Deep in the Hard of Taxes

We’ve already shown that, in the absence of discernible consumer demand, companies with surplus cash prefer to sit on that cash rather than waste it to hire employees to make goods or provide services into a market where there aren’t sufficient buyers to justify that step. That such surplus cash may come from reduced taxes, sale of unused assets, cuts in labor costs from layoffs or whatever doesn’t seem to matter. If companies don’t think they can generate profits by hiring more employees, they don’t. And whether it is the rich owner of that business getting lower taxes or the company itself doesn’t seem to matter. They didn’t get to be successful enough to pay higher taxes by being stupid… and hiring in the absence of consumer demand is truly stupid.

Fact is that U.S. consumers have a lot less to spend. Some just don’t have a job to pay their basic bills, much less romp into a serious discretionary spending spree. Others are under-employed, working at jobs beneath their experience or educational levels or forced to settle for low-paying part time work. Whatever the reason, American consumers just have fewer dollars to throw around. “Median household income in the United States declined for the second straight year in 2011, the Census Bureau reports -- falling more than 8% below its 2007 pre-recession peak.” DailyFinance.com, September 24th.

You can blame the economy on the Bush administration, the European debt crisis, the deficit or the inability of the Obama presidency to reignite the growth engine. Frankly, I really can’t think of any magic bullet that will work any short-term fixes, and our proclivity to de-invest in ourselves, particularly my buzz-words of education, infrastructure and research, and our inability to control spending on non-value producing sectors like military defense (that seems only able to drag us into unwinnable extended and profoundly expensive deficit-creating wars), suggests that nothing is going to change for a very, very long time. We just may have to get used to the new normal, and those without the requisite skills and those too old to justify significant retraining are just being written off by the power elite.

Still the myth of cutting taxes for the rich as a “growth” panacea persists. There is absolutely no economic basis for this profoundly inaccurate theory. In fact, according to our own non-partisan Congressional Research Service (CRS), there really has never been any correlation between the tax rate applied to the rich and economic growth. “To the contrary, after 20 pages of charts, graphs, and economic navel-gazing, the CRS came to a startling (to some) conclusion: A review of 65 years of tax and economic data running from 1945 (when top capital gains and top marginal income tax rates topped 90%) through 2010 (by which time the top income tax bracket had declined to 35%, and the capital gains rate had fallen to 15%) shows no ‘conclusive evidence ... to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth.’” DailyFinance.com, September 25th. As the above chart illustrates.

But if we reduce taxes on the rich, with no concomitant growth in the offing (growth that would itself generate additional tax revenues if it were to occur), then we have to cut programs elsewhere or the deficit will truly defy gravity and fly us to an inflationary planet we won’t like very much. For the conservatives, defense needs more money, so scratch that scenario. And servicing the national debt is not optional; we owe the money and the interest. So we are left with lots of social programs, infrastructure building and fixing, education and research. Let’s cut those some more!

Forget about stimulus programs, they didn’t work think most Americans… unless they work on Wall Street… but stimulus programs have pretty much created the only market demand (albeit from the government) to replace the rather stark lack of consumer demand. Isn’t anybody looking at the results of the same “austerity measures” taken in Europe? An almost instant fall back into a technical recession, no longer even a slow recovery. Massive unemployment and personal disruption skyrocketing except in places like German and the Netherlands.

Austerity in Europe has only made their debt crisis much, much worse… The debt to GDP ratio was supposed to decline with austerity, but in fact as the national debt has shrunk because of less spending, European GDP numbers have crashed even more (austerity doesn’t generate growth. Duh!)… the ratio has simply gotten worse. Still, to the semi-literate politicians in Washington – they obviously read neither history books nor the news – austerity is the plan. We’re walking lockstep into the same plan that has clearly already failed Europe.

So when we pull back spending on the programs that currently provide the only market demand of any significance in order to pay for the continuing tax cuts to the rich, what exactly is the benefit for 80% of America? A lower standard of living in an increasingly insecure economy that will continue to erode the size and scope of the middle class and tank the lifestyles of the poor into “this is the United States, and you have got to be kidding” land? Increasing that miscreant 47% into 57%? Exactly how can the vast majority of Americans vote for representatives whose political agendas will make their lives exceptionally miserable? Not that any politician remotely has the ability to do much to change the basics… but the plans on the table from too many seeking office are so mathematically wrong, you just have to wonder.

I’m Peter Dekom, and perhaps it pays to decimate our educational system in order to create an electorate so stupid that it will vote itself into misery based on a theory that has been proven over and over to be false.