Tuesday, April 12, 2011
Raising Taxes is a Very Old, Very Bad Idea
By Alan Caruba
The absurdity of raising taxes in the midst of a recession that increasingly looks and feels like a depression only underscores the Democrat’s historic and failed policies from the past; the same ones they continue to push these days.
In “New Deal or Raw Deal? How FDR’s Economic Legacy has Damaged America”, historian Burton Folsom, Jr., examined the many ways the Great Depression was prolonged and deepened. In his first week in office, Roosevelt took America off the gold standard and “issued an executive order, under penalty of a fine or a prison term, forcing Americans to surrender all their gold to the U.S. government in return for paper dollars.”
Today, in an era of economic uncertainty, the television airwaves are filled with advertisements to buy gold.
Roosevelt was all about high taxation while portraying himself as a friend of the people and an enemy of “economic royalists”, by which he meant business, industry, banks and Wall Street. Historians and economists point to FDR’s tax policies for the failure of the nation to recover from the Great Depression. By 1936, the new tax rate started at 5% on low income taxpayers and skyrocketed to 79% on top incomes.
The Great Depression began in October 1929 when the stock market crashed. A year later my older brother was born. Our father was a Certified Public Accountant, a profession people need in good times and bad. The experience of the Depression left an indelible impression on both my parents.
My Father never bought any stock. His biggest investment was the home he bought in 1942 in a posh New Jersey suburb. My Mother used to tell me of the large bill they ran up at the butcher’s during the Depression. World War Two imposed strict rationing because food and other items were scarce. In all the years after the war our refrigerator was always kept filled with food. Those memories imprint themselves on people.
I don’t think there is much historical or institutional memory left in America. The educational system, the media, and what passes for news these days has erased “the way it was” for most Americans in that era. Only the senior citizens and their children recall it. The nation, however, is repeating all the previous errors.
It is difficult to believe that the nation is on the brink of financial collapse, but it is.
Not surprisingly President Obama and the Democratic Party want to tax more, particularly “the rich.” Efforts to cut spending and reduce the size of a bloated federal government are fought by Democrats even if cutting a few billion is a teaspoon in an ocean of debt
Robert Williams of the Tax Policy Institute was interviewed on an April 14th National Public Radio program. Using 2009 as his baseline, he pointed out that “about 47 percent of Americans will not pay any federal income tax for 2009.” They included families with children, the elderly, low income households, and those who benefit from all the deductions, credits, and exemptions in the income tax.
People with incomes over $500,000, said Williams, represent about 24% of tax revenues collected and those earning a bit above $100,000 represent about 56% of all income and pay about 70% of all taxes. “About 75% to 80% of us pay more payroll tax than income tax.” Taxing the rich instead of instituting a fair tax, based on consumption, is a very bad idea.
In a collection of essays from his popular blog, The Daily Reckoning, Bill Bonner’s latest book “Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas” provides a wealth of insight regarding the way the Federal Reserve and other central bankers have created financial havoc since 1913.
Writing in February 2011, Bonner said, “Probably the most remarkable proposition of the whole decade came into focus in the past six months. It was the idea that the Fed could spur a recovery by creating money out of thin air.” This is what is meant when you hear the term “quantitative easing.”
QE, by November 2010, had added $2.3 trillion to the nation’s monetary supply. Fed Chairman Ben Bernanke, a reputed expert on the Great Depression, added three times as many dollars to America’s core money supply as all the Treasury secretaries and Fed chairmen who came before him put together!
There is and always has been only one way money retains confidence and that is by manufacturing and selling goods and services. Therein lies true value, not the idiocy of simply printing dollars.
“In 1913,” notes Bonner, “the dollar was worth about the same thing it had been worth 100 years before. Now, almost a hundred years later, it is worth only three cents.”
Bonner noted that “The Great Depression may have been an accident, but the debasement of the dollar certainly was not. It was a matter of policy...The gold standard stood in the way; it was abandoned like a bad neighborhood”; a policy completed under President Nixon in 1971.
Writing on July 30, 2010, Bonner said, “Mainstream opinion is contradicted by the facts. Fewer people are employed today in the United States than when the stimulus program began. Sales are down. Growth is failing. Credit is contracting. Even hairstylists and cab drivers know something is wrong.”
John Maynard Keynes: the economist whose theories FDR and other administrations have based their policies upon, “thought consumer spending was the key to prosperity; he saw savings as a threat. He had it backward. Consumer spending is made possible by savings, investment, and hard work—not the other way around.”
“We remind readers,” Bonner wrote in 2003, well before the 2008 financial crisis, “when the Fed creates money out of thin air, it does not create any corresponding wealth. The world’s supply of services or swimming pools does not magically increase when Ben Bernanke turns up the dial on the printing press. What it does is create an illusion of wealth.”
That illusion, that nightmare is now understood by a majority of Americans who also understand that the President they elected in 2008 has been focused on expanding government ownership and control of vast elements of the economy from General Motors to AIG to the nation’s health system.
And now the President wants to raise taxes. It is as if nothing was learned from the Great Depression, from the entire history of the New Deal, and from the collapse of the communist Soviet Union in 1991.
© Alan Caruba, 2011