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Archive for August, 2009

Class Warfare in America From a Political Independent’s Point of View

[Emphasis on Taxation, the Economy, and Our staggering National Debt]

 

INTRODUCTION

         One of the perks of being a blogger is the reward that comes from expressing one’s opinion. Since this Blog is political in nature, it’s best if I’m up front regarding my politics. I’m one of those moderate independents who supports a very strong military and Homeland Security. Yet, when it comes to social issues, I am liberal, if not ultra-liberal.

      When I was young I was very liberal, but as I aged I became more conservative in my viewpoint. Today, as a Medicare recipient and over the age of 66, I much prefer the comfort of independent middle road politics, refraining from the temptation to be a political ideologue of the left or right. I prefer to approach every problem or social issue in an intellectual fashion with reason and logic.

       Nevertheless, none of us can escape the fact that values and value judgments penetrate our world view, and influence how we think about most everything. In my life, social class is one of those things. So, I’m going to take a stab at this topic of class warfare with the understanding on the part of the reader, that my politics are somewhat complex, and can shift between liberal and conservative viewpoints quite easily.

       For me, it all starts with an assessment of class warfare and discrimination.

  CLASS WARFARE AND DISCRIMINATION

      One of the last bastions of discrimination in America is class warfare. Class warfare pits the lower classes (poverty level, working class, lower middle-class) against the upper classes (upper middle-class, the rich, and the super rich). Republicans tend to look out for the financial interests of the upper classes, while the Democrats like to look out for the interests of the lower classes. However, both political parties only appear to pay lip service to the fact that prejudice and discrimination based on income, educational attainment, and occupational prestige (the elements of social class) is a fact of life in America. It is never discussed openly and honestly by politicians of either party. Such differences between the social classes in America reflect many variables, not the least of which is psychological attitudes.

      Psychological attitudes have much to do with class dynamics. Specifically, Jealousy among the lower classes has always been there as reflected in the historical gap between the “Haves” and the “Have-nots (The French Revolution, labor unions and management  in America, and dislocation and social uprooting reflected in the 1940 movie, The Grapes of Wrath).

      Among the upper-classes however, jealousy doesn’t loom, but the desire to maintain “social distance” does (elite Ivy League prep schools, upper-middle class neighborhoods that now have locked entry gates and walls to keep people out, elitist social clubs, and a culture of affluence and privilege among the upper-crust). Today, democracy does little to address these types of behavior. Even among other political systems (communism, socialism, dictatorships of all kinds) caste and class still exist, as does privilege and differential affluence among the few who control the many.

      Such attitudes in society are also reflected in our elected officials. Because of the underlying conflicting tensions of social class in America, Congress often acts to control the rich and the poor depending upon whose political party is in charge.  However, social class in this country has a rather fluid nature to it; that is, we are not locked into a caste system. As such, individuals in America can move up within a class, and can transcend their position by moving into higher classes as their personal situation allows. Sometimes, the harsh reality of life dictates that people are forced to move down into a lower class, as when individuals lose jobs and their homes during a severe recession (sound familiar).

      Since most people of different social classes often co-mingle with members of other social classes, my suspicion is that day-to-day class warfare is largely unspoken behavior, which seldom manifests itself as overt class hatred. Instead, Americans prefer to work through political parties to achieve their economic standing or improve their lot in life. Others prefer to exercise their own drive to get ahead, emphasizing hard work, ambition, setting goals, perseverance, and their own efforts—making excuses to no one.

      There are others, unfortunately, where what it takes to get ahead appears to be beyond their reach. Factors involving nature, nurture, attitude, and accidental happenstance often conspire at times to create the social and economic conditions whereby success is unattainable, unavailable, or unreachable, even in a democratic society.

      Nevertheless, as a way to pay for the vast increasing needs of society, not long after we entered the 20th Century, the Congress passed the 16th Amendment to the U.S. Constitution. Its initial purpose was to protect the solvency of the country—a noble goal. However, one of the unintended consequences of this amendment was to, “Take from Peter to pay Paul.” In essence a progressive income tax was created that disproportionately penalized the rich and wealthy, despite the fact that each person affected had only one vote, and didn’t disproportionately benefit from their sacrifice in loss of income. In modern times society has came up with an amusing name for this system—a redistribution of wealth.

