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President Obama’s Real Accomplishments in Office   Introduction Where politics is concerned there always seems to be a real disconnect between facts on the one hand, and political rhetoric espoused by the media and the various political parties on the other. Citizens expect the media to decipher fact from fiction. But since the media is often biased in favor of one political party over another, the voting public is actually left to their own devices to determine fact from fiction. As a consequence, the average citizen is left out in the cold where unbiased evaluation of a candidate for political office is concerned. As we all know, politicians talk more about values, not facts. Facts are often used to measure results of a politician’s programs, while values are used to make promises and to encourage the public to vote for a particular candidate. Facts are too dangerous for politicians while values are safer when interacting with the public.   Purpose of Blog The purpose of this Blog is to present to my cyberspace public a factual review of the real accomplishments of the President of the United States, Barack Obama. I will review his accomplishments in two ways: Review the two most important promises the President made back in 2008 which were to lower the unemployment rate and create middle class jobs for Americans. The second way is to list the accomplishments of Barack Obama. When it came to the President’s promises, both related to economics. This was important since the country came close to a financial disaster and collapse during President Bush’s last term in office. At the time he made his promises, little did he know that his vision for America would be met by a recalcitrant and often times obstreperous Congress, particularly the House of Representatives. Despite the juggernaut of destructive gridlock offered up by the Republican Party and its Tea Party members, achievements were made in the last 6 years by the President. The Promises of President Obama The first promise was to lower the unemployment rate, and the second was to create jobs for middle-class Americans. I will present data that supports these promises, and I will carefully review actual achievements. The Unemployment Rate The President took office in January 2009. At that time the unemployment rate had been climbing during the previous year under the Bush Administration from 5.0 percent in January 2008 to 7.8 percent in January, 2009. The rate of unemployment continued to rise to a high of 10 percent in October 2009 as a lagging effect of the recession and near financial collapse in 2008. It continued to drift from 9.9 down to 9.4 percent during the rest of 2009, and continued through to the end of 2010. By this time the policies of the President and the Federal Reserve Board (primarily the economic stimulus packages) were starting to have an effect on the unemployment rate. In January 2011 the unemployment rate dropped to 9.1 percent. A year later it was 8.2 percent. By January 2013 it was 7.9 percent. In January 2014 the unemployment rate had dropped to 6.6 percent. In June 2014 the unemployment rate dropped again to 6.1 percent. During the President’s watch, the unemployment rate declined 39 percent. As of August 2014 the unemployment rate still stayed at 6.1 percent. It would, of course, be simplistic and rather naïve to either ascribe total credit or total blame to the person holding office of the presidency for the lion’s share of any economic change. The reality is economic cycles and the economy itself each have a life of its own (see my previous Blogs on economics and economic theories).  Nevertheless, fiscal and economic policies of any President do matter.  So from a policy standpoint, President Barack Obama has very much helped impact the unemployment rate in a positive way, thus achieving his first promise. Unemployment Rate (January 2004 – June 2014)

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2004  5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4
2005  5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9
2006  4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4
2007  4.6 4.5 4.4 4.5 4.4 4.6 4.7 4.6 4.7 4.7 4.7 5.0
2008  5.0 4.9 5.1 5.0 5.4 5.6 5.8 6.1 6.1 6.5 6.8 7.3
2009  7.8 8.3 8.7 9.0 9.4 9.5 9.5 9.6 9.8 10.0 9.9 9.9
2010  9.7 9.8 9.9 9.9 9.6 9.4 9.5 9.5 9.5 9.5 9.8 9.4
2011  9.1 9.0 9.0 9.1 9.0 9.1 9.0 9.0 9.0 8.8 8.6 8.5
2012  8.2 8.3 8.2 8.2 8.2 8.2 8.2 8.1 7.8 7.8 7.8 7.9
2013  7.9 7.7 7.5 7.5 7.5 7.5 7.3 7.2 7.2 7.2 7.0 6.7
2014  6.6 6.7 6.7 6.3 6.3 6.1

  Source: Department of Labor Statistics     Job Creation and Growth   It is a fact that, since President Roosevelt, the average amount of private sector jobs created during Democratic Presidential terms is 1,463,220 and the average amount during Republican Presidential terms is a paltry 642,000 jobs.     Obama’s Second Promise

52 Straight Months of Private Sector Job Growth

July 3, 2014 Under President Obama’s leadership, the economy has added private sector jobs for 52 straight months. During this span, 9.7 million private sector jobs have been created. In the Senate,    Democrats are fighting to continue this positive trend and help speed along the economic recovery.   President Obama’s Major Accomplishments What follows is a PARTIAL list of Obama’s accomplishments so far.

 

Despite the characterizations of some Republicans, Obama’s success rate in winning congressional votes on issues was an unprecedented 96.7% for his first year in office. Though he is often cited as superior to Obama, President Lyndon Johnson’s success rate in 1965 was only 93%.

Fiscal Responsibility

Within days after taking office, Obama signed an Executive Order ordering an audit of government contracts, and combating waste and abuse. The President created the post of Chief Performance Officer, whose job it is to make operations more efficient to save the federal government money. On his first full day, he froze White House salaries. He appointed the first Federal Chief Information Officer to oversee federal IT spending. He committed to phasing out unnecessary and outdated weapons systems, and also signed the Weapons Systems Acquisition Reform Act to stop waste, fraud and abuse in the defense procurement and contracting system. Through an executive order, he created the National Commission on Fiscal Responsibility and Reform.

Improving the Economy, Preventing Depression

Obama pushed through and signed the American Recovery and Reinvestment Act, otherwise known as “the stimulus package,” despite the fact that not one Republican voted for that bill. In addition, he launched recovery.gov, so that taxpayers could track spending from the Act. In his first year, the American Recovery and Reinvestment Act created and sustained 2.1 million jobs and stimulated the economy 3.5%. Obama completed the massive TARP financial and banking rescue plan, and recovered virtually all of its costs. He created the Making Home Affordable home refinancing plan. Obama oversaw the creation of more jobs in 2010 alone than Bush did in eight years.  He oversaw a bailout of General Motors that saved at least 1.4 million jobs, and put pressure on the company to change its practices, resulting in GM returning to its place as the top car company in the world. Obama also doubled funding for the Manufacturing Extension Partnership which is designed to improve manufacturing efficiency. He signed the Fraud Enforcement and Recovery Act giving the federal government more tools to investigate and prosecute fraud in every corner of the financial system. It also created a bipartisan Financial Crisis Inquiry Commission to investigate the financial fraud that led to the economic meltdown. Obama signed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, which was designed to protect consumers from unfair and deceptive credit card practices. He increased infrastructure spending after years of neglect.  Obama signed the Helping Families Save Their Homes Act, expanding on the Making Home Affordable Program to help millions of Americans avoid preventable foreclosures. The bill also provided $2.2 billion to help combat homelessness, and to stabilize the housing market. Through the Worker, Home Ownership, and Business Assistance Act of 2009, Obama and Congressional Democrats provided tax credits to first-time home buyers, which helped the U.S. housing market recovery. He initiated a $15 billion plan designed to encourage increased lending to small businesses. Obama created business.gov, which allows for online collaboration between small businesses and experts remanaging a business. (The program has since merged with SBA.gov.) He played a lead role in getting the G-20 Summit to commit to a $1.1 trillion deal to combat the global financial crisis.  Obama took steps to improve minority access to capital.  He created a $60 billion bank to fund infrastructure improvements such as roads and bridges. He implemented an auto industry rescue plan, and saved as many as 1 million jobs.  Many are of the opinion that he saved the entire auto industry, and even the economy of the entire Midwest. Through the American Recovery and Reinvestment Act, Obama saved at least 300,000 education jobs, such as teachers, principals, librarians, and counselors that would have otherwise been lost. Obama dismantled the Minerals Management Service, thereby moving forward to cut ties between energy companies and the government. He provided funding to states and the Department of Homeland Security to save thousands of police and firefighter jobs from being cut during the recession. He used recovered TARP money to fund programs at local housing finance agencies in California, Florida, Nevada, Arizona and Michigan. Obama crafted an Executive order establishing the President’s Advisory Council on Financial Capability to assist in financial education for all Americans.

Wall Street Reforms and Consumer Protection

Obama ordered 65 executives who took bailout money to cut their own pay until they paid back all bailout money. He pushed through and got passed Dodd-Frank, one of the largest and most comprehensive Wall Street reforms since the Great Depression.  Dodd-Frank also included the creation of the Consumer Financial Protection Bureau. Obama made it so that banks could no longer use YOUR money to invest in high-risk financial instruments that work against their own customers’ interests. He supported the concept of allowing stockholders to vote on executive compensation.  Obama wholly endorsed and supported the Foreign Account Tax Compliance Act of 2009 that would close offshore tax avoidance loopholes. He made a deal with Swiss banks that permit the US government to gain access to the records of criminals and tax evaders. He established a Consumer Protection Financial Bureau designed to protect consumers from financial sector excesses. Obama oversaw and then signed the most sweeping food safety legislation since the Great Depression.

Civil Rights and Anti-Discrimination

Obama advocated for and signed the Matthew Shepard and James Byrd, Jr. Hate Crimes Prevention Act, which made it a federal crime to assault anyone based on his or her sexual orientation or gender identity. He pushed through, signed and demanded the Pentagon enact a repeal of the discriminatory “Don’t Ask Don’t Tell” policy that forced soldiers to lie to fight for their country, and put our troops at risk by disqualifying many qualified soldiers from helping. Obama appointed Kareem Dale as the first ever Special Assistant to the President for Disability Policy. Helped Congress pass and signed the Civil Rights History Act.  He extended benefits to same-sex partners of federal employees. Obama has appointed more openly gay officials than anyone in history.  He issued a Presidential Memorandum reaffirming the rights of gay couples to make medical decisions for each other. He established a White House Council on Women and Girls. He signed the Lilly Ledbetter Fair Pay Act, restoring basic protections against pay discrimination for women and other workers. This was after the GOP blocked the bill in 2007. Only 5 Republican Senators voted for the bill.    Obama wrote and signed an Executive Order establishing a White House Council on Women and Girls to ensure that all Cabinet and Cabinet-level agencies evaluate the effect of their policies and programs on women and families. He expanded funding for the Violence against Women Act. Under Obama’s watch, National Labor Relations Board has issued final rules that require all employers to prominently post employees’ rights where all employees or prospective employees can see it, including websites and intranets, beginning November 2011.

Fighting Poverty

Obama provided a $20 billion increase for the Supplemental Nutrition Assistance Program (Food Stamps). He signed an Executive Order that established the White House Office of Urban Affairs.

