Sunday, August 07, 2011

Killing Zombies

Dave Budge has a post on Electric City that points out that assigning blame does nothing to solve our economic problems. I had posted a comment in that regard which led Rob Kailey of Wulfgar fame to respond. I answered parts of his comment there, but it really requires a more in depth look that would take over the post. For that reason I have moved my response to this post.
So, let's look at Rob's comments. First:
Steve, you keep supporting a zombie lie, one which must be destroyed if we are to avoid “childish reasoning”. Raising taxes on the wealthy does not create more unemployment. It never has. Not once in the nation’s history can this be shown as fact
I am not aware on any basis for his assertion, except for wishful thinking. I am sure that the same old tactic will be invoked, that I should Google the assertion for myself, but since it defies even common sense, I won't bother. Let's apply common sense to the problem though, and see if raising taxes on the rich results in higher unemployment is an invalid assertion. Suppose I own a company with 100 employees and my taxes are raised 5%. I have several options, raise prices, which makes my business less competitive, equally pass the costs onto all the employees or absorb the costs on my own. The first will probably result in less profits for the business as consumers seek other alternatives. The second would require an equal cut for the pay of all of the workers. How many of us are willing to take a pay cut at all? We become accustomed to our pay, and a cut is not acceptable. On the other hand, I could also reduce the workforce by 5%, which is the opposite of Wulfgar's hypothesis. The same applies if I absorb all the costs. If my spending power is reduced by 5%, that means I get to buy 5% less. That results in other businesses getting 5% less, and since they also are hit by the tax increase, it magnifies the impact of the tax raise, and we all lose. So that "zombie lie" is proven to be an actual problem that cannot be dismissed out of hand.
Next, Rob says:
Nor are our economic woes the fault of “entitlements”. That is simply another way to place “blame” while masking the fact that you’re doing it. I work, then I get paid. That’s the agreement between myself and my employer. If my employer finds himself without the money to pay me, that’s not my fault. I’m not “entitled” to my pay. It was an agreement, a contract. It was a deal.
I am not sure of the point of this statement. If Rob is entitled to the pay (as he should be) and there is no money to pay for it, Rob could sue to enforce the contract, but if there is no money in the business, Rob would prevail but to no ultimate end if the employer is bankrupt. If the contract is unenforceable, there is no real contract. But to ignore problem with the growth in entitlement spending is childish at best and wishful at worst. Social Security, Medicare and Medicaid along with interest on the debt already occupy more than half the total federal budge. Yes, the workers were promised the entitlements, but if there is no money to pay them, it is an unenforceable contract. The thinking on the Left seems to be "tax the rich" as a solution, but as has already been noted elsewhere, taking all of the money earned by those making a million or more will not even cover the deficit, much less the debt, and who will you tax the next year when all those taxed fail to show up for work? The rest of his comment in this paragraph seems to be a non-sequiter, so it is impossible to respond.
Rob's next point seems to be that the analogy of paying the debt to personal finance justifies raising taxes.
Since it seems to the rage among many on the right to compare governmental finance with a home budget, allow me a generalized anecdote. Every single time in my life I’ve found myself owing what I couldn’t pay, I’ve used a vast array of methods to keep afloat. I’ve done the severe austerity. I’ve not paid one bill so that I could pay another (robbing Peter to pay Paul). I’ve sold assets. I’ve borrowed on assets which only pushes the pain forward. I’ve used legal means to forestall the debt. The one thing that’s been consistent throughout is that my troubles, such as they are, have only been solved by an increase in revenue.
Applying his argument, the government should first cut spending. Hooray, a wonderful idea. No more dinners out, and yes we will need to eat Top Ramen for a long while until we get spending under control. I agree that we need to look at what we are spending money on and whether we can do without it. Cut all subsidies, corn, cotton, sugar, peanuts, milk, crop rotation, and alternative energy as well. Make them function in an open market, and if they can't survive, they don't need to be propped up either. So we are in agreement there. His next point about not paying one bill to pay another is a short term solution but only increases the problem as the bill not paid accrues interest and late fees, not to mention the failure of a moral obligation to pay just debts. So that won't work. Selling assets that you can part with is a good idea as well. For instance, Montanans receive more in federal spending than they pay in. A good part of this is because the feds own about a quarter of the state. Start selling forest service lands and you get the double benefit of cash and reduced costs to maintain it. That also seems like a good idea. He mentions borrowing on assets and correctly acknowledges that only pushes the problem forward. Just like we are doing now with our continued federal borrowing. So again we are in agreement, even though he may not have intended it. Lastly, he reports that the only way to solve the problem is to increase revenue. You can go to your employer for a raise, but if he doesn't have the money to pay for it, what are you going to do, take a second job? Is he suggesting that the US take a second job?
Because I am planning on getting on the boat real soon, I will jump to his last point: That the country needs more revenue, and on that I agree with him, just not the way that he wants to do it. If we reform taxes from being an instrument of social engineering to one of actual collection of revenue, that would be a good start. The fact that the favored GE can pay no taxes is an affront to all citizens. But if you lowered the corporate rate to 20% and removed all deductions, you would have a more cost effective basis to operate in this country which would result in the return of manufacturing and expanded revenue. The fact that keeps being denied is that tax cuts do raise revenue. From the Washington Examiner, Byron York points out the following:
As far as tax cuts are concerned, Bush did indeed cut taxes for the wealthy -- along with everybody else who paid income taxes. But does Brown remember that tax revenues actually increased in the years after the Bush tax cuts took effect?

