Life’s Little Ironies was absent-mindedly watching the TV the other night when I heard a preacher extoll to his flock “Blessed are the wealth creators, for they will inherit a tax free earth” The congregation purred their approval. I looked up thinking I heard misheard. I had, but the gist of the proclamation was correct. As my eyes focused on the pixelated screen, it dawned on me that I was watching a GOP primary debate. Each of the candidates was eager to inform the moderator that raising taxes on the rich would in fact harm the very people it sought to protect – the poor and employed, whom one presumes will become poorer and will have more company in the unemployment queue as they swap tips on where the best soup kitchen is located. We will test that hypothesis later but what struck me was that the audience was in full agreement with the GOP apostles. Was it possible that the invitees all earned above $1million and were concerned where their next yacht was coming from or, and this is a kinder interpretation, that they earned less than a million bucks, had read their economics primers and briefs and putting all self-interest to one side decided, reluctantly, that they only way to kick start the economy was to pour largesse down the rich man’s gullet in the hope that some would trickle out of his backside on the plates of the thronging and grateful unemployed.
If the second interpretation is nearer the mark then it’s been a great sell by millionaires to get such buy-in for from the rest of us. It’s akin to proverbial turkeys voting for thanksgiving or Death Row inmates calling for the death penalty or Israeli settlers demonstrating for a Palestinian home land. Personally, I think the super-rich have been a bit sneaky. They have gone around to the middle-classes sub-divisions and nudge, nudge wink, wink told them they can shoot up their neighbors with their semi-automatic so long as they keep away from their gated communities on the other side of town. They may have also said “You can have your religion, enlist in the services and get sand in your eyes, and say ‘boo’ to anyone who doesn’t sport a red neck or drive a pick-up . And by the way thanks for that new Lear jet I bought with that tax-break and an oil well would look pretty good in my asset portfolio, if you don’t mind”.
Okay, let’s be charitable and assume that the middle classes are budding Freidmanites who have a Laffer Curve hanging over the mantel piece depicting the limitless additional productivity emanating from lower and lower tax rates. Have our Laffer lovers considered this simple conundrum? If the US is to reduce its deficit it can either do so by cutting expenditure or by raising taxes or a combination of the two. Either way it is going to reduce demand in the economy. But if we reduce public expenditure by $1m or increase taxes on the wealthy by $1m, which one will reduce employment more? Firstly, we can say that state agencies don’t have savings as such so this would be a real reduction in expenditure. Given that their money is spent almost entirely in the US and on US employees you have to think that wages will need to be reduced or headcount cut. On the other hand the wealthy do have savings, that’s why they are called wealthy! An increase in their tax burden might result in lower savings, less consumption of non-essential luxuries, many of which are imported, and may be the axing of the superfluous gardener or secretary. Even if they were going to invest those funds a proportion of those would be invested abroad. The point is, in the short run, the impact on employment is going to be limited compared to cutting expenditure.
Let’s not forget that wealthy pay 15% on most of their income through investment income rather than federal taxes. As for being the great Job Creators, they haven’t set a good example. The biggest companies are sitting on $1.2trillion of cash (a historic high)– not used to invest – not used to hire workers or used to give everyone a pay raise. How many more tax breaks do they need before send their HR out to pressgang the unemployed? Given that tax revenues are at a record low and that the super rich are many times richer than they were 10 years ago before the Bush tax cuts, you’d think, listening to the GOP, that a chance sighting of an unemployed shirker on the the street was as about as rare seeing a nun running a brothel!
The GOP may have persuaded some on Main Street about the virtues of lower taxes rates on millionaires but I will only be convinced when I watch them take their tax breaks, get in their Escalade and drive through the eye of a needle. At which point I will believe they are truly blessed. End of sermon