Current Republican Strategy

I want to congratulate the Republicans. They have finally gotten us to where they want us. They have created budget deficits so large they can with a straight face abrogate workers’ rights, rend great gaping holes in the peoples’ safety net and say “It’s the only way. We have to do it.”

Step One: Create the mess.

Have Republicans gotten us to this point through stealth measures? Hardly! They have forthrightly cut taxes again and again and again. The Democrats, including the current president and last Congress, have been complicit. Where Republicans have pulled the wool over gullible eyes is their claim that lower taxes lead to an increase in tax revenues. Each taxpayer will get to keep more, but the economy will grow so much we’ll make it up. Not going to happen – at least not at the level of tax rates in this century.

The intellectual bulwark for this thinking is the famous/infamous Laffer curve, which suggests there is an optimal tax rate where anything lower or higher will result in lesser total tax revenue. Common sense says the Laffer hypothesis is correct. At a 0% tax rate, the government gets no taxes—and there is no government. Everyone is on their own and must fend for themselves. At 100% the government gets (and therefore spends) everything. Under that circumstance people will only work as much as they are required and no more. There is so little extra benefit to the person who makes any extra effort as to make it improbable.

Starting with a 0% tax rate and slightly increasing it will not cause anyone to work less. As a result tax revenues go up. All that happens is the government decides how to allocate a larger percentage of the GDP. As the tax rate increases, it becomes marginally less advantageous to work an extra hour or make an investment, and so work and investment starts to decrease. Starting with a 100% tax rate—where the government controls all spending in the economy—at some point as tax rates decline it becomes “worthwhile” to do extra work because you have left-over compensation you can decide how to spend rather than having the government decide.

In between those extremes is the optimal—the maximal tax revenue under the Laffer curve.

Who can argue? Well economists, of course, but the general concept certainly makes sense.

Republicans fundamentally believe government should be smaller—yet people like things governments do, like plowing roads when it snows, providing police and fire protection, etc. Since Republicans were unable to shrink government when the Democrats were in charge, and refused to shrink government (and actually increased its size) when they were in control, they needed to find another means. Starving government of funds is the method.

To justify cutting tax rates, Republicans have claimed without factual evidence (and even despite factual evidence of the effect on income after the Regan or Bush tax cuts) that the US is in the portion of the Laffer Curve where decreasing rates will increase tax income. Therefore, they say, cutting taxes will increase tax revenue. Democrats have not been forthright in proclaiming the tax-cutting-king has no clothes and have gone along with a series of tax cuts. The result has been (drum roll please) decreased tax rates and decreased tax revenue.

So, at the same time Republicans drove through tax cuts, they increased government spending in many areas including the two Bush-inspired costly wars we are still fighting.

The most recent recession arrived and Americans (are you surprised?) looked to the government to stabilize the economy, which it did first under Bush and now under Obama. Once that money was spent and after it became apparent that we would not spiral down into another Depression, Republicans and many Democrats began saying it was ill-spent money—regardless of analyses by independent economists that showed how badly the US economy would have been hurt had the money been withheld.

Step 2: Abrogate Workers’ Rights

Individuals who wish they could live above their means (and many Americans did for decades) now tell all who ask them in surveys that Government must live within its means. They tell government they are overtaxed (a clear Republican victory in message success). They also tell pollsters that they don’t want their entitlements cut (not so good for the Republicans, which is why they need a crisis).

Well that equation does not work, but Republicans don’t want to admit that quite yet. Instead, they are pressing hard for long-term gains on other pet issues. Labor is taking it on the chin. In Wisconsin Republicans are not satisfied with cutting salaries and benefits of unionized government employees; they want to eviscerate the unions. The stated reason? In order to meet the crisis we must allow governmental leaders to take whatever actions they deem necessary. “We’re broke,” Gov. Walker said. “You can’t really negotiate when you don’t have money to negotiate with.”

Baloney. Wisconsin has money—not as much as perhaps it wishes it had, although the Republicans did recently approve a tax reduction for businesses—but more than enough to pay some number of state employees some level of compensation. That’s what bargaining is all about. Bargaining is a process that helps divide the limited pie. As another example of this self-induced problem, many states have purposefully underfunded their pension plans in order to balance budgets and, by golly, now the plans are “broke” and darned if the overpaid employees didn’t cause the problem. Gosh, I am so surprised.

I am not about to suggest that the public unions have not made use of their structural advantages. Unlike private employers, it is much less likely their employer can go bankrupt because of an overblown cost structure. Because of that advantage, I suspect (and some studies have shown) that public employees enjoy an advantage in wages and benefits compared to their nonunionized private peers. I will also agree with those who suggest that the rigidity of many civil service rules is a barrier to more efficient government.

