Showing posts with label tax the rich. Show all posts
Showing posts with label tax the rich. Show all posts
Saturday, 2 March 2013
Thursday, 3 January 2013
by Michael Roberts
So after months of argument, threats and dispute, the leaders of the US Congress duly trooped out before the cameras and said they have ‘saved America’s middle class’ from facing a steep fiscal cliff. In reality, the politicians had turned the fiscal cliff into a fiscal farce. As American Enterprise Institute scholar Norm Ornstein put it: “This fandango was an immense embarrassment,” calling it “cringeworthy.” And “the fact that we are going to have another disastrous confrontation over the debt limit in two months, with the radical right wing of the House Republicans determined to send us over the edge if they don’t get their way, is actually frightening.” It was “the worst Congress in our lifetimes.”
Sarah Binder, another ‘expert’ on Congressional politics, described the politicians as “a Congress that can barely get its work done – especially when confronting the most important issues of the day”. The farce is set to continue as Congress must deal with avoiding the federal ‘debt limit’ being breached by Valentine’s Day and then work out a way to reduce welfare spending for the next generation of Americans in need by March. All that Congress agreed on the New Year holiday was to extend the tax cuts first introduced by George Bush, except for those taxpayers earning more than $400,000 a year – the infamous 1%. This saves about $100bn from the budget in 2013. However, for that small concession to Obama in agreeing to raise the tax burden for the very rich just a little, both the Republicans and Democrats alike were happy to impose higher social security contributions on every American, or what America’s opinion makers like to call the ‘middle class’. Apparently in the US, there is no working class. There is the rich, the middle class and the poor. But no working class.
The 2% cut in payroll taxes introduced to boost employment just three years ago has been reversed, raising employee contribution rates to 6.2% of gross pay. This is the biggest hit to average Americans, in order to ‘save’ $126bn, as it reduces middle quintile incomes by roughly $700-1000 a year. Altogether the fiscal cliff of about $600bn has become a more moderate slope of under $300bn.
But that’s still a sizeable hill of pain for most Americans and there’s more to come. So the boast of both Republicans and Democrats in Congress that they have ‘saved the American people’ is so much hogwash. The deal is really the first signal that in a couple of months time when Congress gets round to deciding how much government spending needs to be cut to reduce the public sector debt burden, that social security costs are going to rise for the average American, there will be more taxes and further cuts in government services. Nevertheless, Keynesian guru, Paul Krugman, thought it a reasonable deal in the circumstances as there were no serious cuts in social benefits and tax cuts for the middle class were to be continued for the next five years. But he recognised that Obama has already pushed through an increased medicare age and reduced social benefits in his 2012 budget. So we can expect more hits to the poor and ‘middle class when the 2013 budget is finally agreed.
That other Keynesian guru, Brad de Long, was less happy as he was worried that the agreement to raise payroll taxes would hit the purchasing power of employees and so weaken the ability of the US economy to recover. But it’s not the lack of workers’ purchasing power that is the problem. Indeed, despite real wages falling, consumption as a share of GDP has hardly moved as households run down savings and save less. It’s investment by the business sector that holds back recovery in a capitalist economy. That’s why the Congress agreement includes yet more tax relief to the capitalist sector in the form of investment allowances, more special subsidies for various key industries and no closure of any corporate tax loopholes. Indeed, about $46bn in business tax breaks were included with an extension of research and development tax credits, a provision allowing businesses to write off immediately half the value of new investments and a wide range of other favours for select industries, including tax breaks for railroad track maintenance, restaurant and retail store improvements, auto racetracks, film and television production and rum production in Puerto Rico and the Virgin Islands!
There was no mention of ending key tax breaks for the oil and gas business, or for senior managers of private equity firms and hedge funds. And the banks also did well. They retained a key tax break allowing them to defer paying US taxes on certain financial transactions undertaken outside the US. This offshore tax loophole is worth more than $150bn a year, larger than the money raised by increasing workers’ payroll tax. The deal is heralded by the worthy Senators and Congress men and women as saving middle America. In reality, it is saving business from a tax hike. The US corporate tax burden is now at a post-war low.
Now some more radical Keynesians like those from the Modern Monetary Theory (MMT) group reckon that any cuts in government spending to reduce the $1trn-plus budget deficit are unnecessary. As leading MMT exponent, Randall Wray, put it: “MMT has always argued that a sovereign government that issues its own currency cannot become insolvent.” So increased government borrowing to cover deficits is not a problem and rising public debt is not an issue because governments can always print money to honour any debt payments. It is impossible for a government to default (unless it owes money to foreigners). Leaving aside the issue that about 40% of all US federal debt is owed to foreigners, who will worry if the value of the dollars they own in US treasuries should plummet, can it really be right that government debt can go rising indefinitely without consequences for the capitalist system?
