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3/17/2010 9:48:10 AM - America...The Land of Opportunity...or Guaranteed Benefits?

Quoting from a David Leonhardt article in the New York Times on March 17, 2010:

"As a society gets richer, its tax rates tend to rise. This idea is known as Wagner's Law, named for the 19th-century economist who came up with it. Citizens of richer societies generally prefer more government services, Adolf Wagner explained. With their basic needs met, they want a military to protect them, good schools for their children, comfortable retirement for the elderly, medical care even when it isn't profitable and a strong social safety net."

It isn't a coincidence that tax rates rise as a society gets richer, and it isn't merely because "richer societies generally prefer more government services." What's left out of the equation, though, is why, in general, society might gradually grow to want such changes.

What happens is that politicians, over time, seek to curry favor from their constituents. They do this by, gradually, increasing taxes on some groups and directing the proceeds toward others. Eventually, you reach a critical point whereupon more than 50% of the electorate benefits from increasing taxes (which are basically subsidy payments from the richer minority), and as you near that point the rate of taxation increases accelerates.

Guess what...that's exactly what's happening today in the US. The percentage of the population that doesn't pay any federal taxes is starting to approach the magical 50% mark - for the first time ever - and, surprise, surprise, the federal government's budget relative to GDP (Gross Domestic Product - the total value of all goods and services produced) is hitting its (non-wartime) peak.

This is, I would note, an extremely dangerous situation for a democracy. To quote Thomas Jefferson: "A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine."

On a side note, this type of "mob rule" is exactly what the Democrats are now attempting to exercise with ObamaCare. They were initially making every kind of deal possible - the "Cornhusker Kickback", the "Lousiana Purchase", etc. - so that they could pass the bill that would remake over 16% of the US economy. When the electorate rebelled and put a Republican into Ted Kennedy's Senate seat, they lost the ability to defeat a filibuster in the Senate (which would require 60 votes.) They then turned to the obscure process of "Reconciliation" - having the Senate and House pass the exact same legislation, and thus avoid the need to get anything more than a simple majority of votes. When faced with the possibility of not being able to get the vote past the House of Representatives (because many Democrats feared that they would be kicked out of office for pushing such an unpopular bill), they turned towards the even more obscure method of "deeming" the bill into law without ever having the House of Representatives vote on it. (Instead, they'd vote on changes to it, which would in effect mean that the bill had been "deemed and passed" to have automatically passed. The Democrats in the House could then claim that they did not vote for the bill - only for the changes - although the end result was that by doing so they would in effect be passing the bill.) If mammoth bills that dictate how 16% of the US economy will work can be passed in this manner (and I'm sure that there will be a constitutional challenge to its legitimacy given that the House and Senate are supposed to both have to explicitly pass a bill for it to become law), then anything could be passed with a simple majority of votes regardless of how unattractive it was to those against it (who could typically employ a filibuster unless a "super majority" of 60 Senate votes were able to be mustered.)

This is an affront to true democracy and everyone that cares about the dangers of mob rule should take a stand on that issue alone. Whether you are for or against such legislation, this is not how you go about trying to enact it. It would set an extremely dangerous precedent for the future - one that the founding fathers of the United States saw and understood centuries ago, but which seems completely lost on many of our modern politicians.

In this regard, Obama has shown himself to be the hyper-partisan that I always knew him to be from his brief career in the Senate. When he was campaigning for President, Obama explictly said on TV - multiple times - that health care was such a large issue that any solution had to have strong bipartisan support and a strong majority of the Senate. (Of course, he also said that he'd ensure that the discussions about the health care bill were aired on C-Span - so much for that.) He said that, of course, to court the independent and moderate Republican vote. So much for truth in politics or being bound by your word. So much for the hope of someone at least attempting to unite the country (as he said he'd do so "differently" than Bush) and, say, pushing for a compromise with which a MAJORITY of voters might actually agree. Public support for the health care bill has been abysmal - with those opposed considerably ahead of those in favor - but Obama and company (Pelosi, Reid, et al) want to push through their utopian (but actually dystopic) vision regardless.

