Originally posted on another web site: November 05, 2008 2:14AM
(Small expansions/clarifications made in this posting)
Foreword: I am an Independent, neither Democrat nor Republican. I did not vote for either of those parties in this recent presidential election.
The Fear Factor
I know many Republicans who fear that our country will lean towards Socialism or Marxism because of a radical left wing of the Democratic party. Many fear that Obama’s “redistribution of wealth” is a disguise for Socialism. Many believe that Capitalism is the only way that works.
A response to cover all angles of fears is beyond my available time to devote. But I do wish to provide observations of what I perceive as erroneous by various groups who are fearful of the recent change in government.
Distribution of Wealth
First, some background:
No president has been able to pull back Federal spending. It is the nature of government to spend as much as they can. Alexander Hamilton and his group of supporters during the establishment of the US Constitution made sure that the Federal government has the ability to raise taxes as high as they wish.
Adam Smith, a supporter of the capitalist economic model, had serious concerns about the dehumanization of people. The long history of business in this country proved that unless laws were created to protect the workers, business owners would not provide the essential necessities to their employees. This negative aspect of apathy and corporate greed has been the bane of capitalism, and eventually led to laws governing work safety, minimum wage, and more.
Business owners screamed bloody murder, claiming that they were being robbed of their profits. In essence, they were right. It was a redistribution of wealth because of their lack of concern for their workers. Workers today have matching 401K programs and insurance because of this “redistribution of wealth”. Business Owners, for the most part, only provide these types of benefits because of competition, and not because of their generosity.
Note: The ability to compete against corporations that do not provide similar benefits has forced US manufacturers to either tighten up their efficiencies or to move operations overseas to countries where employers are faced with lower employee benefit costs. This means countries such as China, Thailand, Philippines, South Africa, and India may seem more lucrative in profit than US based operations with US workers. Much more can be said about this issue, but it is sufficient to state that many 2nd and 3rd tier companies that moved operations to China regretted the move once energy prices tripled shipping costs. There is always a price to pay when taking an apparent easy way out rather than working on improving US-based operational efficiencies.
Taxation exists in many forms. There are taxes on gasoline, non-food items, toll roads, and various sales tax at the federal, state, and local levels. Then there are all of the taxes on income, including Medicare and social security. These taxes are not limited to the government providing security and common well fare. It also provides for “redistribution of wealth“. How? If the wealthy are taxed more severely, then the majority of the cost of new highways and new infrastructure to support communities are paid by the wealthy. Therefore, everyone that uses those infrastructures should thank the wealthy for covering the lion’s share of the cost.
However, many who are non-wealthy erroneously believe that the wealthy do not pay income tax. Rest assured that the Alternative Minimum Tax insures that everyone who makes above a certain income will pay taxes. Unfortunately, this system never considered inflation, therefore the AMT is now striking more and more middle class incomes. Every year a temporary fix has had to be passed through Congress. See http://www.cbpp.org/2-14-07tax.htm
Note: The sad truth is that all of the tax loop holes that existed at the time the AMT was initially created no longer exist. Therefore, the purpose of the AMT no longer exists. The obvious question is why is AMT still around if its purpose for existence is no longer there? The answer is that the US Government does not wish to stop collecting the additional $600 Billion in AMT taxes gathered each year. What I fear is that Obama has indicated that he will remove all tax breaks instilled by Bush. This would mean that the impact of the AMT will hit more Americans because there will no longer be any manual adjustments made.
- Thus, we see from a brief examination of history that the harsher side of capitalism created the need to force adjustments, which, in essence, created a form of wealth redistribution.
- The AMT also attempted to do the same, attempting to insure that the wealthy did not walk away without playing taxes.
- The future shows that tax increases will hit households making over $150K per year, and if the manual temporary fixes to AMT are eliminated, the increase will hit households with incomes below $100K per year.
- Obama stated in his first debate with McCain that he would bring tax relief to those making under $250K per year. However, later in his campaign, he changed that limit to $200K per year.