As Wray correctly points out, the ratio of debt to GDP will only rise if the interest cost on that debt rises faster than GDP and governments do not raise enough extra revenue over spending to cover the difference. But that is exactly what is happening in the US now. If the level of debt rises, then the cost of servicing that debt (repaying maturing debt plus interest) will rise too and start to eat into spending that could otherwise be used on welfare or government investment in infrastructure or education etc. Indeed, if the US government debt ratio to GDP is to be stopped from rising, then the current annual primary budget deficit (excluding interest payments) of 5% of GDP, will have to be turned into a surplus. That would mean a huge rise in taxes or cuts in federal spending, or both.
So one of the reasons that government debt matters to the capitalist economy is that, if it keeps rising, the cost of servicing it will drive up taxes for capitalists or reduce government spending on ‘necessary’ things like defence and homeland security. The capitalist solution then (for both Republicans and Democrats alike) will be to try to get the deficit and debt down by welfare cuts and taxes on the ‘middle class’. Given that government spending on so-called discretionary items have already been cut to the bone (see graph below), the next cuts will be aimed at so-called entitlement programmes like medicare, medicaid and social security.
Remember what Obama said recently:“The truth of the matter is that my policies are so mainstream that if I had set the same policies that I had back in the 1980s, I would be considered a moderate Republican.” The only difference is that Obama and the Democrats want to make any cuts in welfare slower and more gradual and raise taxes on the better off a bit more. The Republicans want to cut welfare more quickly and preferably not raise taxes at all.
Jeffery Sachs, newly converted radical from mainstream economics, condemns the Congress agreement because it does not allow the Bush tax cuts to expire! He wants the fiscal cliff to remain. Sachs argued that many people will say, “Yes, but why tax the middle class to collect more revenues?” Sachs answers by saying by that Americans need to be taxed more in order to pay for welfare and education etc. It’s the only way, he says. So the Keynesian position is to save welfare and government services by more taxation. It does not enter into their thinking that faster economic growth and employment along with the reversal of payouts and tax exemptions to the rich and the corporate sector could preserve and even improve welfare and government services without raising taxes on the ‘middle class’. As I said in my previous post, The fiscal cliff, Okun’s law and the Long Depression, neither the Keynesians nor the Austerians offer any policies on how to raise the rate of economic growth on a long term basis. Both accept whatever the capitalist sector can deliver, on the whole. So they are forced to consider budget reductions either through more taxes or less spending to stop federal debt rising inexorably.
Marx once said in the 18th Brumaire of Louis Bonaparte that history can repeat itself, first as tragedy, then as farce. But farce can also turn into tragedy. And over the next two months when Congress imposes a range of cuts in government services and welfare benefits for the foreseeable future, along with more tax increases, this farce may well end up tragically for America’s working class.
So after months of argument, threats and dispute, the leaders of the US Congress duly trooped out before the cameras and said they have ‘saved America’s middle class’ from facing a steep fiscal cliff. In reality, the politicians had turned the fiscal cliff into a fiscal farce. As American Enterprise Institute scholar Norm Ornstein put it: “This fandango was an immense embarrassment,” calling it “cringeworthy.” And “the fact that we are going to have another disastrous confrontation over the debt limit in two months, with the radical right wing of the House Republicans determined to send us over the edge if they don’t get their way, is actually frightening.” It was “the worst Congress in our lifetimes.”
Sarah Binder, another ‘expert’ on Congressional politics, described the politicians as “a Congress that can barely get its work done – especially when confronting the most important issues of the day”. The farce is set to continue as Congress must deal with avoiding the federal ‘debt limit’ being breached by Valentine’s Day and then work out a way to reduce welfare spending for the next generation of Americans in need by March. All that Congress agreed on the New Year holiday was to extend the tax cuts first introduced by George Bush, except for those taxpayers earning more than $400,000 a year – the infamous 1%. This saves about $100bn from the budget in 2013. However, for that small concession to Obama in agreeing to raise the tax burden for the very rich just a little, both the Republicans and Democrats alike were happy to impose higher social security contributions on every American, or what America’s opinion makers like to call the ‘middle class’. Apparently in the US, there is no working class. There is the rich, the middle class and the poor. But no working class.