 THE UGLINESS OF THE CONCEPT OF A REDISTRIBUTION OF WEALTH

      This disparity between the “Haves” and the “Have-nots” boils over whereby poor, lower and working class, and lower-middle class people, develop hard feelings regarding those in better economic situations, regardless of the wealthy contributing more through taxation of their income.  Historically, class and caste have been with cultures worldwide for thousands of years. American society long before the 16th Amendment had class tensions that pitted rich against the poor and vice versa. But with passage of the 16th Amendment in 1913, class tensions in America did nothing but become more accentuated. 

      Translated into the colloquialism of common informal language, when class politics is promoted by politicians with legislation, creating huge spending budgets and debt, appropriations, and concomitant raising of taxes to pay for them, the target of such discrimination is always the upper-middle class, the rich and the super-rich. This type of discrimination is known as, “Robin Hood Politics,” i.e., steal from the rich and give to the poor. Or, some prefer to euphemistically call Robin Hood Politics a “Redistribution of wealth.”

      In a free democratic society all anyone has at the ballot box is the power of one vote. And, no one is ever entitled to more than one vote. My last Blog was, “Greed is Their Creed.” In it I described White-Collar Crime and White-Collar criminals in America. Those crimes were individual acts committed within primarily organizational settings on Wall Street, in corporations, and in businesses large and small. I reported that “Crime in the Suites” is our most serious of criminal activity far exceeding the harm done by “Crime in the Streets.” 

      Sociologists are always looking to explain group behavior as opposed to the behavior of individuals. While the “white-collar crime Blog” focused on individual as well as group behavior, this Blog takes a look-see at group behavior only. This Blog looks at class warfare within the context of issues such as federal income taxation, the economy, and our staggering national debt. This time I am not looking at greed at the top of the socio-economic ladder, but greed, institutionalized greed, that comes with the support of the masses.

      Many people have a very limited concept of what “theft” is. When someone steals goods out of your garage, it is individual theft. When businesses and corporations engage in “price gouging” that is theft perpetrated by businesses, occupational groups or white-collar criminals. When theft becomes institutionalized, such as passage of the 16th Amendment, it became theft by social class. Basically, it is institutionalized greed among the masses. What makes this form of theft so beguiling, and noxious at the same time, is that it comes with the U.S. government’s seal of approval.

     Since passage of the 16th Amendment, there has been what has been called a “progressive income tax.” This form of taxation blatantly discriminates by stealing the proceeds from the livelihood of several million Americans every year. This form of class discrimination permeates the entire country and culture. It punishes business success and people who are monetarily successful, whatever their line of work. Discrimination against a very high-end group of wage-earners, businessmen, entrepreneurs, corporation executives, along with corporate and business taxation, is not just discriminatory, but also counter-productive to working class and middle-class citizens. Money that could be used for job creation with re-investment of corporate profits is flittered away paying taxes instead. Unless you’re a small business owner, or an entrepreneur, 99.9% of all people who work in America work in some kind of organization. We don’t create our own jobs. So why then does society want to shoot itself in the foot by weakening businesses and organizations that are responsible for job creation and hiring most people in this country?

     The result of punishing business organizations and the wealthy is that it results in a decline in the Gross Domestic Product (GDP). Since one result of an improving GDP is increases in wages, hurting businesses’ ability to contribute to the GDP ultimately hurts both job creation and wages. People get laid off when businesses fail or are reduced in scope.

     There are those who will argue that “trickle-down economics” doesn’t work. This is countered by many economists who say that it does if those in the job market properly prepare for more advanced, technologically oriented 21st Century types of jobs. This is a macro-level and economic way to look at the problem of class warfare and discrimination. Now, look at class warfare from a psychological way of thinking. Psychologically, think about it this way.

      Suppose your neighbor down the street makes twice as much income as you do. What’s more he or she graduated from college that included a subsequent graduate or professional degree. Your neighbor over the years also wisely invested money (wasn’t just a consumption addict, a credit card victim, or indiscriminately lived beyond his means) and saved his money for a rainy day. Your neighbor is prudent, and, if truth be known, has a much higher IQ than you. Tell me please! By what stretch of your imagination can your rationalize that you deserve a redistribution of his wealth, by stealing through taxes from your neighbor, and putting his hard earned money into benefiting you? 

