“Patriotic” Taxation

Speaking to members of the Laborers International Union of North America in Akron, Ohio this afternoon Joe Biden called McCain’s approach to the current economic crisis “the ultimate bridge to nowhere” and said that paying higher taxes would be patriotic for wealthier Americans. “We want to take money and put it back in the pocket of middle-class people,” Biden said. Of those who would pay more, he said: “It’s time to be patriotic… time to jump in, time to be part of the deal, time to help get America out of the rut.”

Naturally, John McCain — an inveterate liar these days, it seems — distorted Biden’s remarks while addressing a rally in Cedar Rapids, Iowa, claiming the Democratic vice-presidential candidate had said “raising taxes is patriotic.”

“Raising taxes in a tough economy isn’t patriotic. It’s not a badge of honor. It’s just plain dumb,” McCain said. “The billions in tax increases that Sen. Obama is proposing would kill even more jobs during tough economic times. I’m not going to let that happen.”

McCain’s dissembling and blatant lies aside, the notion of it being a “patriotic” act for the highest earners to pay additional taxes in order to help America reduce its massive deficit or otherwise claw its way out the present “rut” and get the economy back on a more even keel is an interesting one to say the least, politically speaking. The redistribution of tax burden being proposed represents an idea that’s become something of an anathema in the U.S. (and to a lesser extent in Canada, Britain and Australia) over the last 30 years, ever since supply-side economics took hold as the prevailing dogma through four successive administrations.

Even Bill Clinton, hardly as liberal as some pretend, cut taxes for the wealthiest percentile by 2.6%. Bush is only the latest president that’s preached the gospel of the “trickle down effect” while slashing tax rates for the wealthiest. As a result, the marginal tax rates on the highest-income tax bracket now stands at 35% and the capital gains tax rate is at an all-time low of 15%. This is why the middle class, who are dependent on earned income, effectively pay taxes at a higher rate than do the wealthy — a simple fact pointed out not that long ago by Warren Buffet, one of the richest men in the world.

Doubtless, there may well be some on the right who feel even the current rates are egregious and would love nothing more than to cut them further still. Many will be conditioned to automatically militate against the changes being proposed to the tax regime and will brand it as invidious “socialism” or some such rubbish.

But it wasn’t always so. During the Eisenhower years — arguably, a conservative idyll of sorts — the highest tax rate on income over $400,000 stood at a whopping 92 percent, almost three times higher than the present top rate! Unlike the situation today where capital gains are taxed at a far lower rate than earned income, in Ike’s time, capital gains weren’t treated differently. In other words, the rate on this particular form of income has dropped over the years from 92% to 15%. The rich get richer and all that…

It should be noted that in 1955, in the middle of Ike’s presidency, the typical (median) family paid less than 20% in all taxes. By 2003, the total of all taxes paid by a typical family in the U.S. had more than doubled, to almost 40% of income. The bottom line is that in Eisenhower’s day, the rich paid a tremendous amount of taxes, the middle-class paid comparatively little taxes, and yet… somehow it all worked out. Take a look at nation’s balance sheet now and see if the same thing can be said.

So was it “patriotic” of the wealthiest to carry such a massively lopsided share of the tax burden back then? Perhaps that may not be the most apposite word to describe it, but consider Ike’s reaction when pressured by some in Congress at the time to reduce taxes on the rich. “We cannot afford to reduce taxes, reduce income, until we have in sight a program of expenditure that shows that the factors of income and outgo will be balanced,” he said. In fact, Ike did relent somewhat during his last term, lowering the top rate on earned income by a paltry 1%. Now that’s fiscal conservatism!

Still, getting people to accept the somewhat novel concept of “patriotic” taxation for the highest earners will likely prove to be a challenging proposition for Obama and Biden in the present economic climate. The first problem is that it can and will be misrepresented; indeed, McCain has already done so.

Secondly, it has to be considered that for a great many people, all they’ve heard throughout their entire working lives is the now conventional wisdom of “trickle down economics” emanating from the halls of elite think tanks like the Heritage Foundation and preached ad nausea by right-wing ideologues. According to this theory — once quite rightly described as “voodoo economics” — any rise in tax for the highest earners will have a devastating effect on the economy and would inevitably “kill jobs” as future President Sarah Palin so eloquently put it. And what proof do we have of this? Absolutely nothing, in fact. Nothing that is, but the dire predictions of the same bunch of geniuses that are the architects of the present mess — so why should anyone believe them I wonder?

Update: Well, that didn’t take long did it? As Mark Twain famously said, “A lie can travel half way around the world while the truth is putting on its shoes.”

13 Replies to ““Patriotic” Taxation”

  1. I actually think there is some potential here. It was an intentional statement.

    Yes, McCain will lie about it, but more and more people are calling him on his lies so it is becoming the “counter” impression that is taking hold.