The 2% cut in payroll taxes introduced to boost employment just three years ago has been reversed, raising employee contribution rates to 6.2% of gross pay. This is the biggest hit to average Americans, in order to ‘save’ $126bn, as it reduces middle quintile incomes by roughly $700-1000 a year. Altogether the fiscal cliff of about $600bn has become a more moderate slope of under $300bn.
But that’s still a sizeable hill of pain for most Americans and there’s more to come. So the boast of both Republicans and Democrats in Congress that they have ‘saved the American people’ is so much hogwash. The deal is really the first signal that in a couple of months time when Congress gets round to deciding how much government spending needs to be cut to reduce the public sector debt burden, that social security costs are going to rise for the average American, there will be more taxes and further cuts in government services. Nevertheless, Keynesian guru, Paul Krugman, thought it a reasonable deal in the circumstances as there were no serious cuts in social benefits and tax cuts for the middle class were to be continued for the next five years. But he recognised that Obama has already pushed through an increased medicare age and reduced social benefits in his 2012 budget. So we can expect more hits to the poor and ‘middle class when the 2013 budget is finally agreed.
That other Keynesian guru, Brad de Long, was less happy as he was worried that the agreement to raise payroll taxes would hit the purchasing power of employees and so weaken the ability of the US economy to recover. But it’s not the lack of workers’ purchasing power that is the problem. Indeed, despite real wages falling, consumption as a share of GDP has hardly moved as households run down savings and save less. It’s investment by the business sector that holds back recovery in a capitalist economy. That’s why the Congress agreement includes yet more tax relief to the capitalist sector in the form of investment allowances, more special subsidies for various key industries and no closure of any corporate tax loopholes. Indeed, about $46bn in business tax breaks were included with an extension of research and development tax credits, a provision allowing businesses to write off immediately half the value of new investments and a wide range of other favours for select industries, including tax breaks for railroad track maintenance, restaurant and retail store improvements, auto racetracks, film and television production and rum production in Puerto Rico and the Virgin Islands!
There was no mention of ending key tax breaks for the oil and gas business, or for senior managers of private equity firms and hedge funds. And the banks also did well. They retained a key tax break allowing them to defer paying US taxes on certain financial transactions undertaken outside the US. This offshore tax loophole is worth more than $150bn a year, larger than the money raised by increasing workers’ payroll tax. The deal is heralded by the worthy Senators and Congress men and women as saving middle America. In reality, it is saving business from a tax hike. The US corporate tax burden is now at a post-war low.
Now some more radical Keynesians like those from the Modern Monetary Theory (MMT) group reckon that any cuts in government spending to reduce the $1trn-plus budget deficit are unnecessary. As leading MMT exponent, Randall Wray, put it: “MMT has always argued that a sovereign government that issues its own currency cannot become insolvent.” So increased government borrowing to cover deficits is not a problem and rising public debt is not an issue because governments can always print money to honour any debt payments. It is impossible for a government to default (unless it owes money to foreigners). Leaving aside the issue that about 40% of all US federal debt is owed to foreigners, who will worry if the value of the dollars they own in US treasuries should plummet, can it really be right that government debt can go rising indefinitely without consequences for the capitalist system?
As Wray correctly points out, the ratio of debt to GDP will only rise if the interest cost on that debt rises faster than GDP and governments do not raise enough extra revenue over spending to cover the difference. But that is exactly what is happening in the US now. If the level of debt rises, then the cost of servicing that debt (repaying maturing debt plus interest) will rise too and start to eat into spending that could otherwise be used on welfare or government investment in infrastructure or education etc. Indeed, if the US government debt ratio to GDP is to be stopped from rising, then the current annual primary budget deficit (excluding interest payments) of 5% of GDP, will have to be turned into a surplus. That would mean a huge rise in taxes or cuts in federal spending, or both.
So one of the reasons that government debt matters to the capitalist economy is that, if it keeps rising, the cost of servicing it will drive up taxes for capitalists or reduce government spending on ‘necessary’ things like defence and homeland security. The capitalist solution then (for both Republicans and Democrats alike) will be to try to get the deficit and debt down by welfare cuts and taxes on the ‘middle class’. Given that government spending on so-called discretionary items have already been cut to the bone (see graph below), the next cuts will be aimed at so-called entitlement programmes like medicare, medicaid and social security.
Remember what Obama said recently:“The truth of the matter is that my policies are so mainstream that if I had set the same policies that I had back in the 1980s, I would be considered a moderate Republican.” The only difference is that Obama and the Democrats want to make any cuts in welfare slower and more gradual and raise taxes on the better off a bit more. The Republicans want to cut welfare more quickly and preferably not raise taxes at all.