The point is this: Unless Obama eliminates the AMT and restructures existing IRS guidelines, taxes will significantly rise for any household with an income of $100K or higher. This would mean an increase in taxes for a majority of middle class workers, not a tax break.
What Does This Mean For The Future Obama Redistribution of Wealth?
If he is telling us the truth, he is wanting to balance the tax burden more fairly. However, the term “fairly” means different things to each income level.
The primary problem, however, has been out-of-control governmental taxation while simultaneously ignoring the severe impact on individuals making less income who are still required to pay taxes at a greater impact to their income that those who earn higher wages.
To provide an analogy: the price of gasoline has more than doubled in the past few years. For a person earning $30K per year and whose prior gasoline expenses were $1000 per year was, only recently before prices collapsed, suddenly facing $4000 per year in gas expenses. At the lower expense, fuel was 3.3% of yearly income. Suddenly, at the higher price, the fuel cost was 13.3% of yearly income — a jump of 10% in expenses. However, for someone earning $200K per year, the percentage would have moved from 0.5% to a mere 2.0% — a change of only 1.5% in expenses.
The same level of impact applies to fixed taxes (such as those hidden in gasoline and cigarettes). The smaller wage earner may pay a significantly smaller percentage, however, due to the many hidden taxes within our economy (gasoline, telephone, toll roads, purchases at stores, etc) the net impact of hidden, fixed taxes takes a higher percentage of the earner’s income. This is what Obama is suggesting will be changed by modifying tax scales, providing relief for lower and middle income workers while increasing the tax burden on the wealthy. We shall see if he truly understands the complexity of the tax system.
This action goes against the core of libertarian minds who do not view that government should manipulate taxation for any reason, and it does not suit hardcore capitalists who demand “a decent profit” for their hard work and risk taking. While I partially agree with the libertarian view and with the capitalist view, I belief there must be a balance as John Rawls indicated. However, it is imperative that a true balance exists. Rawls warned of over-burdening the higher earners to the point of punishing the wealthy for earning money. It would take far too much space to explain the details of Rawls’ philosophy, but it is a balance between capitalistic and socialistic economies.
If Obama does increase taxes, promising for redistribution, but turns around and spends heavily on federal programs creating more federal bureaucracy, then he will not have kept his promise of reducing government interference and creating redistribution of wealth. He will have merely increased the tax burden on the wealthy, potentially creating a situation of which Rawls warned.
Socialist Economics vs. Socialist Government
Socialist Economics has been in our system for almost a hundred years. It has helped to create a large middle class. Prior to the socialist economic mechanisms put into place gradually during the past 100 years, capitalism was creating the classic Marxist model of “class struggle”, just as Marx predicted. The wealthy controlled the poor, and there were very few middle class earners. Capitalists like John D. Rockefeller and Andrew Carnegie truly believed that their wealth was given to them by “God” and that they had no responsibility to share any profit to the workers. Since workers had no representation within corporations and the government traditionally sided with big business, the “class struggle” emerged, giving rise to unionization and the consequences.
Constitutional Objectives: It Includes General Well-Fare of the People
A part of our Constitution states that the government is responsible for the defense of this country against foreign powers. It also states that the government is responsible for the general well fare of its people. Government cannot ignore the economic blight of its people created by its economic model (capitalism) which does not possess a conscience.
Milton Friedman warned us that corporations do not possess ethics. It is the people who must possess them. He also warned us of the growing trend of companies selecting executives focused solely on the market without any consideration of social or societal responsibilities. When the leaders of businesses are without ethics, we see the aftermath, such as Enron, AIG, and more. The workers are the ones that suffer the most from unethical practices that are performed within capitalism.
Thus, no economic system is without problems, not even capitalism. An uncontrolled socialist economic model can lead to total government control. I fear that the recent bail-out to the financial industry is a step toward nationalization of the business sector — a heavy-handed symptom of socialist economics. Unless watched and controlled, this can lead us down the road to a Socialist Government and not merely a socialist economy.