Mon Dieu! The title above is the antithesis to what I normally convey, for those who have had discussions with me about politics. My leanings as a moderate fiscal conservative have been to collect taxes only in areas where the government is most effective. These areas include defense, a safety network for the truly poor (not lazy), infrastructure, and creating a regulatory environment that allows private enterprise to thrive. If government spends more than that, which it has done over the past century, it can waste money on fraud and special interests, and encourage the population to be dependent on government handouts. Because there is no bottom line, and because politics have such an influence on decisions, government is not the most efficient or effective way to accomplish things.
Many of us feel happy to live and work in democracy, and are grateful to be able to enjoy the U.S. warts and all. Winston Churchill said that democracy is the most undemocratic form of government, other than all the others. Most citizens and politicians vote for their own interests or what is best for them, rather than learning about the issues and making informed decisions that will benefit the country. Our system is often characterized by the phrase “Democracy” (an incorrect quote that is attributed to Benjamin Franklin).
A BREAK HISTORY OF U.S. INCOME TAXES
To support war efforts, the first income tax in the United States was imposed during the Civil War. It was 3% for people earning over $800 (roughly 19,490 today). Wikipedia says that this was to raise money for the Civil War. In 1894, Congress imposed the first income tax in peacetime — 2% for high-earners. However, this was overturned by Supreme Court in 1895. In 1913, the 16 th Amendment was ratified and made law by the states.
The maximum marginal tax rate (in 1944 during WW II) has been 94% since 1913. The maximum rate dropped from 70.1% down to 28.4% during the Reagan years. The rate was 35% for people earning more than $379,151 in 2011 (and 35% in 2012 for those with incomes greater than $388,351). As is their usual, Democrats push to increase taxes while Republicans try to lower them.
WHERE CAN WE GO FROM HERE?
Our country is in financial chaos that is almost impossible to escape. The current political leaders are unable and unwilling to address the crisis. Idealerweise, government spending will fall significantly. Not just drop but actually grow less. The Fed and bureaucrats won’t launch poorly designed programs anymore. And the people of the country will realize that they have lived for decades on borrowed funds and will now need to make sacrifices. None of these things will happen.
We may be able make some progress in this direction if we are willing to make some compromises. This would require compromises from the political parties as well as the abandonment of long-held fiscal beliefs. One part of this would be to raise marginal tax rates by a few percentage point and close many loopholes. Here are my thoughts:
1. In the current reality, the financially successful have enjoyed greater success than the middle class or lower-income sections of society in the last two decades. In 1965, the average CEO of this country earned 24 times more than their average worker. This number rose to 70 times in 1990 and now stands at 325. While it is reasonable to argue that the CEO should be paid more than the average worker’s salary, most people will argue that the CEO is being overpaid if they make more than 300 times the workers. Very few CEOs have the brilliance or insight to justify such high salaries, except for Steve Jobs (Apple), and Jeff Bezos(Amazon).
The average Joe feels that the wealthy have too much wealth and wants to manage his or her finances. They look at statistics that show the top 1% earners own 40% of the country’s wealth and they go crazy.
No matter whether you agree or disagree that the wealthy have benefited unfairly, there is a perception that many are being screwed. This is evident in Occupy and other rallies which seem to be becoming more common. I believe that riots, and other forms of unrest, will increase in frequency as the economy struggles and people become frustrated about not being able to pay their bills.
The political right will have to make sacrifices to dispel the notion that wealthy people are receiving all the benefits. Even if tax rates rise by a small percentage, fiscal conservatives have the credibility to pursue more aggressive austerity measures and lessen the tax-andspend crowd.
2. The reality is that many who are politically connected are not only seeing unequal sacrifice but are also gaining too much. Bill Gross, the PIMCO bond guru and Princeton’s Burton Malkiel stated the same when they said that capitalism rewards the powerful instead of those who are deserving. Fannie Mae, Freddie Mac and other large banks CEOs made millions while driving their companies to the ground and were rescued by taxpayers. Nearly all of these leaders are still in business despite their political connections and difficulties in prosecuting these types crimes.
This is just one part of a larger problem, which may not be resolved by any other than an uprising. However, informed citizens could vote with their feet to remove the worst offenders. Unfortunately, media does not do a good job of identifying the true scumbags. I think it’s perfectly okay to get some of the money back into the coffers, and away from the low-lifes who are not deserving.
The country is in debt more than its annual GDP, and there is no way to get it under control. The country cannot pay its entire debt off using high inflation. However, it can take steps to lower costs and increase revenues. Adult politicians and citizens should behave like adults and work in the country’s best interest, not their own. Maybe that is just a dream.
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