I predict that Obama and crew will get the health care bill passed by adding yet more bribes to an ever-growing list. It's an extremely bad piece of legislation with a huge number of special favors (hence the 2,000+ pages), exemptions, and such contained within - but since when has reason, intelligence, fairness, or fiscal conservativism held a place of importance at the legislative table. (Look at the Republicans under Bush - they certainly weren't fiscal conservatives.) Mark my words - it's another harbinger of the gradual decline of the United States, a country where simple opportunity - not a government handout - was once all that the average person desired.

Leonhardt goes on to state:

"The ideal way to raise taxes for everyone else is not through the income tax code -- which can affect people's incentive to work -- but through another means. As Victoria Perry of the International Monetary Fund points out, every industrialized country in the world except Saudi Arabia and the United States has some kind of consumption tax. A modest consumption tax would give households more incentive to save and could raise significant revenue. Another option is to reduce some big deductions, like the one for mortgage interest."

For the last couple of years, as the US deficit continued to spiral out of control, I've been saying that a VAT - value added tax - would be coming down the line at some point. It's a dream come true for policiticians - a hidden tax that they can gradually increase (to raise money for yet more wasteful spending) and whose true cost is masked from the consumer (with them seeing only the final figure, and not taking into account that the goods and services that they purchase have often already had the VAT taxes applied at various stages - thus, they'll often wind up paying taxes on something that's already been taxed multiple times.) Mark my words - when the politicians finally wind up enacting a VAT in the United States (which will quite likely be within the next decade) it will come with the promise of helping to curtail the size of the deficit and rationalizations that it's relatively small in percentage terms. Once it's enacted, though, it will do what government programs almost always do - grow. The money raised - and then some - will be spent on yet more entitlements, political pet projects, waste, and fraud. Responsible people - those not holding out their hand and asking the government for assistance - will see very little for the thousands and thousands more that they'll be paying every year in taxes.

Leonhardt seems to be forgetting that one of the primary reasons the United States was formed in the first place was to escape oppressive tax policies. America was deemed by the early settlers as a place of opportunity - not a land of guaranteed benefits from some overreaching monarchy. The idea that was so appealing to immigrants - that pushed America over the course of two centuries into becoming the sole remaining superpower in the world, and the largest economy by far - was that it was a place where hard work was rewarded and the government wouldn't try to smother you with taxes. Whereas he would point to the existence of a consumption tax in most countries (which we have in America in most states - it's called sales taxes, luxury taxes, property taxes, etc.) and wonder why the US hasn't followed suit, I'd point to the economic domination the US has delivered and ask why other countries haven't followed our lead? It's a strange world in which the winner follows the losers in their misbegotten economic policies.

I can only surmise that Leonhardt believes that Americans are taxed too lightly, despite some of the highest tax rates in the industrialized world (when both federal and state taxes are figured into the equation.) If he had been around in the late 18th century, he'd have probably argued to the English colonists that not only were the taxes that were being imposed upon them fair, but that they were actually too low.

This bill will serve only to get the government's foot in the door. Over time, the government bureaucracy will grow - as most government programs do - and the costs of the program will dwarf those originally pitched to the public. It will not be run more efficiently than the private sector has done - quite the opposite. The optimistic assumptions made will prove to have been totally unrealistic, and the desire to curry favor with more voters will lead to the expansion of the services provided. Illegal aliens will be covered, although they might be declared US citizens prior to that (as if that makes a difference in the end.) Medical services and procedures will be rationed, and a (likely non-elected board) of people will eventually decide whether or not your life is worth saving - whether your benefit to society justifies the expense according to their pre-calculated formula. Healthy older people that have paid into the insurance system for 50 years will on occasion be rejected for a needed procedure, while a perennially unemployed, chain-smoking, obese, alcoholic 30-year-old is approved because, well, the numbers relevant to the government were run through and the older person's score was below some arbitrary threshold and the younger person's was above it. The current system is bad - there's no doubt about that. Then again, a bad thing can always become worse.

- TZ

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