      Discrimination that taxes the most talented and productive of citizens among us corrupts the idea of equality before the law, and speaks to the lack of protection afforded all citizens under the 14th Amendment, i.e., equal protection clauses. There are historical reasons for this worth exploring, but will not be covered here. There is also an additional issue related to taxation, and that is taxation of  higher-valued property or real estate, and commodoties and products of all kinds produced in this country. Is there a logical reason why higher-valued products are taxed at a higher rates? Or, is it simply an arbitrary smokescreen for collecting additional revenues for government programs?  What is the logical connection between our federal income tax laws, local property tax laws, corporate taxes, gift and estate taxes, excise taxes, consumption or use taxes and their incessant drain on the resources of business or the public? Questions of value and taxation can’t be covered here. Suffice it to say, another blogger needs to step forward and tackle this issue.

     In essence, if you make more money, you pay more in taxes. If you produce higher quality products, no matter how many new jobs are created, or old jobs protected, you pay more taxes. But why does this occur?  On the one hand we want the GDP to grow and increase, yet, on the other hand, we counter incentives to grow and expand the GDP by a progressive tax burden for the upper 60% of our tax-paying individuals and businesses?

      If we’re all equal under the law, then why do some individuals pay most of tax revenues in this country while others pay extremely little or, in some cases, no taxes at all. Is it that all of us are equal, but that some of us are “more equal than others”? Is it all a fraud to suggest that equality applies only to race or gender, but when it comes to social class in America—equality doesn’t matter?

      In theory, under the constitution, everyone is entitled to life, liberty and the pursuit of happiness. The constitution does not guarantee that everyone will be successful, only the right to pursue happiness.  So where in the United States Constitution does it say that if someone is actually successful (as measured by wealth) that the individual must turn over a larger amount of his money (with no additional benefits for his sacrifice) in terms of a forced redistribution of wealth; I simply can’t find that particular passage in the United States Constitution.

HOW DOES DISCRIMINATION AGAINST THE RICH AND-WEALTHY OCCUR?

  For purposes of this discussion, I want to discuss Robin Hood politics in relation to Federal Income Taxes and the escalating crisis in the economy.

      Since 1913 the United States government has grown and grown and grown. And the amount of debt, now in 2009, is in the trillions—and growing even more. It now appears that the incessant tax and spend policies of a government gone amuck, largely favored by the Democratic Party, is bringing a financial collapse that is going to bite everybody, poor, working-class, middle-class, and wealthy alike, in the ass.

       As national debt increases from borrowing to pay bills, the value of the dollar declines. When the value of the dollar declines so does the value and growth potential of our GDP. When the GDP declines the government needs to obtain more tax revenues in order to pay the bills. Since government tax and spend never declines, the national debt, in turn, increases. It is a nasty vicious cycle of irresponsible government management of the United States federal budget.

     Economic cycles are supposed to be the calculus by which the Gross Domestic Product (GDP) contracts or expands, depending upon the predictable ups-and-down of a Capitalist market economy. But, because of the excesses of personal greed, Wall Street gone amuck, and the unlimited offering of credit to just about anyone in this country, the rich alone cannot bail out society of financial trouble anymore.

THREE QUESTIONS OF IMPORTANCE

     In this Blog I want to focus on answering just three questions: (1) What is social class in America? (2) What is the discriminatory nature of our federal income tax system? And, (3) Does the current economic crisis and federal budget contribute to class warfare?

 WHAT IS SOCIAL CLASS IN AMERICA?

      Social class in the United States is based on three primary factors: personal income, educational attainment, and occupational prestige. While it is possible to create dozens of social classes within the confines of American society, most Americans employ a six or five class system. The most commonly applied class concepts used in regards to contemporary American society are:

 Upper class; Those with great influence, wealth and prestige. Members of this group tend to act as the grand-conceptualizers and have tremendous influence of the nation’s institutions. This class makes up about 1% of the population and owns about a third of private wealth.

