't know what socialism actually is.
3) They know socialism is a dirty word, just like liberal has been made into a dirty word, and they are attempting to discredit a policy/philosophy they disagree with via ad hominem attack because they are either lazy or they know mud-slinging is really effective.

Socialism is a "social and economic doctrine that calls for public rather than private ownership or control of property and natural resources." What does that mean? Let's take an example.

In our economy (a mixed economy), I can open a small business. For the sake of example, let's say it's a convenience store. Most likely, I would take out a loan, rent a store, buy inventory, hire staff, sell goods, pay taxes, and hopefully, have some profit to enjoy. I would need to comply with government regulations on things like minimum wages, anti-discrimination, obtaining sales licenses, etc.

In a socialist economy, convenience stores (and everything else) are owned by the state. I may work at a convenience store, but I could not own one. The state would decide what inventory I should buy, at what price I should buy it, exactly how much staff are to be paid, and how much the goods would sell for.

As a little extra bonus in the example, in a communist economy, the convenience store would be owned by all the people. Decisions on inventory, pricing, wages, etc., would be made by the population at large.

At this point, I think it's important to note that the examples are simplified. That's what happens when you're trying to describe an economic system in a few sentences.

Anyhow, now let's look examine progressive policies, and see if they are socialist. In order for progressive policies to be socialist, the state would need to own the means of production.

Does anyone think that the Democrats are trying to nationalize all industry? Has anyone heard a proposal to end private ownership of businesses? No. Has anyone heard a single call from a Democrat, and in particular, Obama, that says everyone should make exactly the same amount of money? That no one should be wealthy? That regardless of personal merit, everyone should have the same standard of living?

No.

Believing in progressive taxation is NOT the same as socialism. Progressive taxation is the idea that the more you make, the more in taxes you should pay. It is not the same as the idea that you should not make any more than anyone else. It is not an attempt to enforce income equality through taxation.

There are many reasons that progressives favor the idea of progressive taxation. In my view, some of the benefits of progressive taxation are:

1) After a certain level of income, the propensity to consume decreases. No matter how rich you are, there is some limit to how much you can eat, how much gas you can burn, how many purses or cars or whatever you are likely to buy. Lower tax rates on lower-income families allow those families to buy more, which stimulates demand, and thus, stimulates the economy. Lower tax rates for the wealthy do not tend to stimulate demand in the same way, because whether their tax rates are low or high, they pretty much have enough money to buy whatever they want to anyway.

2) Higher income people tend to have more disposable income, and therefore, can afford a higher tax burden. Is this fair? I guess it depends on what your definition of fair is. I say that if someone is earning just enough to eat and pay for basic housing, it is less fair to tax them (driving them into starvation or the poorhouse) than it is to tax someone who's basic survival will not be imperiled by the tax.

3) The wealthy benefit more from societal goods, and therefore, should pay more. For example - the police investigate robberies. A low income person may lose $500 of goods due to a robbery. A wealthy person may lose $50,000 of goods due to a robbery. The wealthy person has more to lose, and thus, more to gain by paying taxes for police. The same idea can be applied to infrastructure. Fed Ex makes more based on the roadways than I do. If there are no roads, I lose my salary of $X. If there are no roads, Fed Ex loses its profits of $Y (which is far greater than my $X). It makes sense that Fed Ex should pay more for roads.

Now, you may or may not agree with these reasons. For example, some people feel that progressive taxation discourages work and innovation. (The old "why should I work harder to earn money if it's going to be taxed away?" argument. I say this is bunk - if I had the opportunity to make $100,000 more this year than last year, I would do it in a heartbeat. Yes, my tax rate would go up. So? I'd still be ahead. ) But in any event, let's say you disagree with progressive taxation.

Still doesn't make it socialism. Or communism. And if you keep calling it that, you're either ignorant, lazy, or deliberately deceptive.