Improved Foreign Relations and American Status Abroad

Obama visited more countries and met with more world leaders than any previous president during his first six months in office. As he promised, he gave a speech at a major Islamic forum in Cairo early in his administration. He did much to restore America’s reputation around the world as a global leader that does the “right thing” in world affairs, at least according to the rest of the planet. He re-established and reinforced our partnership with NATO and other allies on strategic international issues. Closed a number of secret detention facilities. Obama improved relations with Middle East countries by appointing special envoys. He pushed for military to emphasize development of foreign language skills. Offered $400 million to the people living in Gaza, called on both Israel and the Palestinians to stop inciting violence. He refused to give Israel the green light to attack Iran over their possible nuclear program. He worked to make donations to Haiti tax-deductible in 2009. He established a new U.S.-China Strategic and Economic Dialogue. Issued an Executive Order blocking interference with and helped to stabilize Somalia. He established new, more reasonable policies in our relations with Cuba, such as allowing Cuban-Americans to visit their families and send money to support them. He ordered the closure of the prison at Guantanamo Bay. It was Republicans (and a smattering of Democrats) who prevented him from following through. Obama ordered a review of our detention and interrogation policy, and prohibited the use of torture, or what Bush called “enhanced interrogation.” He ordered interrogators to limit their actions to the Army Field manual. He ordered all secret detention facilities in Eastern Europe and elsewhere to be closed.  He released the Bush torture memos.   On his second day in office, he signed a detailed Executive Order that banned torture, reversed all Bush torture policies, and put the United States in compliance with the Geneva Convention. In response to the emerging “Arab Spring,” he created a Rapid Response fund, to assist emerging democracies with foreign aid, debt relief, technical assistance and investment packages in order to show that the United States stands with them. Obama passed the Iran Sanctions Act, to prevent war, and to encourage Iran to give up their nuclear program.  Obama ended the Iraq War. In response to current events with an ISIS invasion in Iraq President Obama ordered air strikes and offered humanitarian assistance to Iraq religious minorities under threat of death from ISIS. He has now created an international coalition through NATO to annihilate ISIS in Iraq and Syria. He authorized and oversaw a secret mission by SEAL Team Six to rescue two hostages held by Somali pirates. The importance of this international act of terrorism was later made into a movie with Tom Hanks.

Better Approach to Defense

Obama created a comprehensive new strategy for dealing with the international nuclear threat. He authorized a $1.4 billion reduction in Star Wars program in 2010. He restarted nuclear nonproliferation talks and built up the nuclear inspection infrastructure/protocols to where they had been before Bush. He signed and pushed to ratification a new SALT Treaty. Negotiated and signed a new START Treaty that will last until at least 2021. Through the Defense Authorization Act, he reversed the Bush Administration and committed to no permanent military bases in Iraq. He developed the first comprehensive strategy with regard to Afghanistan and Pakistan designed to facilitate the defeat of al Qaeda and the withdrawal of most troops, as well as the rebuilding of Afghanistan. He returned our focus to Afghanistan, stabilized the country, and began the process of withdrawing our troops. Obama fulfilled his campaign promise and ended our involvement in Iraq in 2011. However, current events have altered a total and complete withdrawal from Iraq. Despite the current problems in Iraq the president, during his administration, has taken steps to severely weaken al Qaeda and limit their ability to terrorize the world. Many of the top al Qaeda leaders have been killed or otherwise neutralized. He negotiated and signed a nuclear nonproliferation treaty with India. He took decisive action to use NATO to limit the slaughter of innocents in Libya, so that the Libyan people could topple a despotic government and determine their own fate.   Veterans He made sure that families of fallen soldiers could be on hand when the body arrives at Dover AFB by providing funding for it.  He also ended the media blackout on coverage of the return of fallen soldiers. He funded Department of Veterans Affairs (VA) with an extra $1.4 billion to improve veterans’ services. He provided the troops with better body armor. He created the Joint Virtual Lifetime Electronic Record program for military personnel in order to improve the quality of their medical care. He put an end to the Bush-era stop-loss policy that kept soldiers in Iraq/Afghanistan beyond their enlistment date. He supported and signed the Veterans Health Care Budget Reform and Transparency Act, which made more money available to enable better medical care for veterans. He ushered through the largest spending increase in 30 years for the Department of Veterans Affairs for improved medical facilities, and to assist states in acquiring or constructing state nursing homes and extended care facilities. He created the Green Vet Initiative, which provided special funding to the Labor Department to provide veterans with training in green jobs. He oversaw a $4.6 billion expansion of the Veterans Administration budget to pay for more mental health professionals.

Education

He has repeatedly increased funding for student financial aid, and at the same time cut the banks completely out of the process. He completely reformed the student loan program to make it possible for students to refinance at a lower rate. Through the American Recovery and Reinvestment Act, he invested heavily in elementary, secondary and post-secondary education. This includes a major expansion of broadband availability in K-12 schools nationwide as well as an expansion in school construction. Also, through the American Recovery and Reinvestment Act, he put $5 billion into early education, including Head Start. He signed the Post-9/11 GI Bill, also known as GI Bill 2.0 He oversaw expansion of the Pell Grants program to expand opportunity for low-income students to go to college. He passed the Individuals with Disabilities Education Act, which provided an extra $12.2 billion in funds.

Greater Transparency and Better Government

He signed an order banning gifts from lobbyists to anyone in the Executive Branch. He signed an order banning anyone from working in an agency they had lobbied in previous years. He also put strict limits on lobbyists’ access to the White House. He held the first-ever online town hall from the White House, and took questions from the public. The Obama White House became the first to stream every White House event, live. He established a central portal for Americans to find service opportunities. He provided the first voluntary disclosure of the White House Visitors Log in history.  He crafted an Executive Order on Presidential Records, which restored the 30-day time frame for former presidents to review records, and eliminated the right for the vice president or family members of former presidents to do the reviews. This will provide the public with greater access to historic White House documents, and severely curtails the ability to use executive privilege to shield them. He improved aspects of the Freedom of Information Act, and issued new guidelines to make FOIA more open and transparent in the processing of FOIA requests.

National Safety and Security

He’s restored federal agencies such as FEMA to the point that they have been able to manage a huge number of natural disasters successfully. He authorized Navy SEALS to successfully secure the release of a US captain held by Somali pirates and increased patrols off the Somali coast. Obama has repeatedly beefed up border security. He ordered and oversaw the Navy SEALS operation that killed Osama bin Laden.

Science, Technology and Health Care

He created a Presidential Memorandum to restore scientific integrity in government decision-making. Obama opened up the process for fast-tracking patent approval for green energy projects. He eliminated the Bush-era restrictions on embryonic stem cell research. He also provided increased federal support for biomedical and stem cell research. Through the American Recovery and Reinvestment Act, he committed more federal funding, about $18 billion, to support non-defense science and research labs. He signed the Christopher and Dana Reeve Paralysis Act, the first comprehensive attempt to improve the lives of Americans living with paralysis. He expanded the Nurse-Family Partnership program, which provides home visits by trained registered nurses to low-income expectant mothers and their families, to cover more first-time mothers.  His EPA reversed research ethics standards which allowed humans to be used as “guinea pigs” in tests of the effects of chemicals to comply with numerous codes of medical ethics. Obama conducted a cyberspace policy review. Obama provided financial support for private sector space programs. He oversaw enhanced earth mapping to provide valuable data for agricultural, educational, scientific, and government use. He ushered through a bill that authorized the Food and Drug Administration to regulate tobacco products.  As a result, the FDA has ordered tobacco companies to disclose cigarette ingredients and to ban sale of cigarettes falsely labeled as “light.” Through the American Recovery and Reinvestment Act, he provided $500 million for Health Professions Training Programs. He also increased funding for community-based prevention programs. He oversaw a 50% decrease in cost of prescription drugs for seniors. He eliminated the Bush-era practice of forbidding Medicare from negotiating with drug companies on price. Two weeks after taking office, he signed the Children’s Health Insurance Re-authorization Act, which increased the number of children covered by health insurance by 4 million. He held a quick press conference, and urged Congress to investigate Anthem Blue Cross for raising premiums 39% without explanation. Rep. Waxman responded by launching a probe, and Anthem Blue Cross put the increase on hold for two months. He ushered through and signed the Affordable Health Care Act, which expanded health insurance coverage to 30 million more people, and ended many common insurance company practices that are often detrimental to those with coverage. Through the Affordable Health Care Act, he allowed children to be covered under their parents’ policy until they turned 26. Through the Affordable Health Care Act, he provided tax breaks to allow 3.5 million small businesses to provide health insurance to their employees; thereby 29 million people will receive tax breaks to help them afford health insurance. Through the Affordable Health Care Act, he expanded Medicaid to those making up to 133% of the federal poverty level. Through the Affordable Health Care Act, health insurance companies now have to disclose how much of your premium actually goes to pay for patient care. Provisions in Obama’s Affordable Health Care Act have already resulted in Medicare costs actually declining slightly this fiscal year, for the first time in many years, according to the Congressional Budget Office. Last year’s increase was 4%. Compare that to the average 12% annual inflation rate during the previous 40 years. Strengthening the Middle Class and Families Obama worked to provide affordable, high-quality child care to working families. He cracked down on companies that were previously denying sick pay, vacation and health insurance, and Social Security and Medicare tax payments through abuse of the employee classification of independent contractor. Through the American Recovery and Reinvestment Act, he cut taxes for 95% of America’s working families. Under Obama, tax rates for average working families are the lowest they’ve been since 1950. He extended and fully funded the patch for the Alternative Minimum Tax for 10 years. He extended discounted COBRA health coverage for the unemployed from 9 months to 15 months, and he’s extended unemployment benefits several times.

