Monday, May 15, 2006

Monday with McKenna: The Beast is US

Today, Terry McKenna talks tax policy, or specifically, the lack thereof amidst the Bushies. Then, have a couple of yuks over a look at what might have been. Finally, for an eloquent return to reality, check out Bob Herbert's column (if you don't have or don't want to join Times Select, take out a free trial subscription just to read this piece, it's that good).

The Bush tax cuts were never the result of honest policy. They were also founded on a lie. Tax cuts were originally touted as a way to return the surplus (remember the surplus?); then as the surplus morphed into debt, they were repackaged as stimulus. By now, the very phrase "tax cuts" is a mantra - no more, no less; a sacred phrase chanted by believers. Honest conservatives will admit that if there is any “policy” behind tax cuts, it is to “starve the beast” – thus in the next decade, when we will need income tax revenue to replenish borrowed social security funds, we’ll be so deep in debt that there will be no tax revenue to spare.

Then why do economists say tax cuts work? Well, they don’t really say that. Of course, if you look at any income stream, and then lessen it by any expense, the stream gets smaller. So expenses like tax cuts (and R&D) take cash off the table. But we’ve also paid for something. An honest economist needs to value what we get from government’s expenditures.

The tax cuts (and the Iraq War) have increased federal debt so much so that we can no longer afford the government we need and desire (remember Katrina and FEMA). And how about mine safety? Or the EPA? Truth be told, the Bush budgets have shrunk domestic spending – much of it for essential services.

Do we then get more prosperity?

If you listen to FOX news or read the Wall Street Journal, you’ll hear endless stories of GDP growth. But what about jobs and wages? If we compare job growth over the past 10 years, even factoring ups and downs, we get a growth rate that is less than half that of population growth. Then, we have stagnant wages. Working class families depend on wages from both a husband and wife. Even in middle class families, while a working mother may have more flexibility in looking for work, the bottom line is that even for the middle class, both adults must work.

So at best, we are running in place economically.

But what about the world? Surely, if conservative are right, highly taxed nations would envy our prosperity. But despite what Fox News or the Wall Street Journal would make us believe, they don’t. Yes, European taxpayers chafe at high taxes, but their collective economies are doing at least as well as ours is – and better in terms of genuine prosperity. So their old smoke stack industries like auto manufacturing are in trouble (just like ours). But their high tech sector has the same sort of successes that ours does (thus Germany’s SAP is a world leader in accounting systems), and their pharmaceuticals and specialty chemicals are the envy of the world.

Yes, I know that employment numbers look bad for Europe, but their generous social benefits make unemployment survivable – and by the way, it’s well known that our unemployment statistics hide the long term unemployed, as well as the underemployed.

When we look at genuine measures of prosperity: life expectancy, infant mortality and literacy – we fall short. Way short. For example, our infant mortality rates are similar to that of impoverished Cuba. And our life expectancy is 18th out of the top 20 nations. To be sure, we are a continental nation so share characteristics with Russia and China. But Canada also straddles a continent, and their life expectancy is near the top.

Even within the US, the relative status of high tax and low tax states is informative. High tax states like Massachusetts, New Jersey and Connecticut are among our richest. Low tax states like Arkansas, Mississippi and Louisiana are also among our poorest. And if we examine almost any measure, the high tax regions do better.

Conservative policy reflects the irritation of small businessmen who are tired of the many regulations, license fees and other annoyances that have been put in place by government. And when all is said and done, they hate paying taxes on their hard work. Small business is a bitch (my wife runs 2 dozen small bookstores, so I know this well). But despite the frustrations, businessmen keep coming back for more. And when a business fails, it’s because of products and markets and not tax policy.

—T. McKenna

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