Revenues fell in Bush's first two years because of a combination of the tech bust and the start of the tax cuts. But then things took off. After taking in $1.782 trillion in tax revenues in 2003, the government collected $1.88 trillion in 2004; $2.153 trillion in 2005; $2.406 trillion in 2006; and $2.567 trillion in 2007, according to figures compiled by the Office of Management and Budget. That's a 44 percent increase from 2003 to 2007. (Revenues slid downward a bit in 2008, and a lot in 2009, when the financial crisis sent the economy into a tailspin.) "Everybody talks about how much the Bush tax cuts 'cost,'" says one GOP strategist. "We're saying, no, they led to a huge increase in revenue."

And deficits shrank. After beginning with a Clinton-era surplus in 2001, the Bush administration ran up deficits of $158 billion in 2002; $378 billion in 2003; and $413 billion in 2004. Then, with revenues pouring in, the deficits began to fall: $318 billion in 2005; $248 billion in 2006; and $161 billion in 2007. That 2007 deficit, with the tax cuts in effect, was one-tenth of today's $1.6 trillion deficit.
The problem with the tax cuts adding to the debt, was that we cut taxes, and increased spending. Government spending goes up every year, and in the last two years has exploded. Tax cuts allow the private sector to more effectively use the money than the government.
I realize that Wulfgar is not alone in his thinking on economic matters, but the desire to believe that raising taxes is going to solve the problem is itself a "zombie lie" and it's time to kill it once and for all time.


Auntie Lib said...

If I may provide a specific "refudiation" to Wulfgar's assertion that increased taxes don't result in job losses:

"...Back in 1990, George (read my lips, no new taxes) H. W. Bush passed a budget, which included a “luxury tax” on yachts over $100,000 in addition to jewelry, furs, etc. At the time, the Joint Committee on Taxation believed that in 1991 it would be able to rack up $31 million from these luxury taxes. What was reality? They collected just $16 million... George Will explains the economic consequences of this luxury tax: According to a study done for the Joint Economic Committee, the tax destroyed 330 jobs in jewelry manufacturing, 1,470 in the aircraft industry and 7,600 in the boating industry.

You can read the whole article here:

Let's go ahead and tax the rich again. Hell, it'll be fun to watch the liberals try to spin even higher unemployment numbers next September. NOT!!!!!!

Steve said...

Well said Auntie. I forgot about the yacht tax. Oh well, no sense actual facts get in the way of what they want to believe.