To restore the middle class

English: Economist James K Galbraith

English: Economist James K Galbraith (Photo credit: Wikipedia)

Again from The Predator State by James K. Galbraith:

“The true secret  lies in the aggressive regulation of wages. If you are a business in Sweden or Norway, you are free to import, export, and outsource as you like. There is, however, one thing you are not free to do: you are not free to cut your wages. You are not free to compete by going after cut-rate workers, either native or immigrant. You are not free to undercut the union rate. You have to pay your workers at the established scale, and if you cannot do that and earn a profit, too bad for your business.

“The effect of this on business discipline is quite wonderful. To succeed, business must find ways to compete that do not involve running down the wage standards of their workforces. They do it by keeping productivity high and investing in the search for technological improvement. this means that advanced industries thrive in Scandinavia, while backward ones die out. (Progressive businessmen prosper, while reactionaries fade away.) As a result, the economies as a whole stay competitive: the Scandinavian countries started the twentieth century poor and ended it at the top of the world’s distribution of income and wealth. The tax and welfare systems then make sure that everyone has enough to live on.

The United States is not Sweden or Norway. It is much larger, in particular, and for this reason it cannot move ahead as far or as fast as smaller countries. But the economic principles do not change when they cross the North Atlantic. And we have, in fact, applied them in the past. As Dorgan and Brown correctly state in their essay, this is how the American middle class got built in the first place. It was done not by ‘free markets’ but through unions, laws, regulations, and yes, standards. But the standards were not imposed on other people. They were imposed at home–where they can be enforced–and the rest of the world adjusted to what we did here. The problem, in short, is not foreigners and trade. The big problem is that unions, laws, regulations, and standards have been undercut by conservative policies right here at home. And the foundation stone of those policies is the idea that wages and prices should be set by the market, and not interfered with by the political process.”

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Double talk

English: George Orwell in Hampstead On the cor...

English: George Orwell in Hampstead On the corner of Pond Street and South End Road, opposite the Royal Free Hospital. The bookshop has long gone. (Photo credit: Wikipedia)

The GOP have adopted Orwell’s 1984 as the authority for their thought and speech: doublethink and double talk from the Ministry of Truth where words have the opposite meaning of that commonly accepted and found in dictionaries.

The FAIR tax is not fair. It is a flat consumption tax with a gimmick, rebates to low-income consumers that I predict will disappear over time once the GOP have attained their objective. Their objective? Abolish the progressive income tax and the IRS.

Safety nets made of tissue paper that won’t hold water or rescue the needy either from accident or weather related distress.

The death tax which is not a tax the dead pay, but one assessed on the living. We claim to believe in a level playing field, so why should some be given an enormous head start in life? It is harmful to democracy and frequently harmful to the development of character in heirs and heiresses.

Compromise to the GOP means give me all I demand and 50% of what you demand.

Free markets are free from regulation so that competition can be stifled and monopoly profits earned.

 

Proposition 13 and tax reform

English: Mission Santa Barbara, Santa Barbara,...

English: Mission Santa Barbara, Santa Barbara, California, USA Français : Mission Santa Barbara, Santa Barbara, Californie, États-Unis (Photo credit: Wikipedia)

Proposition 13

Howard Jarvis led the effort to pass California’s Proposition 13 in 1978 to slow the rapid rise in property taxes that was forcing people from their homes. When I moved to Santa Barbara in 1965, many of my co-workers purchased homes in the $20-25,000 price range. As property values increased and assessments rose at the same time that tax rates also increased, my co-workers were hit with a double whammy, often seeing their property taxes exceed mortgage payments. Finally in 1978, Proposition 13 was passed to force a halt to rapidly increasing property taxes. And what was the reaction of our elected officials? Some of them closed libraries and shortened hours at the Department of Motor Vehicles (DMV) causing longer lines to punish the voters for their action. The elected officials had forgotten who they were working for, just as some in Congress have now.