    So, all Obama and Biden have to do is point out that there plan is raising taxes over $250K again and again. People are paying attention to this election, and that message will get through.

    2 things:

    1) That’s the real point they want to drive home – that their plan is for tax increases of those earning over $250K and that the tax breaks for the middle class are greater than those planned by McCain.
    2) Ultimately, if McCain persists in fighting this battle, they will have to be arguing that wealthy Americans shouldn’t have to pay more taxes when the country is in debt. Obama would love to be the one fighting for the middle class and painting McCain as the defender of the upper class.

    Plus, there was a time when taxes were not a 4-letter word, back when Americans paid there way a bit better. That might even resonate with older Americans, another demographic where Obama still struggles.

  2. That was kind of the point I was trying to make. 😉

    Yes, it was a very deliberate statement on Biden’s part, I have no doubt about that. I certainly wasn’t suggesting otherwise, that it was a gaffe or something.

    McCain will misrepresent it, but he’d do that anyway. These days he lies about everything and the guy has zero credibility when it comes to the economy. I don’t think people are going to buy his vacuous bluster.

  3. I still recall when the Clinton tax increase passed during his first year in office. The Republicans were dire about the devastation that would follow. And they were giddy at the total party line vote in which Democrats passed it without a single Republican vote in either house.

    Of course, what happened was the economy prospered, and the annual budget deficits started to go down – finally. And, of course, the last stanza was that his final 2 years in office saw surpluses before Bushy and company took over.

    So, the answer is the Republicans have no reputation on which to base any “prediction” about the impact of tax policy.

  4. It has to be considered that for a great many people, all they’ve heard throughout their entire working lives is the now conventional wisdom of “trickle down economics” emanating from the halls of elite think tanks like the Heritage Foundation and preached ad nausea by right-wing ideologues. According to this theory — once quite rightly described as “voodoo economics” — any rise in tax for the highest earners will have a devastating effect on the economy and would inevitably “kill jobs” as future President Sarah Palin so eloquently put it.

  5. I don’t agree with the ideologues who think that taxing the rich will slow the economy. Firstly, if you are one of the truly rich (and that is what we’re talking about – the heads of corporations, etc. – not your local plumber, or doctor, but the REALLY rich), you have already built your business as a corporation, and hoping for zero net profit via debts, expenses, etc. Most corporations do this simply to avoid paying taxes. Secondly, it becomes clear that the tax is aimed at the business person themselves – not their company/business. Bill Gates would not be able to avoid taxes on his hundreds of millions (or Michael Jordon, or Tiger Woods), which would be justifiably so. His corporation probably wouldn’t have to pay anything either, if his accountants were any good. That means that his company could maintain their research budgets and create new markets (in any good liberal democratic environment the research would earn the company further tax breaks, etc. Innovation would help drive the new economy).

    The “don’t tax the rich” crap is really just a way for the filthy rich to protect their own personal salaries and incomes – not the incomes of their corporations, which have many, many ways to avoid the taxes.

  6. Mind you, over the years, I’ve heard a number of rich and even super-rich say that it really doesn’t concern them at all and, in fact, they wouldn’t mind paying more in taxes. Buffet is a good example of that and while he may not be representatives, he’s by no means exceptional.

    I think part of the notion that Biden and Obama are trying to get across here isn’t that they out to “punish” the wealthy and most certainly not discourage people from earning more money, but simply finding a way to lessen the burden on ordinary taxpayers that, for lack of a better term, might be described as middle-class. We’re not talking about loafers looking for a free ride, but ordinary, average, hard-working families that, over the years, have seen their real incomes steadily declining in terms of actual buying power. Think about this… in the 50s the average 30-year-old could buy a median-priced home on only 15-18 percent of his salary. Seems incredible by today’s standards, doesn’t it?

    As GDP (or GNP depending on what set of numbers you’re using) has steadily risen, the share of the pie being taken from that by the middle class had kept getting smaller and smaller. It’s no wonder that the U.S. has the highest income disparity in the world and not by a small measure either, but a staggering one.

  7. I know we’re a spoiled generation. No one, especially the CPC are willing to give up anything to make their country better. Waving a flag and wearing a flag pin doesn’t mean you’re more patriotic.

    WWII – I heard the stories when I was a kid about how women mended their silk stockings, there were rations, one of my aunts worked at Dehavilland making parachutes. Another aunt joined up as an army nurse and ended up at the same base as my dad and my mom had to cope with disabled kids on her own. And, it goes on. Now, we’re panicky about a 1% GST.

    I guess we are the me generation.

  8. why are you calling me a communist when all I want is a free education and health care. Say that to me again after you decide you want to educate your kids and God forbid something major happens to your health. People who are going bankrupt to pay for the medical bills may have wanted to pay more in taxes.

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