Wednesday, October 08, 2008

Himes, Shays, Death, Taxes and Loopholes

A troubled taxpayer once put up on his lawn a sign that read: “Death, there’s a loophole. Taxes, never.”

That man may have been one of a vanishing breed; he certainly was not a post Wall Street crash Democrat.

Democrat presidential aspirant Sen. Barack Obama’s views on taxes have trickled down through the campaign grapevine to Connecticut from Washington DC, the spending machine that, in the words of one early libertarian, “[eats] out the substance of the people”; call it the trickle down theory of ruinous economic ideas. These ideas now have found a home in the breast and the campaign literature of Jim Himes, who is running this year against Rep. Chris Shays, the last Republican US Rep. standing in New England.

When another Democrat, President John Kennedy, said that “a rising tide lifts all the boats,” he meant this: Economic prosperity puts dollars in everyone’s pockets. It helps workers, whose salaries increase in proportion to swelling profits made by their employers, because employers generally devote a part of profits to businesses expansion, which results in a higher tide for everyone – workers, company owners and stock speculators. That is why Kennedy cut taxes.

When he did so, the tide rose. He wasn’t alone among presidents: Others have cut taxes to swell the tide, part of which flows into federal and state coffers, thus making available money to be spent on government expenditures, some of which, everyone acknowledges, are necessary.

“In short, to increase demand and lift the economy,” Kennedy said, “the federal government's most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures.” The central problem of the economy in the early 60’s, Kennedy asserted, was that “…our present tax system exerts too heavy a drag on growth, that it siphons out of the private economy too large a share of personal and business purchasing power, that it reduces the financial incentives for personal effort, investment and risk taking.”

Kennedy cut individual tax rates across the board, but he did not stop there. He reduced the top marginal tax rate about 2o percent; he cut the lowest rate 6 percent and reduced corporate taxes 5 percent. Kennedy’s marginal tax reduction, fully implemented in the Johnston years, increased governmental revenue from 6.1 to 14.1 percent.

The Wall Street recession, brought on both by the imprudent and possibly criminal business practices of mortgage lenders and the swelling national debt, which today stands at about $10 trillion -- nearly $33,000 per taxpayer -- will certainly lower the boats. About one quarter of the national debt is owned by foreign investors. Nearly 1 trillion has been added in the past year alone; $300 billion has been added in just the past month. As a percentage of the Gross Domestic Product (GDP), the national debt in the glory years of Camelot stood at 46.9%; the current projected figure is 68.2%. In this environment, any increase in taxes could be just enough to sink the boats. Increasing taxes in times of economic distress, to quote an ex-governor of the state – who, spurning his own advice, raised taxes at a time of economic distress – is like “pouring gas on a fire.”

The economic ground upon which we stand is infirm. No nation has ever increased its wealth by taking money from pile A and moving it to pile B. Robbing Peter to pay Paul, even when justice requires such redistribution, has never added a penny to a nation’s wealth.

Kennedy understood how wealth was created. It is created when capital is made available to entrepreneurs who create products to satisfy the demands of consumers. Governmental revenues increased after the Kennedy administration because Kennedy had pursued economic policies that did not punish capital formation and the efficient use of profits to create both business and wealth.

Obama has gone to a different school. He has spent his entire life studying how most efficiently to use the force of government to take money from Paul and give it to Peter. That is what community organizers do. Wealth flees in the direction of least resistance, especially in a global economy – and it takes pile A and pile B with it. If we do not learn this lesson, then time and chance will beat it into our skins.

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