At the time, I thought that Proposition 13 was a temporary measure that would lead to a more sensible,  permanent reform. Although somewhat modified over the years, Prop. 13 lives on after 34 years in effect. This has led to some glaring unfairness that the courts should have addressed by now. The properties that sold for between $20-25,000 in 1965 now sell for between $600,000-800,000. For purposes of this example, let us consider a property now valued at $650,000. If purchased in 1965, that house’s property tax is about $900/annually. An identical house next door on the same street if purchased today has an annual property tax of $8,100. That is a 9:1 ratio for the same government services and blatantly unfair.

Tax reform

I favor progressive taxes in place of regressive ones, and that is why I favor the progressive, graduated income tax as the fairest tax of them all. Property taxes are somewhat regressive and sales taxes are the most regressive of them all. That is why I favor abolishing all regressive taxes and replacing them with progressive taxes based on income and net wealth. And while we are at it,  let us tax corporations as people, as Mitt Romney and the US Supreme Court advocate. Corporations should pay at the same rate as individuals do, and dividends and capital gains should be taxed at ordinary income rates.

The progressive, graduated income tax is the fairest tax of them all, but I think that relying only on an income tax alone is probably not a good idea. Therefore, I advocate an annual wealth tax on a person’s or corporation’s net worth of 1/2 of 1% to 1% as some countries in Europe do. A 1% tax on a net worth of $1,000,000 would be $10,000. Let the Federal government take the lead in setting the rules for the progressive income tax and the wealth tax. Then each state could determine independently whether it wanted to adopt the progressive income and the wealth tax within its borders. For example, Illinois could decide to tax its citizens 35% of the Federal income tax and 20% of the federal wealth tax. Some states might adopt one tax or the other, but not both. Some states like Alaska and Nevada might decide to adopt neither. It would be easy for taxpayers to compute what they owe to states since state rates would be a percentage of what they owed on form 1040. Complicated state forms would be a thing of the past.

Regressive taxes like sales tax and property tax would be a thing of the past also. How would cities and schools and sanitary districts be financed in the future? It would be the responsibility of each state to allocate tax revenues within the state to those government entities losing tax revenues under my proposal. This would greatly change how revenues are raised and spent in the US in the future. I cannot predict all the effects of my proposal at this time. However, I will predict that my proposal will have a profound and beneficial effect on schools. Each state would be required to fund all schools within its borders equally. Under the present system, schools are financed mainly from local property taxes which leads some schools to be much better financed than others. This would end under my proposal.

Morality of taxes

Death & Taxes (film)

Death & Taxes (film) (Photo credit: Wikipedia)

Are taxes moral? I was reading a blog post today that argued that taking someone else’s property is theft and therefore immoral. If you earn it, it is yours to keep. Other arguments against taxes include that the accumulation of wealth denotes God‘s approval. Taxing that wealth away is going against God’s wishes. Personally, I have considered all forms of taxation, and I believe that the graduated income tax is the fairest of them all.

If you believe in democracy, rather than plutocracy, the rule of money, you will support the graduated income tax at higher percentages than today’s rate to slow the accumulation of great wealth. In addition, you will join me in supporting the death tax, the estate tax, to prevent great wealth from being passed intact from one generation to another. We can argue the morality of taxes ad infinitum, but the reality is that our democracy requires a level playing field where talent, not inherited riches, determines outcomes. This position was enunciated by one of our greatest members of the US Supreme Court, Louis Brandeis, who sat on the Court from 1916 to 1939.

Please see Means and ends

Tax reform

taxes

taxes (Photo credit: 401K)

Tax reform will be enacted someday. At this point, I would like to submit a modest proposal. I believe that great concentrations of wealth are destructive to democracy and that the progressive income tax is the fairest tax of them all. Therefore I oppose a flat tax and the elimination of the inheritance (death) tax. However, I am willing to compromise if the GOP will settle for either the flat tax or the retention of the  inheritance tax, but not both the flat tax and the elimination of the inheritance tax.

If GOP lawmakers insist on a flat tax, then I propose that the inheritance tax be set at 100% above $1 million. We support a level playing field and this would ensure one, by eliminating inherited wealth. The $1 million could be split among the heirs any way the deceased chose. There would be no escaping the inheritance by setting up charitable foundations. So either a progressive income tax to fund government or a confiscation of wealth upon death to eliminate great concentrations of wealth and preserve our democracy. We must have one or the other tax. Let the GOP choose which they prefer.