Environment and Energy

Obama fast-tracked regulations to allow states to enact federal fuel efficiency standards that were above federal standards. His fast-tracked regulation increased fuel economy standards for vehicles beginning with the 2011 model year. It was the first time such standards had been increased in a decade. He oversaw the establishment of an Energy Partnership for the Americas, which creates more markets for American-made biofuels and green energy technologies. His EPA reversed a Bush-era decision to allow the largest mountaintop removal project in US history. He ordered the Department of Energy to implement more aggressive efficiency standards for common household appliances. He ordered energy plants to prepare to produce at least 15% of all energy through renewable resources like wind and solar, by 2021. (As you can see, Republicans are trying hard to kill it.) He oversaw the creation of an initiative that converts old factories and manufacturing centers into new clean technology centers. Obama bypassed Republican opposition in Congress, and ordered EPA to begin regulating and measuring carbon emissions. His EPA ruled that CO2 is a pollutant. He doubled federal spending on clean energy research. He pushed through a tax credit to help people buy plug-in hybrid cars. He created a program to develop renewable energy projects on the waters of our Outer Continental Shelf that will produce electricity from wind, wave, and ocean currents. Obama reengaged in the climate change and greenhouse gas emissions agreements talks, and even proposed one himself. He also addressed the U.N. Climate Change Conference, officially reversing the Bush-era stance that climate change was a “hoax.” He fully supported the initial phase of the creation of a legally binding treaty to reduce mercury emissions worldwide. He required states to provide incentives to utilities to reduce their energy consumption. Following Bush’s eight year reign, he reengaged in a number of treaties and agreements designed to protect the Antarctic. He created tax write-offs for purchases of hybrid automobiles, and later he and Democrats morphed that program into one that includes electric cars. Mandated that federal government fleet purchases be for fuel-efficient American vehicles, and encouraged that federal agencies support experimental, fuel-efficient vehicles. Obama oversaw and pushed through an amendment to the Oil Pollution Act of 1990 authorizing advances from Oil Spill Liability Trust Fund for the Deepwater Horizon oil spill.  He also actively tried to amend the Oil Pollution Act of 1990 to eliminate the liability limits for those companies responsible for large oil spills. He initiated Criminal and Civil inquiries into the Deepwater Horizon oil spill.  Through Obama’s EPA, he asserted federal legal supremacy, and barred Texas from authorizing new refinery permits on its own.  He strengthened the Endangered Species Act. His EPA improved boiler safety standards to improve air quality and save 6500 lives per year. Through the EPA, he took steps to severely limit the use of antibiotics in livestock feed, and to increase their efficacy in humans.  Obama increased funding for National Parks and Forests by 10%. He announced greatly improved commercial fuel efficiency standards. He announced the development of a huge increase in average fuel economy standards from 27.5mpg to 35.5mpg starting in 2016 and 54.5 starting in 2025.

Other Accomplishments

Obama has expanded trade agreements to include stricter labor and environmental agreements such as NAFTA. He oversaw funding of the design of a new Smithsonian National Museum of African-American History, which is scheduled to open on the National Mall in 2015.  He protected the funding during the recent budget negotiations. He oversaw and passed increased funding for the National Endowment for the Arts. Obama nominated Sonia Sotomayor and Elena Kagan to the Supreme Court. Sotomayor is the first Hispanic Justice in the Court’s history, and these women represent only the third and fourth women to serve on the court, out of a total of 112 justices. He appointed the most diverse Cabinet in history, including more women than any other incoming president.  He eliminated federal funding for abstinence-only education, and he rescinded the global gag rule. Obama loosened the rules, and allowed the 14 states that legalized medical marijuana to regulate themselves without federal interference.  His FDA banned the use of antibiotics in livestock production.  Obama ushered through and signed national service legislation, increasing funding for national service groups, including tripling the size of the AmeriCorps program.     The material used for the list of accomplishments was obtained from the article below. It has been altered somewhat due to many of the current events that have taken place globally in last few weeks and months. Read the original article at http://pleasecutthecrap.typepad.com/main/what-has-obama-done-since-january-20-2009.html     Post Script It is clear that President Obama is one of the most successful presidents of all time. Despite a much fractured Congress and a very disruptive Republican/Tea Party, President Barack Obama has exceeded all expectations as a president. Whoever the next president in 2016 is—one thing is for sure—she/he will definitely follow in the footstep of a presidential giant. As an aside, I hope the voting public will evaluate the Republican/Tea Party in a fair and balanced manner. It should be based on the number of their accomplishments for the American people since President Bush left office. That evaluation should be very easy based on the overwhelming number of their accomplishments. At the last count Republicans/Tea Party have ZERO ACCOMPLISHMENTS. If you really want to know which party to support in the upcoming mid-term elections this fall, just ask yourself one important question based on the following. Twenty years ago the Republicans swept into office with their promise in 1994 of a Contract with America. A November 13, 2000 article by Edward H. Crane, president of the libertarian Cato Institute, stated, “…the combined budgets of the 95 major programs that the Contract with America promised to eliminate have increased by 13%.” President Bill Clinton often remarked that the Republicans had actually put forth a “Contract on America.” The question you need to ask yourself and answer is—What part of Contract with America, if any, was ever accomplished by the Republican Party? If the answer is none of it, then you should clearly know which party or candidates to support in the upcoming mid-term elections. Why, you ask? — Because history, including political history, has a habit of repeating itself. The government shutdown, and economic harm that was subsequently felt by the American people a year ago, was caused by Republican/Tea Party members in Congress. I think it is fair to say that any Republican/Tea Party members running in the mid-term elections in 2014 (who supported the government shutdown) should have no subsequent role in that government since they tried to “deep six” it in 2013.

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Purpose of Blog

As the government goes about the business of dealing with the the Fiscal Cliff, one of the most controversial issues it will have to address is raising taxes on our wealthier citizens. Value judgments work their way into the decision-making process because everyone, democrats, republicans, and independents, all have different ideas about what constitutes “Fairness, and Fairness for Whom?”

But one thing that can help extricate decision-makers from their own prejudices and value judgments, is to shed light on the issue with data and facts. I would be naïve to suggest that this is going to be an easy process. It will take their best effort and require everyone involved to put aside their political biases. The purpose of this Blog is the answer with data and facts the following question on the revenue generating side of their deliberations:

What is the Effect on the Economy if the Wealthy Are Taxed at Higher Rates?

With the 2012 presidential election over, it is important now to review facts as President Obama and the Congress come to grips with an important issue now looming over the nation. That issue has been metaphorically described as a fiscal cliff.

What is the Fiscal Cliff?

I love the way we use metaphors in this country to describe every social or economic problem. There once was a “War on Poverty,” “The Missles of October” that was better known as the Cuban Missle Crisis (Gee! I thought it was an American crisis as well) and now we have a “Fiscal Cliff” where all our money is going to drop over the edge of a great chasm like the Grand Canyon. The latter, like all the previous metaphors, conjures up graphic images in order to convey a very important message: Whatever the crisis is or gap between people, whatever the details are, the American people need to take the “Fiscal Cliff” seriously because the consequences are important to the nation’s financial health, and may be longlasting.

So personally, I get the message and I know it’s serious. Hopefully, my fellow Americans will take the underlying metaphorical graphic image such as a “Fiscal cliff” seriously as well.

Basically, the Fiscal Cliff is a popular way to describe the confusing, difficult riddle or puzzle the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

Laws will be affected when the gong hits midnight on December 31, 2012, including last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, the end of the tax cuts from 2001-2003, and the beginning of taxes related to President Obama’s health care law.

At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect. According to Barron’s, over 1,000 government programs – including the defense budget and Medicare are in line for “deep, automatic cuts.”

According to author Thomas Kenny, writing for About.com Guide, “In dealing with the fiscal cliff, U.S. lawmakers have a choice among three options, none of which are particularly attractive:

They can let the current policy scheduled for the beginning of 2013 – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – go into effect. The plus side: the deficit, as a percentage of GDP, would be cut in half.

They can cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The flip side of this, of course, is that the United States’ debt will continue to grow.

They could take a middle course, opting for an approach that would address the budget issues to a limited extent, but that would have a more modest impact on growth.”

There are really only three things the U.S. Government can do to solve the problem of the Fiscal Cliff: Raise Taxes, Cut Spending, or both.

Fiscal Policy involves two major components: Taxes and Spending. While Monetary Policy is very important to the economy under the control of the Federal Reserve Board, my best guess at this point (as we get closer to the December 31, 2012 deadline) is that most of the compromises to be reached will be worked out between the President and Congress will mostly involve taxes and spending cuts.

The Issue of Higher Tax Rates for the Wealthy

President Barack Obama, of course, won re-election and, in a sense, is in the driver’s seat politically. The cornerstone of the President’s campaign in 2012 was to protect the middle class and require (on the tax revenue side) higher income households to pay more in taxes. Nevertheless, now is the time for a factual assessment of this issue.

According to author Chye-Ching Huang:

“Many policymakers and pundits assume that raising federal income taxes on high-income households would have serious adverse consequences for the economy. Yet this belief, which has been subject to extensive research and analysis, does not fare well under scrutiny. As three leading tax economists recently concluded in a comprehensive review of the empirical evidence, ‘there is no compelling evidence to date of real responses of upper income taxpayers to changes in tax rates.’ The literature suggests that if the alternative to raising taxes is larger deficits, then modest tax increases on high-income households would likely be more beneficial for the economy over the long run.

The debate over the economic effects of higher taxes on people with high incomes has focused on a number of issues — how increasing taxes at the top would affect taxable income and revenue as well as the effects on work and labor supply, saving and investment, small businesses, entrepreneurship, and, ultimately, economic growth and jobs.”

Economic Growth and Jobs

I found during the presidential campaign many people on both sides had something to say about job creation. All of the topics above can be found in Huang’s full report referenced at the end of this Blog. However, I want to share with you the relationship between taxing the wealthy and job creation, since it too is critically important.

History shows that higher taxes are compatible with economic growth and job creation: job creation and GDP growth were significantly stronger following the Clinton tax increases than following the Bush tax cuts. Further, the Congressional Budget Office (CBO) concludes that letting the Bush-era tax cuts expire on schedule would strengthen long-term economic growth, on balance, if policymakers used the revenue saved to reduce deficits.

In other words, any negative impact on economic growth from increasing taxes on high-income people would be more than offset by the positive effects of using the resulting revenue gain to reduce the budget deficit. I venture to say that Wall Street’s reaction  would be very positive if a major dent were to occur in our national debt. Risk/Reward ratios would favor the Bulls (“and you can take that to the bank”).

In addition, tax increases can also be used to fund, or to forestall cuts in, productive public investments in areas that support growth such as public education, basic research, and infrastructure.

Summary

According to Huang, “These findings from the research literature stand in contrast to assertions of extensive economic damage from increases in tax rates on high-income households, which are repeated so often that many policymakers, journalists, and ordinary citizens may simply assume they are solid and well-established. They are not.

These issues are of considerable importance, because sustainable deficit reduction is not likely to be possible without significant revenue increases. Unsupported claims that modest rate increases for high-income people would significantly impair growth ought not stand in the way of balanced deficit-reduction strategies that ask such individuals to share in the burden and pay somewhat more in taxes.

Raising revenues by broadening the tax base can in fact improve the efficiency of the tax code. And, because a cleaner tax code offers fewer opportunities to evade taxes, base broadening can reduce the economic cost of any rate increases also needed to achieve fiscal sustainability.

The research in the field does not provide strong evidence that modestly raising tax rates at the top of the income scale would have significant growth-reducing effects on labor supply, taxable income, savings and investment, or entrepreneurship. Moreover, as Professor Joel Slemrod has emphasized, the economic impact of tax increases depends in part on how the revenue raised is used. In the current fiscal and political environment, policymakers would likely use revenue raised by increasing marginal tax rates for high-income taxpayers to reduce deficits, which likely would have positive overall effects on long-term economic growth.