  • Upper middle class; The upper middle class consists of white collar professionals with advanced post-secondary educational degrees and comfortable personal incomes. Upper middle class professionals have large amounts of autonomy in the workplace and therefore enjoy high job satisfaction. In terms of income and considering the 15% figure used by Thompson, Hickey and Gilber, upper middle class professionals earn roughly $62,500 or more and tend to reside in households with six figure incomes.
  • (Lower) middle class; Semi-professionals, non-retail salespeople, and craftsmen who may have some college education. Out-sourcing tends to be a prominent problem among those in this class who often suffer from a lack of job security. Households in this class may need two income earners to make ends meet and therefore may have household incomes rivaling the personal incomes of upper middle class professionals such as attorneys.
  • Working class; According to some experts such as Michael Zweig, this class may constitute the majority of Americans and include those otherwise referred to as lower middle. It includes blue as well as white collar workers who have relatively low personal incomes and lack college degrees with many being among the 45% of Americans who have never attended college.
  • Lower class; This class includes the poor, alienated and marginalized members of society. While most individuals in this class work, it is common for them to drift in and out of poverty.

 WHAT IS THE DISCRIMINATORY NATURE OF OUR FEDERAL INCOME TAX SYSTEM?

     In April of 2010 all of us are going to pay our federal and state income taxes, however collected and adjusted with various tax credits and tax deductions. The first evidence of discrimination I present here is from the IRS itself. They have published what will occur with tax rates as they apply to 2009. Below are the published tax rates. See what you think. Are they discriminatory based on income, or not? If you think not then you better have more than class-oriented “value judgments” to defend your position.

 I’m going to show rates for just married filing jointly:

Tax Rate                 2009 Taxable Income

           10%                       Not over $16,700

           15%                        $16,700 – 67,900

           25%                         $67,900 – 137, 050

           28%                         $137,050 – 208, 850

            33%                         $208,850 – 372,950

            35%                         Income over $372,950

      The above rates cited represent official federal income tax rate brackets, locked in for 2009. As one can see the above rates clearly show the “smoking gun” of discrimination.

     These tax brackets shown address one’s categorical tax liability. But the brackets don’t tell one the final picture, e.g., how much tax is paid to the federal government by individual income level among all earners. Below are data from the year 2003 that addresses that question.

Who Really Pays OUR Federal Income Taxes?

      The numbers below are from a Congressional Budget Office Report , but the same numbers are buried in the IRS web site as well.

     For 2003, the estimated share of total individual income taxes paid by:

Wealthiest 1%: 33.6%
Wealthiest 5%: 55.1%
Wealthiest 10%: 67.9%
Wealthiest 20%: 83.0%
Wealthiest 40%: 97.8%
Wealthiest 60%: 103.0%

     The way to read this is that the wealthiest 10% of taxpayers pay 67.9% of the country’s individual income taxes (or that the top 5% in income pay more than half of all income taxes). And yes, that 103% is not a typo – the bottom 40% in income, as a group, pay negative personal income taxes (because of the EITC).

DOES THE CURRENT ECONOMIC CRISIS AND FEDERAL BUDGET CONTRIBUTE TO CLASS WARFARE?

     The obvious answer is yes. But a lot really depends on the historical, as well as the current, financial health of the United States government. Using the analogy of a hospital patient, the government didn’t take care of its health practices (build a surplus and control spending) during its lifetime—and now it’s on “Life Supports,” and not expected to recover.

     My late mother had that proverbial quintessential expression “mad money” women often talk about; and one of the maxims I grew up with, as did my parents, was to “save money for a rainy day.” What the hell happened? Where is our money for a rainy day at the federal level now? Well, it’s nowhere to be found. There is no big savings account.

     An interesting question arises: If the rich and the wealthy pay the lion’s share of federal income taxes, then why now are higher tax bracketed individuals unable to bail us out of an 11.3 trillion national debt, and balance the federal budget every year?  Well, before I answer that charming question, let’s discuss a few facts. First off, what is the current economic crisis all about?

The Current Economic Crisis

     The United States is experiencing one of the most severe economic recessions since the end of the Great Depression. As a result, major family dislocation and psychological uncertainty has come about as a result of escalating unemployment in both the public and private sectors. Simply put, the economy really sucks.