Jeffery Sachs, newly converted radical from mainstream economics, condemns the Congress agreement because it does not allow the Bush tax cuts to expire! He wants the fiscal cliff to remain. Sachs argued that many people will say, “Yes, but why tax the middle class to collect more revenues?” Sachs answers by saying by that Americans need to be taxed more in order to pay for welfare and education etc. It’s the only way, he says. So the Keynesian position is to save welfare and government services by more taxation. It does not enter into their thinking that faster economic growth and employment along with the reversal of payouts and tax exemptions to the rich and the corporate sector could preserve and even improve welfare and government services without raising taxes on the ‘middle class’. As I said in my previous post, The fiscal cliff, Okun’s law and the Long Depression, neither the Keynesians nor the Austerians offer any policies on how to raise the rate of economic growth on a long term basis. Both accept whatever the capitalist sector can deliver, on the whole. So they are forced to consider budget reductions either through more taxes or less spending to stop federal debt rising inexorably.
Marx once said in the 18th Brumaire of Louis Bonaparte that history can repeat itself, first as tragedy, then as farce. But farce can also turn into tragedy. And over the next two months when Congress imposes a range of cuts in government services and welfare benefits for the foreseeable future, along with more tax increases, this farce may well end up tragically for America’s working class.
Sunday, 2 December 2012
Wednesday, 21 November 2012
If people want to believe in such myths though, I believe they should be able to do so freely and without discrimination or persecution. But I do not believe that Christian mythology should be given any more credibility in such maters as the origins of the material world or us as occupants of it, than Greek or Roman mythology. The idea that there are colleges of divinity or doctors of divinity that are given serious credibility in the world of science or education is ridiculous.
These organizations though carry a lot of weight and influence thinking and politics. The Catholic church for instance has its own state and representatives in the governments of nations where it has a presence. It has been complicit in the deaths and assassinations of Liberation Theologists that were outspoken critics of the US support for fascists and right wing death squads in the Americas. Once the religion of the feudal aristocracy owning vast quantities of land it is now one of the most powerful institutions of capitalism and the free market. We spend billions of dollars and much wasted time in the US fending off the influence of these organizations in the education of our children substituting myth and fairy tales for reason and scientific truth.
An article in my local paper today talks about the increasing boldness of these institutions involving themselves more openly in the political process telling their flock who to vote for and preaching openly political sermons. The Pulpit Freedom Sunday movement, the arm of a Christian legal group called Alliance Defending Freedom based in Arizona, is aiming to take the US Internal Revenue Service on head on as it challenges the 1954 law banning churches from supporting political causes or candidates during services. The deal is that they get tax exempt status for this small detail. It's an interesting type of Christianity that resides in Arizona, throws around the "freedom" label and says nothing and actually supports the harassment, killing and persecution of immigrants, desperate to feed their children.
The religious organizations go on about the discrimination and oppression they face in society yet they wield incredible influence considering they are institutions that peddle myth. You can pretty much commit any sort of malfeasance and run for office in this country (in fact it is a plus), anything except admit to being an atheist. It is not them that are discriminated against but those of us that do not accept their mythology as truth.
The intention of the separation of church and state wasn't the church's encroachment on government but government's encroachment into the church" says one preacher adding that, "If I talk about an issue of the violation of biblical truth, then it ceases to be a political issue. It's a spiritual issue."
The Arizona based Alliance Defending Freedom (except for undocumented Latino immigrants driven by poverty to seek work elsewhere) wants to transform the legal system and "reclaim America" from "Radical anti-Christian groups" and "debunk" "..the myth of the so-called separation of church and state." Many of these institutions are the right wing Christian Evangelicals that hate gays, blacks, Jews (except Zionists) and any others that don't believe their stuff. But the more mainstream institutions like the Catholic and Mormon Churches are very prosperous businesses that get huge tax breaks and tax exempt status on property and land, possible income as well.
So these institutions rake in billions, trillions over the years through tax exemption. We should allow them to preach any politics they want and repeal the tax exempt status, religious institutions should be taxed like any other business.
I would urge those political activists that get these initiatives on the ballot to change legislation, to get together and introduce legislation to eliminate this perk; make an issue of it, go an the offensive and place it on the public agenda. The IRS allows these institutions to violate this law with impunity, we need to make an issue of it and make a real effort to repeal the tax law. We can use that money in a more productive way, build some schools, hire some teachers.
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