The nation faces a daunting fiscal challenge, as well as historically large income inequality and increased spending needs stemming from the graying of the population and advances in medicine that improve health but add to cost. These challenges mean that revenues, as well as spending cuts, need to make a significant contribution to deficit reduction.”

Post Script

As a political moderate, I have never been a big fan of class warfare discrimination, or any kind of discrimination for that matter. This is why it is so important to bring in facts, not just one’s value judgments. Even in “The Reasoned Society” separating facts from value judgments, in one’s own reasoning ability, can at times be a slippery-slope. The wealthy in America do in fact contribute disproportionately (as a percent and in gross dollar amounts) more money to charity than do lower-and-middle class individuals. The wealthy are to be applauded and respected for that kind of giving. Being wealthy, of course, does put one in a rather unique position to help others—and that is a good thing for society.

Nevertheless, quite clearly, the data have shown that our tax laws have disproportionately favored high-income taxpayers for decades over low and middle income citizens. Fairness as a concept is a two way street where income or tax equality is concerned. Many lower and middle class individuals often use sterotypical thinking to villify and demonize wealthy individuals to the point of appearing to be “Not Too Bright.” Nevertheless, the research data presented by Huang clearly and strongly sugggest that raising marginal tax rates on high-income individuals to help pay down our national deficit, and put our economic house in order, is both reasonable and fair.

Also, evidence shows that taxing wealthier individuals will have a positive effect on increasing GDP and job creation, what everyone, on both sides of the aisle, said was so important during the 2012 presidential election campaign.

________________________________________________________________________

The information for this Blog comes from two sources, Thomas Kenny who wrote an article in About.com Guide called The Fiscal Cliff Explained, and Chye-Ching Huang who wrote an article for the Center for Budget and Policy Priorities that answers the primary question raised in this Blog. The title of her article was Recent Studies Find Raising Taxes on High-Income Households Would Not Harm the Economy —Policy Should Be Included in Balanced Deficit-Reduction Effort. I was impressed by the clarity of writing by both these authors.

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ELECTION YEAR POLITICS

AND THE ECONOMY

 

[Part VI-B]

 

 

Background

This is the last of my six part series on Election Year Politics and the Economy. And, as most people know, the number one issue during this presidential run for the White House in November, 2012 is the economy.

Before I reveal who I am voting for (if you haven’t already figured it out) I’ll make a few comments on the economy itself, especially since I provided a lot of information related to it.

First, I have tried to drive home the point that the economy has a life of its own and has predictable cycles. They are: expansion, prosperity, contraction, and recession. They always occur in that order; what isn’t known is just how long each cycle will last. And, the only tools the government has to deal with the economy, regardless of which party is in office, is Fiscal Policy having to do with spending and taxes, and Monetary Policy (which is set by the Federal Reserve) having to do with controlling the amount of money (including interest rates and credit) in the economy at any one time.

I think it’s fair to say that the last four years of the previous Bush administration was rather complicated and chaotic, particularly with respect to fiscal policy. Following Keynesian economic theory, Bush lowered taxes to stimulate growth but that also added to our national debt by lessening revenues to cover other spending needs. But with two wars initiated by his administration, he also increased huge amounts of spending (like floating a big check my late father would have said) at the same time, thus once again adding to our national debt. Being the “compassionate conservative” that he is (and I take him at his word) he did pass legislation to increase more Medicare Prescription Drug Benefits. A wonderful thing to do—but it nevertheless added another $300 billion dollars to our national debt.

During the last two years of the George W. Bush administration (2007-2008) all of us watched the development of the most severe financial crisis and meltdown in United States history since the great depression.

The financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008. The bursting of the U.S. housing bubble, which peaked in 2007, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally. Questions regarding bank solvency, declines in credit availability and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts. Although there have been aftershocks, the financial crisis itself ended sometime between late-2008 and mid-2009.

In the U.S. the government responded by a stimulus package and avoided a double-dip recession. In the E.U. the U.K. responded with austerity measures and it has since slid into a double-dip recession. Although the Bush Administration left us with tremendous national debt, the administration did not cause the financial meltdown per se (unless you want to speculate about errors of omission). The major players in the financial meltdown in the United States were Wall Street and the Banks.

President Barack Obama did not create any of the above situations—he inherited them on January 20, 2009. Through his leadership the financial crisis was averted and turned the corner into the next economic cycle—expansion. Yet, there was an enduring residual problem created by the financial crisis. That problem turned out to be a rather stubborn unemployment rate. The unemployment rate represents the civilian work force, 16 years of age and older.

Lingering Unemployment Problem

Just before the financial meltdown, the unemployment rate was 4.6 % in 2007, but climbed to 9.3% in 2009, then reached a high of 9.6% in 2010. Then the President’s stimulus package and fiscal policies began to kick in. However, even the president increased our national debt during his time in office trying to meet a multiplicity of needs and concerns. But once his stimulus package kicked in the unemployment rate began to drop significantly to where it is now at 8.2%. As our expansion cycle begins to come into full view in the months ahead, the unemployment rate will decline even further.

But please remember—as we achieve the desirable goal of near full employment—there is an inescapable trade-off. And that trade-off is inflation and higher prices. One way you can be certain that the current administration is succeeding in lowering unemployment, is that you know the demand for good and services are increasing. Why? Because increases in employed people mean that consumer spending will likely increase causing businesses of all types to expand.

What happens when there is increased demand? You guessed it—inflation and prices increase. It’s no secret we are now paying higher prices for commodities like food and gasoline. I happen to shop at Raleys. I like the store but I’ve definitely noticed my vegan food choices from the health section have slowly crept up in price the last year and a half. And, I don’t need to remind you that gas prices are very high. In my neighborhood it is currently $4.29 a gallon.

 

Three Factors Needing Evaluation

It is important to know how the economy works. I considered the need for casting an informed vote in Part I; at a minimum, the following information should be recognized and reflected upon:

Knowledge of the Presidential Election Cycle Theory

Business cycles

Fiscal and Monetary policy

Basic Keynesian Economic Theory

Knowledge of our National Debt

Collectively, such knowledge will allow one to make a sensible judgment in any election. For me, this knowledge, combined with my own values, will help determine my vote. Consequently, I’ve used the combination of knowledge and values to evaluate three areas of concern.

These areas of concern are:      

 

IMPACT OF POLITICAL PARTY   ON WALL STREET

ACCOMPLISHMENTS OF DEMOCRATS VERSUS REPUBLICANS

THE ROAD AHEAD WITH OUR NATIONAL DEBT PROBLEM

Impact of Political Party on Wall Street

 For me this area of concern is very personal. I’ve been trading stocks on Wall Street since I was a young man of 25 in 1968. Today, a greater proportion of the electorate, and others in the population, are investing money in the stock market where they hope, over time, to get a decent return.

I have been a day trader as well as an ordinary investor over the last 44 years. Perhaps it is a selfish motive, but I want whoever is in the White House not to screw things up. No one can predict who might do that. Therefore, I needed to consider how well the stock market did with either a Republican or a Democratic administration. So, I reported in Part II whether it was better to have a Republican administration in the White House, or a Democratic one. The following were the findings:

 Although Republicans are generally considered to be more pro business than democrats, studies suggest that when a Democratic president is in the White House, it may be generally better for the stock market.

A research study called “The Presidential Puzzle: Political Cycles and the Stock Market” (2003) done by Pedro Santa Clara and Rossen Valkanof of the University of California, Los Angeles, demonstrated that the stock market performs better under Democratic presidents.

 Using data from 1927 to 2003, they found that the excess returns have been about 2% for Republican presidents, but 11% for Democratic presidents. Among small cap stocks, the difference is even greater. The bottom 10% of stocks as measured by market cap showed a difference of excess returns of about 22% for Democrats compared to when a Republican held the presidential office.

Furthermore, on average, the stock market volatility during a Republican administration was more pronounced than that during a Democratic administration.

Accomplishments of Democrats versus Republicans

In Part I of the series I said accomplishments should be the primary basis for evaluation. This means comparing the President’s accomplishments while in office to those of the Republican Party during the same time frame. But it also means making one-on-one comparisons between the President and his opponent, Mitt Romney. I make that latter comparison in the final conclusions section. This and the previous section are influenced heavily by my “value judgments.” In the last section I am influenced much more by knowledge of the economy and analysis of our national debt.

Where the President is concerned, there are 234 accomplishments so far during his first term in office according to Florida professor of American Studies Robert P. Watson. But ten of his accomplishments really stood out for me as having great value and importance to the United States. You may feel differently, or value things in a different way, but here is my take and what I found that trumps anything the Republicans (The party of NO) have accomplished either in terms of proposed Legislation, or their ideas during the last four years.

These ten accomplishments of the President include:

  • The new effort to bring the country closer to universal health care through passage of the Affordable Health Care Act, outlawing denial of coverage for pre-existing conditions, and extending coverage of health care for children under parent’s plans, steps toward “Medicare for All;”
  • Saved the auto industry from bankruptcy which included General Motors and Chrysler;
  • Obama persuaded BP to put up $20 billion, a guarantee of compensation for the Gulf Coast residents whose livelihoods were damaged or destroyed by the spill.
  • In 2011 President Barack Obama gave the order for Navy Seals to take out Osama Bin Laden, the principal architect of 911. They were successful and Osama Bin Laden is dead.
  • Pulled troops out of Iraq and began drawing down troops in Afghanistan;
  • Approved the Lily Ledbetter “Equal Pay” for women rule;
  • Ended “Don’t Ask/Don’t Tell” discrimination in the military;
  • Expanded the State Children’s Health Insurance Program (SCHIP) health care for children. This helped to cover 4 million children of lower-income families;
  • Signed an omnibus public lands bill that allowed for 2 million more acres to be declared wilderness. It added 1,000 miles designated for scenic rivers, and added lands for national trails;
  • Pushed through a $789 billion economic stimulus bill that saved or created 3 million jobs and began task of repairing the nation’s infrastructure

.

 

The Road Ahead With Our National Debt Problem

Related to the issue of the general economy, is the problem of our staggering national debt. Most voters react to this issue on an emotional level without fully comprehending what a national debt problem is really all about. In 2012 our national debt looms over everyone in society and has done so through many governmental administrations. I have some suggestions and am confident that the future solution to our national debt is sound; I’m equally confident that many people will balk at “the austere cod liver oil” solution to our national debt.

