Cutting Taxes on the Rich - Not in their Best Interests

George Allen is singing from the Republican play book in his latest ads on taxes. This is not the place to either call out the untruths of the ad, which his opponent, Jim Webb has done, but to attack the basic premise that cutting the taxes of our wealthiest citizens is actually good for our wealthiest citizens.

While the economy may be rebounding under the Bush tax cuts, it is doing so because of a very Keynsian debt. We are, in essence, borrowing money from the wealthy and the Chinese in order to finance current spending on the disasterous war in Iraq and the Pentagon's latest spending spree.

The taxpayers of the United States owe a lot of money to a lot of people - largely because of the War and the President's tax cuts. This indebtedness is possible because the debt is financed by the federal government's ability to tax higher income individuals and to seize the assets of those who refuse to pay - just ask Willie Nelson about this. The old canard about every man, woman and child owing a piece of the national debt is just that, a canard. In reality, any individual can figure their liability for the debt by taking their annual tax liability and multiplying it by 8.6. (The total debt/total income taxes). This will give each taxpayer an estimate of how much they owe the Chinese, the rich and the future retirees who will want payment from those bonds held by the Social Security Trust fund. Of course, it does get a bit worse. The IMF/World Bank is ultimately backed by the ability of the American Government to tax, so all that bad foreign debt is potentially on the American taxpayer too. Not a pretty sight.

When the Republicans cut taxes on the wealthy, they shifted the percentage of the federal debt burden more toward the middle class - although by throwing the budget out of balance they increased the total burden for everyone, especially the wealthy, since in a few short years the Bush tax cuts evaporate and any serious effort to balance the budget must include revenue from this economic strata - increasing anyone else's taxes will cut consumption enough to throw the economy into a tail spin. When taxes eventually have to go up, there is only one group that can be taxed - the wealthy. The longer we wait, the worse that bite will be. It would be better for our wealthiest taxpayers to pay down the debt responsibly, including the debt held by Social Security. Then we can talk about permanent tax cuts.

Values Choices for the Parties

Eugene Robinson writes today about the quandry the Republicans are in over the Foley scandal and how it is revealing the pressence of "gasp" gays and lesbians in their membership and on their staffs. He wonders if the Republicans can explain the reality of the situation to their conservative voters or abandon what could be a teaching moment in favor of a gay purge.

One could get the impression that all Christians are conservatives. That is not the case. There is a Christian Left, some of whom are politically liberal and others who are doctrinally so and who might even be politically moderate, since they are definitely to the right of the secular left.

As much at fault has been the Democratic Party's recent predeliction for secularism (even though in reality the Reagans were secularists and the Clintons weekly attenders at services). Even looking at conventions, one must note that gospel choirs and singers are as apt to entertain at the Democratic Convention as the Republican. Of course, beyond the facade, the noisiest of activists in the Democratic Party are secularists. If they are unwilling to share the microphone, people of faith who are not Republican are going to look elsewhere. Our hope is that they will look here.

Left Wing Reforms for Social Security

This Congress has ended for all intents and purposes, with an expected lame duck session to pass the rest of the budget. I have written elsewhere about the prospects for reform in the next Congress. Let me restate here an outline of proposals they can bring to the table.

There are good reasons for oppossing what the President has proposed. However, there are also good reasons to meet him half way. We need to focus not on the risk (this country thrives on risk) or even on replacing social insurance (this country is leery of the term social insurance AND you can insure private accounts and have the same effect as the current program). We need to attack how what the President has proposed will further disempower workers and then offer counter-proposals. Why not just use this as an electoral issue? Because first, we can really do some good for the working class by engaging in this debate and second, the first time we did in 1992 we were calling for private accounts. I will address why below.

We need to expand our attack in the following ways:

1. Point out that you can't eat stock shares any more than you can eat a social security check. The real problem is demographic and the way to solve that is to propose the following:

a. A living wage through the tax system so that every parent gets a raise anytime a child is born.

b. Move the responsibility for funding education (college, votech and even secondary) from parents to future employers, the same way we fund military academy and ROTC students. Also, make sure that teen parents are funded the same way, so that having a kid is not a death sentence to economic progress.

c. Expand day care and provide tax breaks to stay at home parents (like me).

2. Point out that the "ownership" proposed contains no control over that stock, which will lead to more jobs being sent offshore and lower wages, since the fund managers vote for short term profitability rather than the interests of the workers, or even the firm. In short, if you thought Enron was bad, wait to you see what's coming if this bill passes.

3. Take the incentive out of privitization:

a. Credit the employer contribution equally, regardless of the employee contribution. Note that this does not involve raising taxes and it makes the contribution more closely match the benefit (adjust benefit formulae accordingly).

b. Direct the trustees to use realistic economic assumptions. If they used realistic numbers there would be no crisis.

c. Raise the income cap, which brings the system into financial balance (in fact, it would necessitate cutting the general tax rate or going to something like private accounts because the trust fund surplus would be too large given honest economic assumptions). More importantly, doing this would raise the average income amount and lead to much higher payments to retirees. Surpisingly, Bush has said that he is amenable to raising the cap.

Just saying no is not nearly as effective as raising these points. Doing so takes us out of the role of defending government for its own sake (which is where Karl Rove wants us) and puts us back into the position of defending workers. Raising the question of a living wage in order to make abortion rare also gives us street cred with the red state union members who used to be Democrats and are no longer.

If all of these objections are raised, there is room for compromise. If the cap is raised, an average employer contribution is credited and realistic ecomomic assumptions are used the Social Security trust fund will have too much money.

This is why personal accounts are neccessary and why Democrats proposed them in 1992. Senator Moynihan thought it unconscionable for the government to subsist on payroll taxes in order to build up the Social Security Trust Fund. We should too. The Clinton proposal was to create add on accounts above Social Security with a tax incentive for doing so. In other words, he did not object to personal accounts per say but the manner of funding them. Either way, these accounts will be funded from the general fund, so the difference is mainly semantic. If the stocks in that account were controlled by the worker or her representatives (union, professional society, etc.) and she could invest some of these funds in her workplace then we might have a deal which actually benefits workers. See http://www.geocities.com/iowaequity/ for more details.

The Democrats on Social Security

In today's Washington Post, Sebastian Mallaby disses the Democrats for refusing to discuss Social Security before the election.

A conservative group circulated a petition calling for bipartisan talks on Social Security, with all potential solutions to be part of the discussion. Rather than embracing this eminently sane idea, top Democrats in Congress loudly slammed the door on it.

There's a long tradition of demagoguery on entitlement reform, but refusing even to discuss the challenge plumbs new depths of cynicism. A decade ago, Democratic centrists such as Sen. Bob Kerrey of Nebraska argued that runaway entitlement spending would rob the rest of the budget, draining money from social programs that liberals are supposed to care about. Today, a pragmatic Republican such as Sen. Bob Bennett of Utah can propose a progressive fix to Social Security that does not involve personal accounts. But Democrats won't come forward to support him.

In rejecting Social Security discussions last week, the Democrats painted the conservatives' petition as a Trojan horse designed to get personal accounts back onto the table. Even if that were true, since when was all mention of personal accountstaboo for Democrats? A decade ago, a majority of the appointees to Bill Clinton's Social Security commission came out in favor of personal accounts. Even the dissenting minority was open to the idea of investing Social Security funds in the stock market.

If today's Democratic leaders were even a little bit awake, they would realize that the case for Social Security reform has grown stronger since the Clinton era. It's not just that the budget outlook has deteriorated or that the squandering of a decade renders a solvency fix more urgent.

I say more about this below.