It's becoming increasingly apparent on a broad range of issues that
the Bush administration intends to turn back the nation's social clock
by a century or so. This is no more evident than in the regime's push
to replace the corporate and personal income tax with a national sales
tax.
I had a conversation about this Friday with Robert S. McIntyre, the
economist who heads up Citizens for Tax Justice and writes the
"Taxonomist" column for The American Prospect.
McIntyre probably explained all this best in a recent TAP column:
President George W. McKinley?
Prior to the 20th century, except under Abraham Lincoln, the
federal government relied almost entirely on regressive
consumption taxes to pay its bills. This system of high taxes
on the poor and middle class and hardly any tax burden on the
rich and powerful reached its apotheosis under Republican
President William McKinley, who worked with GOP political boss
(and Karl Rove hero) Mark Hanna to raise consumption taxes to
almost 50 percent on many ordinary commodities in the 1897
tariff bill.
Thanks to such progressive leaders as William Jennings Bryan
and Theodore Roosevelt, that cruelly unfair approach to
taxation was eventually abandoned. But as CBS' Dan Rather
brashly put it this past election night, conservative
Republicans now control "the White House, the House of
Representatives, the Senate and the Supreme Court." This
ominous development may embolden Bush to try to turn back the
clock a century or so on taxes.
McIntyre, as it happens, explored this point in even greater detail in
his review in The Washington Monthly of Stephen R. Weisman's The Great
Tax Wars:
Tax and Fend
As he explains, this situation was made possible by a government that
was wholly in the control of large corporate interests -- the
president, the Congress and the Supreme Court were all defenders of
Big Business. Sound familiar? Well, the arguments presented in defense
of this travesty have an even more familiar ring:
In 1895, the court considered the newly passed income tax law,
which was being challenged by corporate interests. By a 5-4
vote, the court declared it to be unconstitutional. There was
no single majority opinion in Pollack v. Farmers' Loan and
Trust Co., but rather several opinions, offering conflicting
and wholly unpersuasive legal arguments for the decision. But
the underlying rationale was clear: The income tax, wrote one
justice, is "an assault on capital," a path to "sure
decadence," and a "stepping-stone to ... a war of the poor
against the rich." (The contemporary conservative tactic of
attacking those who favor progressive taxes as indulging in
"class warfare" is apparently nothing new.) It would take two
decades and a constitutional amendment to undo the decision.
...
Entrenched business interests fought bitterly in places like
New York, where a Republican newspaper argued that the tax
would "divide the population into two classes, the class which
contributes to the support of the Government, and the class
which does not contribute." Again, one hears almost exactly
this argument from conservatives today. One GOP lawmaker told
The New Yorker's Nicholas Lemann in 2001 that unless Congress
passed Bush's tax cuts for the wealthy, "[t]he tax code will
destroy democracy, by putting us in a position where most
voters don't pay for government." The truth, of course, is that
ordinary citizens pay dearly for government, not just through
their share of the income tax but also through payroll taxes,
state, and local taxes, and other levies that fall much harder
on them than on the rich. The idea that the wealthy alone carry
the burden of paying for government is as wrong today as it was
a century ago.
There is in some ways an appealing aspect to "turning back the clock."
Indeed, many Americans are positively nostalgic for "the good old
days." But the reality of everyday life for Americans in 1900 was not
quite so golden. In fact, most Americans were by today's standards
dirt poor, and the phrase "wage slave" was not merely a euphemism.
There were no limits on the length of the work week, and in fact the
average laborer was often expected to put in between 60 and 80 hours
of work per week. There was no such thing as overtime pay. Retirement
plans were a distant fantasy. Child labor was very common. People of
all sexes and all walks of life were so overworked, and their health
care so marginal, that the average lifespan was 47 years (it's now
75). Life, in Hobbes' famous phrase, was "short, nasty and brutish."
That's the kind of world to which the Bush regime wishes us to return
-- all for the sake of further enriching his fellow members of the
wealthiest class of Americans.
When I talked with McIntyre, I wanted to explore the practical
ramifications of the Bush tax-reform push not merely in terms of what
history tells us about such systems, but what it will mean for us in
the 21st century.
This recent push, he points out, is of course nothing new: "This has
been a goal of the ultraconservatives, even before they put it in [the
Council of Economic Advisers' report]."
And it's become quite clearly a major focus of the Bush regime's
rhetorical base: "You know: If only rich people had more money, we'd
have a better country."
But just as Angry Bear has been arguing at his blog, this plan will
drive the economy into the toilet, perhaps permanently, because the
resulting tax rate on goods will become insanely high (I offered some
of the details of this point previously). And taxes do not stimulate
the activity that they tax; they suppress it. A consumption tax will
suppress consumption. An extreme consumption tax will drive it to
minimalist levels.
Thus the great consumer society that Americans have known since the
1940s -- and which we obviously have come to take for granted -- will
finally come to an end.
Nearly every economist with whom I've spoken confirms that, in order
to replace the revenues provided by the current tax structure, a
national sales tax would have to be in the vicinity of 50 percent. And
that means other problems too -- the rise of a huge black market for
all kinds of goods; increasingly lax controls over the public-health
aspects of these goods; and ultimately, the near-impossibility of
actually administering such a tax. Not to mention, of course, what
effect the extreme pressure to reduce these taxes will have on the
ability of government to provide services and, ultimately, the
concomitant effect on the nation's infrastructure.
As McIntyre told me: "It becomes pretty hard to run when you get up to
a rate big enough to replace the income tax, because you're going to
have to have a 40 or 50 percent rate. That's what scared Bill Archer
[the chairman of the House Ways and Means Committee, a fierce advocate
of a consumption-tax approach] from ever putting a bill in. He was for
it, but he didn't want anybody to know how high the rate would be. He
asked his staff to analyze it, and they came back and they said,
'Well, if you taxed everything, you could do it at 42 percent.' He
says, '42? Come on, I was hoping for 10.' And they said, 'Well, you've
gotta tax everything, you understand.' And he said, 'Like what?' And
they started going through this, you know, rents and everything. 'Oh
shit!'
"We had exactly the same talk 20 years ago when the supply-siders in
the Reagan administration wanted to do the same thing. And when they
couldn't go that far, they would say, 'Well, we're going to make
income-tax changes based on consumption-tax principles, i.e., tax
breaks for investment.' And that gives you the worst of all worlds.
"Because an income tax that doesn't tax investment income doesn't even
end up being a consumption tax, it ends up being a consumption tax
full of loopholes, all of them at the high end. You can make the
borrowing tax shelters to make the thing not even tax your
consumption."
McIntyre explained this in more detail in the TAP column:
Without a tax on corporate profits, people could easily avoid
taxes on their investment income simply by incorporating their
portfolios. And as economists are fond of telling us, an income
tax that doesn't tax investment income isn't an income tax
anymore; it's a consumption tax. Indeed, it may well be even
worse than that. Tax lawyers and accountants will inevitably
come up with hard-to-stop schemes to let their wealthy clients
go beyond indefinite tax deferral on investment earnings and
actually spend the money tax-free -- say, by borrowing against
their incorporated portfolios.
Of course, under a regressive system like this, the major tax burden
will shift almost wholly off the backs of the wealthy, whose
disposable income likely would at least double, to the backs of the
middle class and poor, whose own disposable incomes would certainly
shrink accordingly.
And in short order, we will indeed return to those halcyon days when
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