Analysis

In the United States, national debt is money borrowed by the Federal government. Debt burden is usually measured as a ratio of public debt to gross dpmestic product. Debt as a share of the US economy reached a maximum during Harry Truman’s first presidential term (121.7% of GDP).

Public debt as a percentage of GDP fell rapidly in the post-WWII period, and reached a low in 1973 under President Richard Nixon (23.9%). The debt burden has consistently increased since then, except during the presidencies of Jimmy Carter and Bill Clinton. In recent years sharp increases in deficit spending and Bush’s tax cuts has resulted in larger debt. This has led to heightened concern about the long-term sustainability of the Federal government’s fiscal policies.

So what can be done to get us out of this mess? We did it after World War II. So is it possible to reduce the national debt? The question we need to be asking ourselves is —How did we go from 121.7% of GDP in 1946, then 27 years later achieve a ratio of debt to GDP of 23.9%. The debt burden fell rapidly after the end of World War II because the United States and the rest of the world experienced a post-war economic expansion.

The main reason the country dug its way out a crippling public debt at the end of World War II is that there occurred a huge economic expansion in the country. Millions of men returned home from the war. Many Americans feared that the end of World War II, and the subsequent drop in military spending, might bring back the hard times of the Great Depression.

But instead, pent-up consumer demand fueled exceptionally strong economic growth in the post war period. The automobile industry successfully converted back to producing cars, and new industries such as aviation and electronics grew by leaps and bounds. A housing boom, stimulated in part by easily affordable mortgages for returning members of the military, added to the expansion. The demand for goods and services was absolutely profound. Huge social and business changes began to occur. These changes included the baby boom generation, conversion of manufacturing of war material back to high demand useful products of every kind. Also, there was a revolution in new business concepts like large shopping malls (early 1950s).

There were also great cultural changes in entertainment and music, changes in clothes, and that wonderful new babysitter—the television set. Conservatism wasn’t dead, but the nails to its casket were being pounded in every day by a changing much more liberal society. Change wasn’t just economic; WWII changed us as a people as to how we viewed the world in the post-war era. Consequently, all these changes led to a boom in suburban development, urban sprawl, and the need to own an automobile.

The nation’s gross national product rose from about $200,000 million in 1940 to $300,000 million in 1950 and to more than $500,000 million in 1960. At the same time, the jump in postwar births, known as the “baby boom,” increased the number of consumers. More and more Americans joined the middle class. What lessons can we all learn from this? I’ll explain shortly.

Current Debt History

The national debt reached or exceeded 100 percent of GDP only twice since 1900. The first time was during World War II and the second time was in the aftermath of the Crash of 2008.

From 2000 to 2008 debt held by the public rose again from 35% to 40%, and to 62% by the end of fiscal year 2010. During the presidency of George W. Bush, the gross public debt increased from $5.7 trillion in January 2001 to $10.7 trillion by December 2008, due in part to the Bush tax cuts and increased military spending caused by the two wars in the Middle East. He also bailed out the banks in the crisis of 2008.

Under President Barack Obama, the national debt also increased from $10.7 trillion in 2008 to $15.5 trillion by February 2012, caused mainly by decreased tax revenue due to the late-2000s recession and stimulus spending.

However, this President recognized the problem and put into effect a plan of action to deal with the national debt. The President set a goal of reducing Federal deficits by $4 trillion over the next 12 years. He called on Congress to establish a mechanism that would trigger across-the-board spending cuts in 2014 if the nation’s debt as a share of gross domestic product hasn’t stabilized. He even proposed to cut spending on Medicare and Medicaid, two safety-net programs held near and dear by Democrats. While I applaud this effort, it’s obvious $4 trillion dollars deficit reduction is not the same thing as bringing 15.5 trillion dollars back down to zero debt.

 

Proposed Solution

 

If we did it once the country can do it again.

Let’s say for the sake of argument that the United States ought to bring down its deficit from 100% of GDP (that it currently is) to a more comfortable level of 40% of GDP, or be even more ambitious and drop it to 23.9% as it was at the end of Richard Nixon’s  term in office. Nixon left in 1974 but I’m referring to the actual end of his elected term in office.

Our goal should be somewhere between 3.7 trillion and 6.2 trillion dollars of national debt. Let’s further say that the President and the U.S. Congress woke up one morning to its collective senses and said “Let’s Do It.” In fact, how should they do it? How did the Federal government tackle the national debt problem in 1946, at the end of WWII?

All of this comes back to what was covered in Parts II and IV on Fiscal Policy and Monetary Policy. Now our President has made a good faith effort to deal with the national debt. His plan is thoughtful in terms of considering the nation’s future and current needs; but at the same time, he developed a strategic approach to trimming the national debt.

Fiscal Policy and Monetary Policy are still the answer but what is the real question? Can we repeat the events following World War II? No! Those events aren’t going to repeat themselves because the social conditions affecting the country at that time would not be the same now.

So the point is how does the country stimulate massive growth and produce the revenues necessary to pay off, stabilize, and put a cap on, our national debt? This question brings us back to creating new economic events that stimulate expansive growth and rely once again on—Keynesian Economic Theory. The following material was covered in Part II of this series but I repeat it here.

The government began to use fiscal policy in the 1930s during the Depression, not just to support itself or pursue social policies, but to promote overall economic growth and stability as well. Most importantly policy-makers were influenced by John Maynard Keynes, an English economist who argued in The General Theory of Employment, Interest, and Money (1936) that the rampant joblessness of his time resulted from inadequate demand for goods and services.

According to Keynes, people did not have enough income to buy everything the economy could produce, so prices fell and companies lost money or went bankrupt. Without government intervention, Keynes said, this could become a vicious cycle. As more companies went bankrupt, he argued, more people would lose their jobs, making income fall further and leading yet more companies to fail in a frightening downward spiral.

Keynes argued that government could halt the decline by increasing spending (The preferred Democrat Approach) on its own, or by cutting taxes (The Preferred Republican Approach). Either way, incomes would rise, people would spend more, and the economy could start growing again. If the government had to run up a deficit to achieve this purpose, so be it, Keynes said. In his view, the alternative—deepening economic decline—would be worse.

For many years the Federal government has pretty much adopted the economic theories of John Maynard Keynes and, indeed, we have run up a very sizable deficit. Personally, I think the country needs a new twist on Keynesian economics. Demand side (Keynesian) economics is probably better in the long run for the country than Supply side economics (trickle-down economics just doesn’t work like we’d like it to). But Keynesian economic theory still needs to be twisted a little to include things that were not part of his theory in 1936. By this I mean, rather than lowering taxes, they should be raised instead (not because of continuing class warfare but in terms of simple citizenship—everybody needs to pay his/her fair share).

So, how do we stimulate growth, lower unemployment and, at the same time, obtain significant revenues to pay down and stabilize our national debt? How do we achieve all this and meet all of the needs of the American people at the same time? Well folks, we can’t.

Economic Explosion in Growth

I always liked the expression, “When the going gets tough, the tough get going.” How do we stimulate growth? We do this by spending large amounts of money to target selected areas where new jobs can be created [our near full employment goal]. My ideas for targeting would be total gentrification of our cities, new infrastructure projects in suburban and rural areas of the country such as better highways, dams, and bridges; modernize and overhaul energy alternatives such as natural gas, solar, wind, and start a massive program of building “Green Friendly” homes nationally and overseas by contract.

Lower Unemployment

Many types of jobs would need to be filled if we did all this. We would need every occupation from laborers, carpenters, electricians, plumbers, supervisors, building inspectors, architects, engineers, secretaries, small business owners, managers, waitresses, cooks, doctors, nurses, sales staff, clerks, dentists, police, and firemen. We need to construct more modern large buildings in urban areas where buildings are falling apart due to age.

Massive energy projects are needed, than shortly thereafter smaller peripheral and supporting projects would be needed: new gas stations, grocery stores, restaurants, motels, and medical facilities. This may not be 1946—but look around you—there is much to be done (and redone) in this country of ours right now.

If these things were done in earnest, huge economic growth would certainly occur. With changes in monetary policy occurring at the same time, more credit, lower interest rates, and greater loan activity would provide the cash needed for economic expansion in almost every part of the country.

Precipitously Bring Down the National Debt

This is the hard, unpopular part of my plan. First, reduce government spending of all government agencies across the board by 10%. What will government agencies do? I was in government for 32 years and experienced several 10% cuts. We adjust, we improvise, yet we still managed to get the job done. It was no big deal. I went without an annual increase in pay as well. Trust me! Cutting government services can be done.

Now very tough decisions will need to be made if we, as a nation, want to simultaneously (besides economic expansion and lowering unemployment) reduce our national debt by 10+ trillion dollars. To achieve this will require pain and sacrifice on everyone’s part. What do we do? We make major changes to our system of taxation.

Instead of replacing the current income tax system with a national sales (consumption or fair tax), I propose the country simultaneously do both an income and a consumption tax. You pay your income taxes as you currently do, but also pay a federal sales tax on all goods and services that is tied to the GDP. If GDP currently is 16.5 trillion dollars, we need to generate an additional 9% in revenues each year through a consumption tax. That would add approximately 1.48 trillion dollars (.09 X 16.5 trillion) each year in theUnited States.

And from this time on, the Federal budgetary process would need to have what I call a “soft cap.” That is, the annual Federal budget needs to be tied to the growth rate of GDP. If the GDP increased 2.0% in one year, then the President’s budget could not increase beyond the 2.0% in the GDP.

My modified Keynesian approach doesn’t favor a Democrat or Republican approach to fiscal or monetary policy. It’s just what needs to be done to stabilize this country’s financial situation now and into the future. When I run for the United States Senate next year I plan to propose this solution for our economic woes (JUST KIDDING!).

You probably have thought all this out yourself, and have ideas of your own as to how to revitalize the economic growth of the country and bring down the national debt. However, you’re probably scratching your head right now asking yourself—how can he propose tremendous spending for economic expansion and, at the same time, put a “soft cap” on government spending?  The soft cap is more about controlling any future short-fall between government spending and revenues generated (How else are we going to prevent government borrowing and generating more debt each year?). The answer to the question is easing monetary policy (i.e., easier borrowing, credit, and lower interest rates) combined with dramatic increases in taxation (income plus a national sales tax) should provide the funds for a tremendous spike in economic growth and expansion without putting us further in national debt. I’d be more than delighted to hear your ideas on these topics or my general plan.

In the meantime, President Barack Obama has implemented a moderate plan to trim 4 trillion dollars from our national debt over the next 12 years. If my aggressive approach isn’t wanted by giving the country its austere cod liver oil to courageously attack our economic woes, then I suggest the country embrace his plan for dealing with the problem of our national debt.

