in Kulturkampf

If Tax Cuts Worked As Advertised, We Would All Be Rich

Current income tax rates make it possible for Warren Buffet to pay a lower rate of tax than his secretary: her income is earned as wages or salary, while his is “capital gains.” According to the aptly-named Laffer Curve and the conventional wisdom of tax cuts, Buffet’s tax cut should provide more jobs for more secretaries as he invests the difference. But if this school of thought had an ounce of real-world credibility, the United States of America would be awash in prosperity and recovery. Instead, the Bush tax cuts created the slowest job growth of any administration in modern times. Reagan and Clinton, on the other hand, signed tax increases and presided over booming economies.

Empirical evidence says there is no controversy: tax cuts do not produce growth. Yet a controversy it remains, feeding the politics of resentment despite all the charts and graphs we might put together. Why? Because no one is having a different conversation.

We may look to the states as examples of regressive taxation (where Buffet pays a smaller percentage of tax than his secretary) at work. From Accounting

“The harsh reality is that most states require their poor and middle-income taxpayers to pay the most taxes as a share of income,” said Matthew Gardner, lead author of the study, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”

Ten states — Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada and Alabama — are identified in the study as particularly regressive. These “Terrible Ten” states ask poor families — those in the bottom 20 percent of the income scale — to pay almost six times as much of their earnings in taxes as do the wealthy. Middle-income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families. (Emphasis mine)

Alabama has one of the most regressive tax schemes in the country, charging millionaires half the effective rate of our poorest residents for almost 110 years now. Alabama remains near dead-last in every indicator of prosperity, yet if I ask everyone on Goat Hill about tax cuts I will probably not find even a single Montgomery Democrat who would dare question the conventional wisdom. Which brings me to mention Newt Gingrich, who told the Republican Governors Association about his plan

requiring the jobless to take training programs in return for unemployment compensation, moving toward replacing President Barack Obama’s health care law, and paying good teachers more while cutting loose bad ones.

Get that? Retraining the unemployed for jobs that don’t exist, restoring the crisis of health insurance costs, and so-called “merit pay” schemes are all examples of resentment politics. It gets worse:

“The challenge for us is to have a Republican Party of jobs and paychecks replace a Democratic Party of bureaucracy and food stamps,” Gingrich said, adding that the effort starts in statehouses across the country. (Emphasis mine)

But that effort has already started. In Alabama, it has been underway for more than a century. Gingrich branding the GOP as “jobs” and the Democrats as “bureaucracy…food stamps” is nothing but the same kulturkampf already being waged against working America:

Middle classes have always been creations of government policy. What you see in that chart is shrinkage of the middle class through the Bush II regime as the benefits of tax policy accrued not to them, but to the richest Americans — who then did not invest the money.

Let me say that again: empirical, observable reality shows zero “trickle down” and precious little economic activity while the Bush tax cuts have been in effect. With the recession, their behavior has become even more miserly. In the last two years, the richest one percent of Americans have banked $10.5 trillion (.PDF) while waiting for someone else to stimulate the economy.

This comes after the largest upward-transfer of wealth in American history. Empirical reality again:

These are the wages of kulturkampf.

Playing the ‘undeserving’ poor as a foil, apostles of the tax cut gospel have spent decades convincing middle class voters that taxes on billionaires are taxes on themselves. In fact, the middle class has been taking the burden for the rich while blaming their problems on the poor. A state of class warfare exists, but it is not coming from the left. It is a false flag operation of the right.

Hyperbole? Arthur C. Brooks, president of the tea party-backing American Enterprise Institute, actually called for a “new” culture war to defend billionaire-friendly tax schemes in an op-ed for the Washington Post this May:

This is not the culture war of the 1990s. It is not a fight over guns, gays or abortion. Those old battles have been eclipsed by a new struggle between two competing visions of the country’s future. In one, America will continue to be an exceptional nation organized around the principles of free enterprise — limited government, a reliance on entrepreneurship and rewards determined by market forces. In the other, America will move toward European-style statism grounded in expanding bureaucracies, a managed economy and large-scale income redistribution. (Emphasis mine)

Note how Brooks includes taxes last — as the final thought to a paragraph with phrases like “free enterprise” and “entrepreneurship.” In fact, both free enterprise and entrepreneurship are scarce today with the Bush tax cuts in place, and for reasons that have nothing to do with taxation: a difficult credit environment, slow private sector growth, and reduced consumption by the 99% of us who aren’t rich.

This particular kulturkampf is very old, and has some roots in the 1971 Powell Memo. It also has a name: producerism, a word (predictably) borrowed from Ayn Rand’s science fiction novel Atlas Shrugged.

Substituting an invisible hand for the Christian God, the producerist religion holds that special, rare people possess more money than we do because we are not rare and special; that if we only developed our talents and invested wisely we, too, could be rare and special. Unlike the “prosperity gospel” of charismatic Christianity, there is no suggestion of charity or tithes. The rich are listening: even as they banked their trillions, charitable contributions are down among the rich. Bloomberg:

Average giving by survey respondents decreased 35 percent to $54,016 last year compared with 2007, after adjusting for inflation, the biennial report found. About 98 percent of the 801 households in the survey donated to philanthropies in 2009, unchanged from two years earlier. Bank of America surveyed households with an income greater than $200,000 or a net worth of at least $1 million, excluding primary residences.

The percentage of income dedicated to giving fell to about 9 percent from 11 percent in 2007, today’s report said. High- net-worth households account for about two-thirds of all individual giving in the U.S., according to the Center on Philanthropy at Indiana University, which co-wrote the report.(Emphasis mine)

Low taxes haven’t spurred the top 1% of American households to do anything producerism would predict of them: they haven’t invested and haven’t given.  They might have consumed (the rich do consume more), but consume what?  Alan Grayson brought this point home quite effectively last week:

“Here’s one possibility: they can buy an $83,000 Mercedes Benz E-Class car, not just once, but every single year for the next decade,” he said. “And each year, when they get tired of their brand new Mercedes Benz E-Class car, they can just give it to somebody ’cause they can afford another one. They can give it to a spouse, a sister, a son, a daughter — anybody. Every single year for the next 10 years, the Republican tax plan is to give millionaires enough money for a Mercedes Benz.”

In part, the media narrative and the Beltway consensus are in a state of deep capture by producerism because government and media are largely dominated by the so-called “producer” class. But the American Enterprise Institute is only one star in a sky full of right-wing, “libertarian” think-tanks and lobbying organizations that have been fighting this kulturkampf for decades. Progressives have yet to meet this challenge. Rational empiricism has little representation because no one has voiced a one-word alternative around which a movement can coalesce.

Presenting his documentary Capitalism: A Love Story on late night television, Michael Moore offered “democracy;” but the word has other meanings that actually cloud its intended impact. Any movement must combine the lower and middle against the upper class — in other words, that 99 percent of us who have been turned on each other must understand we are under mutual disparity from the top. Perhaps that gives us the winning term: Ninety-Nine Percentism.

But whatever the term, it needs to show up on the front steps of Congress soon. There is no lobby or propaganda shop for ninety-nine percent of us. The top one percent are actually idolized by the bottom ninety-nine, who have been raised to want and believe in their upward mobility to one-percenter status even as that club becomes more rarefied than ever. Pull the magic invisible hand’s finger, and it will make you a rock star. Until a different narrative appears in the culture, the top one percent have all the advantages.

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