      Many inter-related factors are responsible for this, including: serious problems in the housing, commercial real estate and credit markets, the decline of manufacturing in America, the global meltdown and problems of international currencies, a huge decline and loss of equity and retirement investments (stock and portfolio values, and 401Ks) on Wall Street and elsewhere during the economic decline. Practically everyone in America is impacted by the recession.

       In addition, if things weren’t bad enough, in 2008 there was the near collapse of major banks and insurance giant AIG. There has also been a huge decline, and in some cases bankruptcy, of large automobile companies like Chrysler and General Motors. Also, no longer flying under the radar making economic conditions even worse—is America’s on-going battle with white-collar crime and criminals.

      It then again begs the question: Why is there any redistribution of wealth if individuals are free under the U.S. Constitution to pursue their own form(s) of happiness? The answer is—the ballot box is controlled by the poor, working class, and middle-class in America. Why? The reason is they form a majority of citizens. One vote doesn’t affect either legislation or fiscal policy in America—but collective voting blocks and Interest Groups do.

      That is, those making over $250,000 a year, and greater amounts, are a minority in America. Politics is controlled by the tyranny of the majority. The irony of this is not lost on the politics of equality (or lack there of) in America. American citizens have, unfortunately, turned a blind eye to this insidious form of discrimination, preferring to invent rationalizations and value judgments to defend discrimination rather than believe in the true equality of the individual under our democratic form of government.

The Federal Budget

     The United States federal budget for fiscal year 2009 was a spending request by President George W. Bush to fund government operations for October 2008-September 2009. 

2009 Budget of the United States federal government

Submitted by

George W. Bush      

Submitted to

110th Congress      

Total Revenue

$2.7 trillion (estimated)      

Total Expenditures

$3.1 trillion (estimated)      

Deficit

$611 billion (estimated)      

Debt

$11.3 trillion (estimated)      

 

     In the current 2009 federal budget there is a deficet of $611 billion. That is the current shortfall between what are estimated expenditures (3.1 trillion) and the total estimated revenues generated to cover it (2.7 trillion). Added to this is an 11.3 trillion national debt accrued from previous administrations, both democrat and republican. And none of these figures relate to the current presidency of Barack Obama, where stimulus programs, continuation of wars on two fronts, and new programs such as health care reform have been proposed along with more discriminatory taxes for the rich and the middle classes.

     Currently, revenues for our federal budget come from the following sources, called receipts:

Estimated receipts for fiscal year 2009 are 2.7 trillion (+7.1%).

 

ANALYSIS OF FEDERAL 2009 BUDGET

     There are approximately 138,000,000 taxpayers in the United States. If every taxpayer paid an equal amount of the burden from federal income taxes the 1.21 trillion raised by individual income tax would be 1.21 trillion / 138,000,000 taxpayers. Each taxpayer would pay under this equality model approximately $8,800 annually. In other words the chances are good, all other factors being equal, that the same amount of federal income taxes could be raised without ANY tax brackets in deference to a “everyone pays the same” model of tax collection.

     To answer the earlier question on getting bailed out of a financial mess or calamity, here is your answer. If the rich were taxed at 100%, taking all they have would not solve the current economic crisis. There are simply not enough rich people to make up the money needed to fix the federal budget each year, and reduce the national debt.

DEALING WITH EXPENDITURES

     It has always been clear that the government needs to increase revenues or cut spending, or both. There are two types of spending done in Washington: (1) Mandatory Spending, and (2) Discretionary Spending. Added to this is the cost of special appropriations such as the wars in Afghanistan and Iraq.

      As one can see below mandatory spending includes Social Security, Medicare, Medicaid, State Children’s Health Insurance Program, Unemployment/Welfare and other mandatory spending, and $260 billion in interest on the National Debt.