What I’ve been saying is that it is time to increase spending to create growth and achieve near full employment and raise taxes by aggressive measures such as a national sales tax on top of our income tax. Substantial increases in spending should occur only if large tax increases are implemented at the same time.  Inflation would occur under my plan but would be countered by raising taxes. It could be done with monetary policy but wouldn’t work because of the need to ease monetary policy to help stimulate growth.

Fighting inflation requires government to take unpopular actions like reducing spending or raising taxes, while traditional fiscal policy solutions to fighting unemployment tend to be more popular since they require increasing spending or cutting taxes. My plan does not involve cutting spending to fight inflation. And yet inflation is like an unintended tax measure resulting in greater tax revenues for the country. To that extent, inflation would directly raise revenues and indirectly help to pay down the national debt.

The downside of my proposal is that the individual will have to pay more in taxes at the same time inflation eats away at any money he has left after taxes; it’s a bitter pill to swallow. The upside to my proposal is that tremendous economic growth in the country would occur, near full employment would be achieved, and our national debt would stabilize and be reduced significantly, and finally controlled by a “soft cap.” Some employed people, and government workers, and retirees would probably hate my proposal, while the unemployed and the business community would probably love it.

The bottom line is—“the country gets what it pays for.” Unfortunately these are times when the country has to pay a lot more to get what it wants. I think the readers of this six part series can now clearly see that tinkering with the economy is no simple matter. I suppose that in the end I have a great deal of respect for those we elect to office. They have to be “all things to all people” and, at the same time, have to struggle with prioritizing economic objectives along side with doing what’s best and right for the country. During these tough economic times—that is no easy task.

Conclusions

This fall I’m voting to re-elect President Barack Obama to a second term as our president. While Mitt Romney appears to be a good and decent man, he does not have the experience, attitudes, or mental acuity to convince me he is more qualified to be the President than Barack Obama.

Regardless of how you arrive at your decision as to who to vote for, I want to thank you for reading this six part series on Election Year Politics and the Economy. I’ve given it my best shot in deciding who to vote for, now it’s time for you to do the same.

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     In Part II we move beyond defining the middle-class to an emphasis on understanding the middle-class from an economic point of view. If one is successful in comprehending the relationship between the middle class and economic principles, one will begin to see the folly, if not absurdity, of Robin Hood Politics. 

 THE IMPORTANCE OF UNDERSTANDING ECONOMICS

      First off, a brief review of economics is necessary for the reader. To know what economics is, one must first know what an economy is. If society had unlimited abundance there would be no scarcity. The world has never known unlimited abundance. Without scarcity, there is no need to economize—and therefore no economics. Now—a definition of Economics.

 Economics is the study of the use of scarce resources which have alternative uses.

      What does “scarce” mean?  It means, quite simply, that people want more than there is. Many people, including well educated individuals, grossly misunderstand the implications of scarcity. Back in 1999 the New York Times laid out the economic woes and worries of middle-class Americans—one of the most affluent groups of human beings ever to inhabit the planet. 

      Although the story included a picture of a middle-class family in their own swimming pool, the main headline said: “The American Middle, Just Getting By.”  In essence, there is a great chasm between middle-class expectations and the reality of economics.  Said another way, middle-class Americans’ desires exceed what they can comfortably afford, even though what they already have would be considered unbelievable prosperity by people in many other countries around the world—or even by earlier generations of Americans.

     To look upon the middle-class in America as some sort of financial social victim is outright stupid, naïve, and a highly misplaced prejudice that fans the flames of social class bigotry everywhere. Some view the middle-class as burdened by budgeting and struggling just to make ends meet. If real budgeting is the norm among the middle-class, one can’t tell by the facts. Budgeting is not a real constraint on the middle-class. I find it hard to accept when it was the middle-class the last 30 years who chalked up astronomical credit card debt, were suckered into buying homes they couldn’t afford, and who spent money like there was no tomorrow, and whose saving accounts were drier than a Sahara desert dune. Frugality, except among the most diligent, is not the general way of the middle-class.

      It is not something as man-made as a budget that constrains them: Reality constrains them (or should). There has never been enough to satisfy everyone completely. That is the real constraint. That is what scarcity means.    

      Most people are savvy enough to understand, as an economic principle, the concept of Supply and Demand. In general, when supply increases, the cost per unit of a product or service (labor and material costs) usually declines. When demand increases, prices usually rise in response to the demand. Sometimes the supply side can’t respond to demand no matter how great, for example where there is not an unlimited supply of beach-front properties along our nation’s coastline.

     Other times supply can increase at a greater speed as when assembly lines go into high gear to put more automobiles on lots. However, sometimes prices can remain exceptionally high even when demand can only be met by a few buyers. For example, rare gems and diamonds, or a Van Gogh painting may be desired by everyone, but afforded by only a few. Because there is only a finite amount of precious art objects or rare jewelry, supply rather than demand is in the driver’s seat where higher prices are concerned.

     However, 99.999% of all businesses can make more money if they keep prices lower and try to attract a larger volume of consumers. For example, food, energy, utilities, common household products all generate large volumes of customers but scarcity is the controlling factor when coupled with demand. For example, energy prices can fluctuate considerably in extremely cold regions of the country with high demand compared to warmer areas of the country where the demand is less.  Many people, including myself, have long considered prices as something that thwarts one from getting the things they want. This is because most of us have never really understood the economic function of prices.

     So, what are prices and how do they function? Is there anything in this mechanism of pricing (no matter how suppressing it might be) that tells one that he is somehow deserving of his neighbor’s larger income? [I don’t think so, folks!]  In all of this, you should endeavor to understand the underlying principle of supply and demand, and its relationship to fluctuating prices. In this way you’ll be able to see that prices are like signals or bits of information. They simply measure the barometer of resources, whether scarce or abundant, and translate that state of scarcity or abundance into prices.

 In all that follows I wish I could take credit for the examples and economic principles and insights involved. Instead, all the credit goes to the famous and distinguished economist and writer—Thomas Sowell. A short bio of Dr. Sowell follows his contribution to the issues I have raised.

 DR. THOMAS SOWELL’S CONTRIBUTION

       In a market economy, prices play a crucial role in determining how much of each resource gets used where (remember, scarce items with alternative uses). Many people see prices as simply obstacles to their getting the things they want. Those who like to live in a beach-front home, for example, may abandon such plans when they discover how expensive beach-front property is.

      But high prices are not the reason most middle-class individuals cannot all live on the beach front. On the contrary, the inherent reality is that there are not nearly enough beach-front homes to go around, and prices are just a way of conveying that underlying reality. When many people bid for a relatively few homes, these homes become very expensive because of supply and demand. But it is not the prices that cause the scarcity, which would exist under whatever other social arrangement was used instead of prices.

      If the government were to come up with a “plan” for “universal access” to beach-front homes and put “caps” on the prices that could be charged for such property, that would not change the underlying reality of the ratio of people to beach-front land. With a given population and a given amount of beach-front property, rationing without prices would have to take place by bureaucratic fiat, political favoritism, or random chance—but the rationing would still have to take place.

      Even if Congress or the Supreme Court were to decree that beach-front homes were a “basic right” of all Americans—that would still not change the underlying reality in the slightest. Prices are like messengers conveying news—sometimes bad news, in the case of beach-front property desired by far more people than can possibly live at the beach, but often good news. For example, computers have been getting both cheaper and better at a very rapid rate, as a result of technological ingenuity.

     Prices not only guide consumers, they guide producers as well. When all is said and done, producers cannot know what millions of different consumers want. All that the automobile manufacturer, for example, knows is that when they produce cars with a certain combination of features, they can sell these cars for a profit that covers their production costs and leaves them a profit. But when they manufacture cars with a different combination of features, they don’t sell as well.   

      Persistent source of confusion surrounding the term “middle class” derives from the fact that members of the middle class, as defined by sociologists, do not fall in the middle of a society’s income distribution. Instead, members of the middle class tend to have relatively high incomes compared to others in their societies. Thus, people who fall in the middle of their own societies’ status hierarchies are typically not, in fact, “middle class” as defined by sociologists. As a result, intuitive colloquial and journalistic usage of the term has come to diverge substantially from its strictly sociological usage.

 WAGES, PRICES AND ECONOMIC PROSPERITY

      Wages and salaries serve the same economic purpose as other prices—that is, they guide the utilization of scarce resources which have alternative uses. Yet because these scarce resources are human beings, we tend to look upon wages and salaries differently. Often we ask questions that are quite emotionally powerful, even if they are logically meaningless. For example: Are the wages “fair?” Are the workers “exploited?” Is this a “living wage”?

      Such questions seldom get asked about the prices of inanimate things, such as a can of peas or a share of stock in General Motors (except out of frustration when trying to buy something expensive such as an automobile or a home one can’t afford). But people are believed to be entitled to pay that is “fair,” even if no one can define what that means. “Exploitation” and “a living wage” are likewise emotionally powerful expressions without concrete meanings. If a worker is living, how can he be receiving less than “ a living wage”—unless as some have said thoughtlessly, “living below subsistence”?

      No one likes to see fellow human beings living in poverty or squalor, and many are prepared to do something about it, as shown by the vast billions of dollars that Americans donate to a wide range of charities every year, on top of the additional billions spent by federal, state, and local governments in an attempt to better the condition of less fortunate people. These socially important activities occur alongside an economy coordinated by prices, but the two things serve different purposes.

     Attempts to make prices, including the prices of people’s labor and talents, be somethimg other than signals to guide resources to their most valued uses, make those prices less effective for their basic purpose, on which the prosperity of the whole society depends.

     Ultimately, it is economic prosperity that makes it possible for hundreds of billions of dollars to br devoted to helping the less fortunate. It is also economic prosperity which allows people born into poverty to rise to economic heights undreamed of by their parents or perhaps even by themselves.

INCOME DISTRIBUTION—WHAT’S IT REALLY ALL ABOUT?

      Nothing is more straightforward and easy to understand than the fact that people can earn more than others, for a variety of reasons. Some people are simply older than others, for example, and their additional years have given them opportunities to acquire more experience, skills, formal education and on-the-job training—all of which allows them to do a given job more efficiently or to take on more complicated jobs that would be overwhelming for a beginner or for someone with limited experience or training.

     With the passing years, older individuals may also become more knowledgeable about job opportunities, while more other people may become aware of them and their abilities. These and other commonsense reasons for income differences among individuals are often lost sight of in abstract discussions of the ambiguous term “income distribution.”

      Most income is of course not distributed at all, in the sense in which newspapers, milk, or Social Security checks are distributed from some central place. Most income is distributed only in the statistical sense in which there is a distribution of heights in a population—some people being 5 foot 4 inches tall, others 6 foot 2 inches, etc.—but none of these heights were sent out from some central location.

