I love talking to my dad. We don't talk often enough anymore, but we talk about everything, from life to economics to politics to short-lived Sci-Fi TV shows with "Mal"-content smuggler captains. Today's discussion was largely about outsourcing, which eventually led to a discussion on taxes and economics.
Dad mentioned that this recession will probably recover more slowly and with fewer new jobs than any in history. In fact, he believes that much the economic growth will actually come from job losses, not from the jobs PresBo claims he's going to bring to our shores.
Why will this be the case? Very simple: Taxes. Our tax system is oppressive. We have the second highest average corporate income tax rate. PresBo and his allies in Congress like Barney Frank want to limit "excessive" executive compensation (how long before they want to limit all compensation?). Their plan is to allow the "Bush Tax Cuts" to expire, at least for the higher income brackets.
The net effect of all this will be two-fold. First, recovery and growth will be very, very slow. Second, it will stratify the economic classes, creating a permanent upper, lower, and middle class. Those who have wealth will continue to have wealth, because we generally do not tax wealth. Even the wealth we tax is taxed at a significantly lower rate when it is converted to income in the form of Capital Gains.
Meanwhile, regular income is taxed at higher rates. As the deficits (and debt) mount, it cannot be long before tax rates have to go higher to pay for the costs of the "progressive" policies. Because it is liberal policy, the taxes will of course be highest on those with the highest incomes. This will most benefit two primary groups: Those receiving government assistance, and those who have already converted their income into wealth.
It is easy to see how those receiving government assistance will be helped. After all, they aren't worried about the private economy because they're on the government dole. One would think, however, that the wealthy would be worried about this, but many are not. How can this be? Surely they are concerned about the health of our economy?
Not really. Again, these are people who already have wealth. This gives them access, influence, power. They bend the ears of those in Washington and their local state houses. In a healthy, vibrant economy that power is threatened by newcomers: People with high incomes who acheive the kind of wealth that leads to influence and power. With a highly progressive income tax, these individuals cannot achieve that kind of wealth.
The result is a highly stratified economic and political system:
- The lower class who subsist largely on the government for assistance. PresBo has already decided on a tax "refund" that will go largely to people who pay little or no taxes and the current bugdet proposal has dozens of programs that, once started, have little chance of going away.
- The middle class who work each day to provide for themselves and their families, but who are so heavily taxed when their income increases that they generally stay in the middle-income bracket. These are the people for whom the dream of the little house with a white-picket fence and two cars is supposed to be sufficient.
- The upper class who consist of those who earned all their money and wealth before PresBo took office, or whose ancestors did it for them. Again, we don't tax wealth so this group is largely unscathed and continues to provide the capital needed for political advancement.
The United States could, in less than a decade, return to the kind of politics seen during the Georgian and Victorian eras in Great Britain, where aristocrats hand-selected political leaders whose primary job was the protection of aristocratic power. In other words, two hundred fifty years after its birth, America could be right back where it started, and with little hope of once again becoming a free society.
Dad once told me that he almost moved the family to Australia not long before I came along. It was the Carter years, and we were economically stagnant with a President and Congress seemingly bent on ensuring economic ruin. I sincerely hope that, a few decades from now, I won't be telling my kids that I had once lived in the greatest nation the world had ever known, but that it became a victim of its own economic and political hubris.