     Mandatory spending totals 1.89 trillion. In the current budget, if all mandatory spending is covered (2.7 trillion minus 1.89 trillion) it would leave a residual of 810 billion spread across discretinary spending categories. If we add the cost of the United States Department of Defense ($515.4 billion) and the war on Terror (145.2 billion) we have a risidual of (810 billion – 515.4 billion – $145.2 billion) leaving 149.4 billion for social programs and running the operational aspects of the government. The shortfall in discretionary spending in the 2009 federal budget would be  $390.0 billion – 149.4 billion, or 240.6 billion and this does not include the appropriations for the two wars.

     If the U.S. could raise in the receipt category an additional 240.6 billion a year (plus a reasonable % increase each subsequent year) it just might balance it’s annual federal budget. The road to financial solvency takes thinking (forget the cliché) outside the box. However, beyond balacing the federal budget each year three problems remain. These problems include: (1) handling the recession effectively, (2) eliminating, in 5 years, the entire national debt, and (3) building large surpluses for future generations and the handling of emergencies like a Hurricane Katrina.

      I personally would like to see an immediate 20% reduction in the budget of all federal agencies across the board. The reality is not all agencies would reduce their services or activities by 20% if their budget were reduced by that amount. Some middle-managers and directors in government are the best people to look inside their organizations and reduce costs without service suffering in any way. Other managers may have a harder time, even with the best of intentions. But all will have to learn to adjust, otherwise they can be replaced by top management.

      On the other side of the coin is increasing revenues without discriminating against anyone, anymore. The rich can no longer bail the country out of financial chaos. Much creative thinking is needed in the years ahead to generate new ideas for revenues. This is highly speculative on my part (and perhaps crazy) but it might be useful to increase federal receipts by creating a federal sales tax or consumption tax of 4%. In the short run this might balance the federal budget. Perhaps the country needs to invest in stockpiling natural gas and selling this form of energy to other countries. What about re-opening the gold mines with a stimulus package whereby the government would, through funding new companies, get a share of the profits. Then sell the gold and use the cash to pay off some of the national debt.  

     Government is good at providing seed money for anything it wants to do, just look at what’s happening with the Obama administraton. If government funded more businesses with a revenue sharing plans to return say, 10-20% of all profits, the money obtained could also be used to pay off the national debt. Some of these ideas may be unusable or in fact crazy. We probably shouldn’t sell any of our natural resources. Plus the environmental havoc it might cause isn’t worth it. However, the point is—the country needs innovative original thinkers to generate the best of new ideas for raising revenues to control our debt. In addition, perhaps we need a constitutional amendment to control spending with limits by tying any % increases or decreases annually to the GDP, or the Consumer Price Index(CPI). 

TAKE A LOOK AT YOUR FEDERAL BUDGET

The President’s budget for 2009 totals $3.1 trillion. Percentages in parentheses indicate percentage change compared to 2008. This budget request is broken down by the following expenditures:

The financial cost of the Iraq War and the War in Afghanistan are not part of the defense budget; they are appropriations.

 CONCLUSION

      The evidence is very clear. Class warfare exists and contributes to discriminating against our more well-to-do citizens. There is no simple solution to the problem of paying for the Great Society. The world is changing as we now have a global economy that requires people to re-think about how to get ahead in this life. Old assumptions and Robin Hood politics just won’t cut it anymore. It’s time to come into the 21st Century folks even if you’re kicking and screaming all the way.

      Class warfare needs to be buried as a relic of the past. There are good and decent people in every social class. There are also talented and highly capable people in every social class. But where the abject poor and the working poor are concerned, do we, as a society, have a moral obligation to help them? By any standard I think we do. But I think there are limitations. Forty+ years ago President Lyndon Johnson’s war on poverty was a good attempt at social engineering, but it never came to fruition. Today, we still have too many people below the poverty line. Since 1913 a forced redistribution of wealth in this country has not achieved the eradication of poverty. Ironically perhaps, the data show that republicans and conservatives give more money to charity each year than do democrats and liberals. Some people I guess just don’t want to put their money where their mouth is.

     There are many reasons why people fail to achieve in this society, but one thing is very certain. Affluence (individual or collective) is achievable in a free-market economy but it takes effort, motivation, and a willingness to overcome the obstacles one confronts in life. It takes courage my friend. Just remember this. It’s okay to be a fiscally conservative republican, or a tax and spend democrat in this society; after all—nobody is perfect!

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