     Yet, it is all too common to read journalists and others discussing how “society” distributes its income, rather than saying in plain English that some people make more money than others. More is involved than a misleading metaphor. Often the very units in which income differences are discussed are as misleading as the metaphor. Family income or household income are not like individual income.

     An individual always means the same thing—one person—but the sizes of families and households differ substantially from one time period to another, from one racial or ethnic group to another, and from one income bracket to another. For example, there are 39 million people in the bottom 20 percent of households, but 64 million people in the top 20 percent of households.

      These differences in  the sizes of families and households are not incidental. They radically change the meaning of income distribution statistics that are thrown around in the media and in politics. For example, real income per American household rose only 6 percent over the entire period from 1969 to 1996, but real per capita income rose 51 percent over the same period. The average size of families and households were simply declining, so that smaller househokds were now earning about the same as larger households had earned a generation earlier.  

     As so often happens, the facts are not complicated, but misunderstandings abound nevertheless. A Washington Post writer, for exanple, declared in 1998 that “the incomes of most American households have remained stubbornly flat over the last three decades.” It would be more accurate to say that some writers have remained stubbornly blind to economic facts. When two people in the one household today earn the same total of money that three people were earning in that household in the past, that is a 50 percent increase in income per person—even when household income remains the same. 

      It is equally misleading to compare high-income families or households with low income families and households. There are more people per family in upper-income families compared to low-income families—and more of these people work. That is part of the reason for some families having higher incomes than others. It is not uncommon for families in the top 20 percent of income-earners to supply several times as many man-hours of work per week per year as families in the bottom 20 percent. Many of the latter work very little or not at all, whether due to illness, retirement, single mothers raising children on welfare, or for other reasons. Yet plain facts like these are often omitted by those who write or speak of how “society” unequally or unfairly “distributes” its income. A closer look at these households reveals that those in the top quintile contain more than 40 million people of working age—18 to 64 years of age—while the bottom quintile contains fewer than 20 million prople in such age brackets.

     Perhaps the most radical difference between individual and family or household statistics are those used in comparing different American racial or ethnic groups. For example, real income per black household rose only 7 percent in the two decades from 1967 to 1988, but real per capita income among blacks rose 81 percebt over those very same years. Average black household size was simply declining during these decades, so that a substantial increase in real income per person appeared statistically as a triviality small increase per household. Moreover, because black household size was declining more sharply than white household size, black incomes appeared to be falling behind white incomes when household statistics were used, but were in fact rising faster than white incomes when individual statistics are examined.    

     For both blacks and whites, rising prosperity was one reason for more people to be able to go set up their own individual households, instead of continuing to live with parents or as roomers or by sharing an apartment with a roommate. Yet these consequences of prosperity generate household statistics that are widely used to suggest that there has been no real economic progress.

     Among individuals in the general population, age makes a big difference in income—and a huge difference in wealth. Inexperienced young people beginning their careers in their twenties sekdom make as much money as their parents who are in their forties and fifties. Having just begun to work, these younger workers are usually not as valuable as older and more experienced people. Having just begun to save, they are more likely to have much less money in the bank or in a pension fund, as compared to their parents, who have been saving for decades and acqutring other assets for decades.

     Although people in the top income brackets and the bottom income brackets—the “rich” and the “poor,” as they are commonly called—may be discussed as if they were different classes of people, often they are the very same people at different stages of their lives. An absolute majority of the people in the bottom 20 percent in income in 1975 were also in the top 20 percent at some point over the next 17 years.

      This is not surprising. After 17 years, people usually have had 17 years more experience, perhaps including on-the-job training or formal education. It would be surprising if they were not able to earn more money as a result. It is not uncommon for most of the people in the top 5 percent of income earners to be 45 years old and up.

     Although people in the upper income brackets are often characterized as “rich,” in reality a family or household can reach the top 10 percent with incomes that fall far short of what truly wealthy people make. As of 1998, a household income of $75,000 a year was enough to put the people in that household in the top 10 percent. A couple making $38,000 each hardly seems like “the rich.” Even the top 5 percent of households could be reached with a combined income of  $133,000—comfortable, but hardly in the same categories as millionaires and billionaires.

     Even people in the top one percent in wealth bear little resemblance to “the idle rich” conjured up in popular legend or ideological rhetoric. The average person in the top one percent works 52 hours a week. At the other end of the scale, more than half of all those in the bottom 20 percent do not have a full-time job.

      Another common statistical illusion comes from determining whether “inequality” is increasing or decreasing by comparing the incomes of those in the top 20 percent with the incomes of those in the bottom 20 percent. Nothing is easier to find than media and academic proclomations that the difference between incomes in these top and bottom brackets has grown wider over the years. Even when the changes are only of a few percentage points, there may be much hand-wringing and moral indignation. However, if our concern is not with statistical categories but with flesh-and-blood human beings, then we must focus not on brackets but on the people who are constantly moving in and out of those brackets.

      Fewer than 3 percent of those in the bottom 20 percent in 1975 were still there in 1991, while 39 percent of them were now in the top 20 percent. Most of “the poor” of the 1970s had reached higher income levels in the 1990s than most of the whole American population had in the 1970s. To compare the current incomes of these now “rich” people  with the incomes of the currently “poor” ignores the likelihood that todays “poor” will continue to repeat the pattern and be even more prosperous in 2010 than our current top 20 percent are today.[Parenthetically, I’d like to point out that Dr. Sowell’s book, Basic Economics—A Citizen’s Guide to the Economy, was copyrighted in 2000.]  

     Time has an even stronger effect on the accumulation of wealth. The average amount of wealth held by people in the older age brackets is usually several times the amount held by people in their twenties. But these are not the enduring economic differences we usually have in mind when we talk about classes.

     People in their forties and fifties are not a different class from people in their twenties, because all forty-year-olds were once twenty-year-olds and all twenty-year-olds are going to be forty-year-olds, unless they die prematurely. Not only are most uf them likely to be both “rich” and “poor” at different stages of their lives, even at a given moment many of the low-income people are the children of high-income people—and their heirs.

     Genuinely rich and genuinely poor people exist—people who are going to be living in luxury or poverty all their lives—but they are much rarer than gross income statistics would suggest, when these statistics are not broken down by age. The turnover was huge in all income brackets in just 17 yrars, less than half of most people’s working life.

      Just as most American “poor” do not stay poor, so most rich Americans were not born rich but only achieved wealth at some point in their own lifetimes. Moreover, the genuinely rich are nearly as rare as the genuinely poor. Even if we take a million dollars in net worth as our criterion for being rich, only about 3.5 percent of Americans are at that level at a given time. This is in fact a fairly modest level, given that net worth counts everything from household goods and clothing to the total amount of money in an individual’s pension fund. Nevertheless, the genuinely rich and the genuinely poor, put together, add up to less than 7 percent of the American people, even though political rhetoric might suggest that we are all either “haves” or “have nots.”

      While, in some senses, those who are called “the poor” are not as badly off as instantaneous statistics might suggest, in other respeccts they are worse off. They must often pay higher prices for inferior goods and services because there are higher costs of delivering those goods and services to low-income neighborhoods. A suburban supermarket has lower costs of delivering groceries to its customers than does a typical neighborhood store in the inner city, and that translates into higher prices charged to low-income customers than to high-income customers. Similarly, banks serving middle-class people have lower costs per transaction than institutions serving people in poverty, such as pawnshops or check-cashing agencies. It does not cost a hundred times as much to process a $5,000 loan to an affluent person as it does to make a $50 loan to someone in poverty.

     Cashing a check for an affluent person whose employment and credit history is known to the bank, and who has had an account in the bank for years, is much less risky than cashing a check for someone who walks off the street into a check-cashing agency in a low-income neighborhood and who probably does not have a bank account or perhaps even a permanent job. Thus affluent people have their checks cashed free of charge in their banks and receive bank loans at a lower interest rate than those charged the poor by pawn shops or other sources of credit that will take a chance on them. Being poor is expensive. Fortunately, most Americans do not remain poor very long.

 DR. THOMAS SOWELL’S BIOGRAPHY

      Thomas Sowell was born in North Carolina and grew up in Harlem. As with many others in his neighborhood, Thomas Sowell left home early and did not finish high school. The next few years were difficult ones, but eventually he joined the Marine Corps and became a photographer in the Korean War. After leaving the service, Thomas Sowell entered Harvard University, worked a part-time job as a photographer and studied the science that would become his passion and profession: economics.  

     After graduating magna cum laude from Harvard University (1958), Thomas Sowell went on to receive his master’s in economics from Columbia University (1959) and a doctorate in economics from the University of Chicago (1968).

     In the early ’60s, Sowell held jobs as an economist with the Department of Labor and AT&T. But his real interest was in teaching and scholarship. In 1965, at Cornell University, Sowell began the first of many professorships. Thomas Sowell’s other teaching assignments include Rutgers University, Amherst College, Brandeis University and the University of California at Los Angeles, where he taught in the early ’70s and also from 1984 to 1989.

     Thomas Sowell has published a large volume of writing. His dozen books, as well as numerous articles and essays, cover a wide range of topics, from classic economic theory to judicial activism, from civil rights to choosing the right college. Moreover, much of his writing is considered ground-breaking — work that will outlive the great majority of scholarship done today.

     Though Thomas Sowell had been a regular contributor to newspapers in the late ’70s and early ’80s, he did not begin his career as a newspaper columnist until 1984.       George F. Will’s writing, says Sowell, proved to him that someone could say something of substance in so short a space (750 words). And besides, writing for the general public enables him to address the heart of issues without the smoke and mirrors that so often accompany academic writing.

     In 1990, he won the prestigious Francis Boyer Award, presented by The American Enterprise Institute. Currently, Thomas Sowell is a senior fellow at the Hoover Institute in Stanford, Calif.

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 INTRODUCTION

The purpose of this and the next Blog is to describe an economic portrait of the Middle-Class in America, and the growing middle-class worldwide. Most of the emphasis will be on the middle-class right here in America. Part I defines the middle-class, and Part II will describe the middle-class in relation to economics and economic principles.

If there is a theme running through both Part I and Part II it is that the middle-class, particularly in America, is very privileged and economically very well off. A secondary, but no less important theme, is that the middle class with its Robin Hood Politics, is totally unjustified in discriminating against others from other social classes. After all, rich people, poor people, and middle class people all want the same things in life. They all have their personal dreams and desires.