The problems did not arise overnight, nor should we attempt to fix them with the flash of a current legislature’s pen.

We need considered solutions, not slash and burn tactics primarily targeted at the other party’s favorite constituents—in this case the Republicans trying to take out Democratically leaning unions.

We need people talking with each other to develop long-lasting solutions. The current crop of extreme Republicans is little interested in compromise. They have won their majorities (overwhelming according to them—at the margins of the swing independent voters according to me) and will do the “will of the people.” We’ll see if that’s true, but Step two is in full play.

Step 3: Eviscerate the Safety Net

Simply destroying unions is not these extreme Republicans’ ultimate objective. They use an us-versus-them approach. Today it’s “The Taxpayers” against public employees. Even if the Republicans win everything they want, it won’t be enough to balance the budgets. Tomorrow it will be “The Taxpayers” against the “entitled”—whether the “entitled” be poor, unemployment, ill or superannuated.

If those with money must not be tapped for the common weal, this simply comes down to a rich man’s game: The rich want to keep all they have and get more. To accomplish that, the middle and lower classes must suffer.

Congratulations again to the Republicans; the stage is set for you. Something you extreme Republicans should keep in mind: the pendulum swings. You are about to give it one heck of a shove. What will happen when it comes back the other way?

~ Jim

Tax-Deductible Contributions

This may come as a surprise to many folks who know me, but during the last presidential primaries I took a quiz to help “identify the presidential candidate who most closely matched my beliefs.” It took only a couple of minutes to answer the online questions. My recollection is that John Edwards was first (there were no questions about marital fidelity at the time), Hillary Clinton second and Ron Paul third.

Ron Paul? Yep, and the topic for this article is one of the reasons why the survey thought Ron Paul might be for me.

I do not think charitable contributions should be tax-deductable. I highly approve of giving to nonprofits. I give to various nonprofits because it makes me feel good, because I think the church or organization will do useful things with my money. I do it because I have more resources than I need to live and believe I should give some back. I give for a lot of reasons, but that doesn’t mean the Federal or State governments should reward me for my generosity.

That kind of libertarian thinking induced the quiz’s authors to suggest Ron Paul might be a good fit for my preferences. Well, if that were all Ron Paul espoused the quiz would have been right. However, Ron Paul and I part company as soon as we start discussing this country’s safety net—of which I am a strong proponent and Paul is not. When I weigh my answers to reflect those issues I think are most important, my views on an appropriate safety net are a lot more important to me than inappropriate taxing schemes.

Anyway, back to tax-deductible contributions. I cannot fathom why, other than that rich people run the country and this provision disproportionately benefits those with money, government should subsidize me when I contribute to the church of my choice, or to a local foodbank or to one environmental group or another.

The argument that these contributions are for “common good” falls apart as we examine contributions to religious organizations. In my mind, fundamentalist churches with their exclusionary teaching do not benefit our common weal. I suspect they would say the same thing about my contributions to the non-creedal, open theology denomination I support. These are personal decisions and should neither be supported nor hindered by the Federal Government and its tax code.

“We’ll lose the (fill in the blank nonprofit) without the tax-deduction,” proponents claim. If the only reason people contribute to a nonprofit is to get a tax-deduction, then I say, “So be it.” Those folks need remedial arithmetic more than they need tax deductions. The government is subsidizing the contribution, not paying for it. It still costs an individual money to make a contribution. Clearly they are not that ignorant of basic addition and subtraction: they are making the contribution for some reason other than the tax-deduction.

If something is so important to a community that its loss is a great concern, then the community should agree as a whole to support it directly, not through the side door of the Federal or State tax code.

In my town in Michigan a few years back, we approved increasing our taxes to pay for a new library because we thought we needed it. Even in the midst of the current recession, we approved continued funding of the library at the same time we voted down the township budget (which did not call for any tax increase). [For the record I voted to approve both.]

When citizens have the chance to allocate money directly through their taxes, over a period of time they tend to make good decisions. When politicians make the decisions for the people special interests carry more weight than common sense.

For those who claim eliminating the contribution tax-deduction is only a backhand way to raise taxes, I say your King has no clothes. We can eliminate tax-deductions and lower tax rates while maintaining the same overall tax revenue.

Raising or lowering taxes is another discussion. This one is about making the system more efficient and our current tax code, including tax-deductible contributions, is terribly inefficient and needs immediate reform.

~ Jim