Related to this topic is an interesting observation, that is, whether we talk about “crime in the streets” (A predominately poor and working class phenomena), or “crime in the suites” (a predominately upper-class phenomena) the middle-class have their own form of crime (subtle perhaps, but crime nonetheless). That crime is differential and progressive taxation, i.e., Robin Hood Politics. Property crimes have as their purpose the taking of things that don’t belong to someone. Life is about the choices we all make. Sometimes people who make poor choices early in life still nevertheless want others to pay for their mistakes. Today, there is a new twist to this phenomena.  Rather than politicians following good, solid economic principles in a free market economy, they largely abandon or ignore them in deference to the whims of middle-class voters and political party ideology.

Therefore, it is important to explore what economics is all about and how it ties into the observation that social distribution of wealth is patently unfair to everyone who believes it is the individual who is responsible for his own life, and all the decisions one makes. The notion of re-distributing the wealth through differential taxation of people in higher income groups is a short-term ineffective fix that won’t alter the fact that lower income and middle-class people cannot acquire the things they want unless by stealing from others through the tyranny of the majority. How can they best get the things they want? Well, economic prosperity should be the goal of our society. We shouldn’t try to eat the rich since they, particularly among entrepreneurs, make it possible to increase more prosperity, including increased prosperity of the middle-class. The best way for society to work toward abundance and greater prosperity for everyone—is to realize that it is wealth creation and prosperity in a free market economy that really matters and, by the way, the only thing that matters if people want to get the scarce resources they don’t currently possess. For the middle-class who engages in “Robin Hood Politics,” all that does ultimately, is to shoot themselves in the foot. Robin Hood Politics is a clumsy and incompetent way to achieve the goal of middle-class economic prosperity.

THE RELATIONSHIP OF CHARITY TO ECONOMIC PROSPERITY

Where do you think all the vast amount of money for charity and helping the less fortunate comes from in this society? Who do you think gives more money to charities in the first place—Democrats or Republicans?

America is unparalleled in economic prosperity and the 20th century proved that. It is economic prosperity that makes charitable contributions possible at all. We even try to help others worldwide with support such as in places like Haiti, or Chile. It is our economic prosperity that makes all of that possible. Check out the facts. Republicans give more money to charity in the United States than do Democrats. But, regardless of who gives more, the underlying ability to give at all is based on economic prosperity. We all live in a very rich nation as nations go.  But, before we get ahead of ourselves lets look at the facts. Who is the middle-class? How are they defined? What is the economic reality we all live under and why are economic principles so important to understand? Society needs to comprehend and understand economics.

Burying one’s head in the sand isn’t going to help anyone. It is crystal clear that Robin Hood Politics and government tinkering with the economy is at best counterproductive, and at worse, an affront to the values of individualism, self-reliance, hard work, determination, rational and intelligent thinking, and, above all, taking responsibility for one’s own life.

 CONNECTIONS

      Back in August, 2009 I wrote an article on the dynamics of class warfare from a political independent’s point of view. I considered it then, as I do now, class warfare to be the last bastion of discrimination in America. Our tax laws reflect that, and our politics reflect the underlying discriminatory beliefs about people with differing amounts of income and wealth. I’ve also previously written in this Blog about upper class greed in an article titled, “Greed is Their Creed,” where I discussed the Barney Madoffs of the world, and other white-collar offenders at the top of the social ladder.

Because the middle class in America dominate as a majority, one of the often unexpressed, yet socially blatant attitudes of this group is also, unfortunately—greed, and a willingness to engage in “Robin Hood Politics” by discriminating against people from other social classes or social conditions.

For example, middle class people will get angry about the demographics of changing neighborhoods, or halfway houses for drug offenders that are placed in their neighborhoods. Yet they barely raise an eyebrow when some politician struts populism to the extent and willingness to disproportionately tax the rich (everybody who makes over $250,000) or even just higher income upper middle class individuals. Most politicians (almost universally democrats but a minority of republicans) who create our laws, buy into this discriminatory ethos from the middle class. Why? The reason is that the middle class is their base for currying favor among society’s largest group of voters. All that matters to politicians is their getting elected or re-elected.

The thrust of my article last August looked at data and the dynamics of social class from primarily a sociological and psychological type of logical analysis. This article will be to support my earlier article. But, emphasis will be instead on key economic principles, economic insights, and economic data on income distribution.

Economics is sometimes called the ‘dismal social science’ because its laws and principles give special treatment or quarry to no one. It doesn’t take sides; it simply tries to explain economic principles with economic data. Thus, it is an objective way to view the world.

 LET’S DEFINE THE MIDDLE -CLASS

The American middle class is an ambiguously defined social class in the United States.  While the concept remains largely ambiguous in popular opinion and common language use,  contemporary sociologists have put forward several, more or less congruent, theories on the American middle class. Depending on class model used, the middle class may constitute anywhere from 25% to 66% of households.

One of first major studies of White Collar: The American Middle Classes, was made by sociologist C. Wright Mills in 1951. Later sociologists such as Dennis Gilbert of Hamilton College commonly divided the middle class into two sub-groups. Constituting roughly 15% to 20% of households is the upper or professional middle class consisting of highly educated, salaried professionals and managers.

Constituting roughly one third (33%) of households is the lower middle class consisting mostly of semi-professionals, skilled craftsmen and lower level management.  Middle class persons commonly have a comfortable standard of living, significant economic security, considerable work autonomy and rely on their expertise to sustain themselves.

Everyone wants to believe they are middle class…But this eagerness…has led the definition to be stretched like a bungee cord and used to defend/attack/describe everything. The Drum Major Institute places the range for middle class at individuals making between $25,000 and $100,000 a year. Ah yes, there’s a group of people bound to run into each other while house-hunting.—Dante Chinni

Members of the middle class belong to diverse groups which overlap with each other. Overall, middle class persons, especially upper middle class individuals, are characterized by conceptualizing, creating and consulting. Thus, college education is one of the main indicators of middle class status.

Largely attributed to the nature of middle class occupations, middle class values tend to emphasize independence, adherence to intrinsic standards, valuing innovation and respecting non-conformity.  Politically more active than other demographics, college educated middle class professionals are split.  Income varies considerably from near the national median to well in excess of $100,000.

Household income figures, however, do not always reflect class status and standard of living, as they are largely influenced by the number of income earners and fail to recognize household size. It is therefore possible for a large, dual-earner, lower middle class household to out-earn a small, one-earner, upper middle class household.  The middle classes are very influential, as they encompass the majority of voters, writers, teachers, journalists, and editors. Most societal trends in the US originate within the middle classes.

WORLDWIDE CHANGES IN THE MIDDLE CLASS

In February 2009, the Economist magazine announced that over half the world’s population now belongs to the middle class, as a result of rapid growth in emerging countries. It characterized the middle class as having a reasonable amount of discretionary income, so that they do not live from hand to mouth as the poor do, and defined it as beginning at the point where people have roughly a third of their income left for discretionary spending after paying for basic food and shelter. This allows people to buy consumer goods, improve their health care, and provide for their children’s education. Most of the emerging middle class consists of people who are middle-class by the standards of the developing world but not the rich one, since their money incomes do not match developed country levels, but the percentage of it which is discretionary does. By this definition, the number of middle class people in Asia exceeded that in the West sometime around 2007 or 2008.

The Economist article pointed out that in many emerging countries the middle class has not grown incrementally, but explosively. The rapid growth results from the fact that the majority of the people fall into the middle of a right-skewed bell-shaped curve, and when the peak of the population curve crosses the threshold into the middle class, the number of people in the middle class grows enormously.

In addition, when the curve crosses the threshold, economic forces cause the bulge to become taller as incomes at that level grow faster than incomes in other ranges. The point at which the poor start entering the middle class by the millions is the time when poor countries get the maximum benefit from cheap labour through international trade, before they price themselves out of world markets for cheap goods. It is also a period of rapid urbanization, when subsistence farmers abandon marginal farms to work in factories, resulting in a several-fold increase in their economic productivity before their wages catch up to international levels. That stage was reached in China some time between 1990 and 2005, when the middle class grew from 15% to 62% of the population, and is just being reached in India now.

The Economist predicted that surge across the poverty line should continue for a couple of decades and the global middle class will grow enormously between now and 2030.

A DYNAMIC CAUSAL THEORY OF MIDDLE CLASS AMERICA

In 1950 an important sociology book came out called—The Lonely Crowd. In it was a significant sociological analysis written by David Riesman, Nathan Glazer, and Reuel Denney. It is considered — along with White Collar: The American Middle Classes, written by Riesman’s friend and colleague C. Wright Mills — to be a landmark study of American character.

Riesman, et al. identified and analyzed three main cultural types: tradition-directed, inner-directed, and outer-directed. They traceD the evolution of society from a tradition-directed culture — one that moved in a direction defined by preceding generations. Tradition-directed social types obeyed rules established a long time in the past, and rarely succeeded in modern society, with its dynamic changes.

This earliest social type was succeeded by people who were inner-directed. They discovered the potential within themselves to live and act not according to established norms, but based on what they discovered using their own inner gyroscope. Inner-directed people live as adults what they learned in childhood, and tend to be confident, sometimes rigid.

After the Industrial Revolution in America had succeeded in developing a middle-class state, institutions that had flourished within the tradition-directed and the inner-directed social framework became secondary to daily life. Instead of living according to traditions, or conforming to the values of organized religion, the family, or societal codes, the new middle class gradually adopted a malleability in the way people lived with each other. The increasing ability to consume goods and afford material abundance was accompanied by a shift away from tradition or inner-directedness. How to define one’s self became a function of the way others lived.

Gradually an outer-direction took hold, that is, the social forces of how others were living -what they consumed, what they did with their time, what their views were toward politics, work, play, and so on. Riesman and his researchers found that other-directed people were flexible and willing to accommodate others to gain approval. Because large organizations preferred this type of personality, it became indispensable to the institutions that thrived with the growth of industry in America.

As Riesman wrote, “The other-directed person wants to be loved rather than esteemed”, not necessarily to control others but to relate to them. Those who are other-directed need assurance that they are emotionally in tune with others.

By the 1940s, the other-directed character was beginning to dominate society. Today the triumph of this type of social personality is complete. If one applies the outer-direction criteria to everyday actors as portrayed in modern culture, for example, Death of a Salesman or How to Succeed in Business Without Really Trying, or the classic How to Win Friends and Influence People, the other-directed person is easy to identify.

This defined the middle class that no longer had the material need to cling to past life standards to form a cohesive society. But since the other-directed could only identify themselves through references to others in their communities (and what they earned, owned, consumed, believed in) they inherently were restricted in their ability to know themselves.

Riesman’s book argues that although other-directed individuals are crucial for the smooth functioning of the modern organization, the value of autonomy is compromised. The Lonely Crowd also argues that society dominated by the other-directed faces profound deficiencies in leadership, individual self-knowledge, and human potential.

Riesman and his co-authors (Nathan Glazer and Reuel Denney) did not come up with the title; the publisher did.

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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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