Feedback From Communitarian Update
Number 51
We asked:
The Wall Street Journal asks about the Bush Administration's new tax initiatives: "Is
[Bush] too eager to cut taxes for the rich? Or are his critics so eager to soak the rich that
they'd settle for a smaller economy with less for all?" (1/2/03).
Elsewhere, the issue has been
framed as a choice between growth and jobs and--class warfare. But one may argue that
the most stimulative tax break is one that mainly benefits working class and middle class
people--because these groups would spend most if not all of the money gained through a tax
cut, while the rich would primarily increase their savings. What do you think?
Here are the responses we received.
*****
96% of income taxes are paid by the top half of the income
distribution,
and over a third are paid by the top 1% of the income distribution. The
left has created somewhat of a Catch-22 in this country. The income tax
structure is so progressive that only the rich pay any significant income
taxes, and then the left opposes any income tax cuts because they benefit
only the rich; taking their argument seriously would eliminate tax cuts as
a potential policy instrument, even if they would significantly increase
economic growth.
William Niskanen
Chairman
Cato Institute
The idea that benefits for the rich will help the economy grow by expanding the economy and
making everyone better off is an ancient economic idea known as "The trickle down theory." It is
true that a growing economy tends to benefit most people, but the benefits are minor for those at
the poor end of the spectrum, and essentially zero, if not negative, for the unemployed, those
most in need. (And we need to remember that published unemployment figures do not include
people who have given up looking for jobs because they can't find any; these people are excluded
from the "work force" for which unemployment figures are calculated.) But a growing economy
depends on purchasers, and (as your presentation states) it's primarily the working population that
makes the bulk of the purchases. For these reasons the "trickle down theory" has been generally
discredited for a long time now. addition to this strictly economic argument, there is a moral
issue. The poor need help; the rich do not. The fundamental problem of poverty and injustice
(worldwide, not just in the United States) is one of the most important problems we have to face.
Any government worth its salt should aim at helping the most people, not the select few. The
problem of a popular uprising is not imminent (I believe), but the number of desperate people in
the world is rising as corporations ride roughshod over mere persons, and it is highly likely that
the issue of terrorism is born at least partly from growing desperation, which itself arises out of
inequality. This issue speaks to growing corporate greed (the rich), not directly to tax policy, but
the two are somewhat connected, particularly if tax policy is designed to coddle the rich. A
democracy is, by definition, supposed to support the "demos"--the common people--not the
aristocrats.
Walter Haines
Professor of Economics, Emeritus
New York University
Here is what I think about the ideologically slanted question posed by the Wall Street Journal.
This "question" is an assertion, not a question at all. It implies that the huge new tax cut is a
necessity for economic growth. This is not the case. Also, the issue is not merely that the cut
favors the rich in an unconscionable way. It misses the main point about the Bush tax cuts. They
are reckless mismanagement of the nation's fiscal and economic soundness. They create deficits
of enormous magnitude - which obviously will require equally enormous cuts in Federal
programs and services. When the time comes for the public to realize the scope of these cutbacks
it will become clear what a mess the Bush administration has created. Obviously, these cuts in
Federal programs are politically not sustainable. In addition, we also may be entering at least one
war. Nobody knows really what the costs of the war and its aftermath will be. It is certain,
however, that these costs will further increase the deficit, and thus the national debt. Given the
fact that we are the world's largest debtor nation already, this adds to the risks inherent in the
Bush gamble.
Burkart Holzner
Distinguished Service Professor of International Studies
University of Pittsburgh
The real issue is what conditions are likely to stimulate economic growth. Quasi Marxist class
warfare is designed for propagandistic purposes. I think the Bush people have it right , but only
time will tell.
Herb London
President
Hudson Institute
How would one expect from the house organ of the affluent and powerful to frame the question
than as either economic growth or soak the rich? The fact is that the first policy implementation
of the Bush administration was an obscene and unprecedented tax cut, that unfortunately was
supported by both wings of the Republican Party (the Republican Republicans and the
Democrats). This put the country on the road of a recession we are traveling still, and at an
increasingly accelerating speed. Now comes the economic stimulus package of the president
(which is called "economic growth" not saving us from a new depression) that is more tax-cuts,
giving more to those who paid the most for his election campaign.
Tax cuts won't work. They never did and never will. They don't work because those who get the
cash are not those who would spend the money on goods and services that would move the
economy in the right direction (job creation and investment in production of consumer goods).
The rich who get the lion's share of the cut will trade in paper assets or send the money abroad.
The poor will get nothing, and the middle class just a trickle. Fearing job loss the middle class
will use the cut, if it gets anything, as a security blanket, and not for increased spending. The
scheme was called by Reagan "trickle down economics,"and by W's daddy "voodoo economics."
In spite of the apparent difficulty of the Bush family with the English language, I found George
Herbert Walker's term more realistic and more honest than that of the "Great Communicator."
The question is whether the designers of this policy, i.e. the puppeteers of the president, do not
know this? The answer is that they cannot be that dumb, and, yes, they are that much motivated
by greed that cannot be sated. The by-product of the scheme, or perhaps the primary purpose, is
to create a huge deficit that would bring about more cuts of social programs and benefits. Of
course, given such deficit no one in his right mind would think of raising the prescription drug
issue, or national single provider health care, etc. And in case of war with Iraq, single-handedly
sponsored by the U.S., defense spending and the deficit will grow even faster. In one sentence: It
is class warfare, it always has been and it always will be. What should we do instead of this
"package?" Keynes wrote the book on that.
George M. Frankfurter
Lloyd F. Collette Professor Emeritus
LSU
The idea of a tax cut of any kind makes no sense, for Democrats or Republicans, in terms of their
targeted beneficiaries. Why should our children and grandchildren have to pay for the short term
political gains President Bush or Democratic politicians think they will gain by burdening future
generations with debts our generation should be liquidating?
Many people are disappointed because they cannot leave much money to their heirs. But what
kind of parent wants to leave their children a big debt to be paid by them from their earnings?
The deficit could be cut quickly and the social security reserve recharged if all income, including
bonuses and stock options, be subjected to the 15.3% social security tax. Why stop at $72,200+
and charge no tax to those who earn much more per year? Not even minimum wage earners are
exempt.
Joseph W. Eaton
University of Pittsburgh
I oppose all tax breaks. We don't need tax breaks. If tax monies are used wisely, they provide
jobs, and I would contend that the jobs provided by tax monies provide jobs more essential to our
society and to other societies than monies put into the private sector. For example, every day we
hear about the growing shortage of teachers, the growing cost of Medicare, the need for
prescription drug help for seniors, the millions of Americans with no health insurance, the
growing shortage of teachers, and the shortage of teachers qualified to teach math and science
courses, and probably English and history also. There is only one way to pay for these needs, and
that is through taxes. Taxes enable us to be a civilized, caring people. While the president
criticizes the way tax monies are used, he approved selling 45 warplanes to Poland, and is
loaning the Polish government $3.6 billion of our tax monies. Now that is wasteful use of tax
monies. Why is nothing being said about that use of taxpayers' monies?
William V. D'Antonio
Adjunct Research Professor
Catholic University
Washington, DC
The efficacy of tax cuts to benefit the working class is lost if they are not also used to increase
social justice, equity and efficiency. The most effective ways to use tax cuts are those that
change the structure of capitalism to reduce the alienation created by globalization and the
overpayment of investors with surplus profits. Surplus profits are the cash received by an
investor after their time horizon and can be many times greater than the cost of the investment.
Tax cuts that both enrich the working class and introduce community ownership and control of
the means of production and exchange represent the basis for a Global Community Investment
Code (GCICI). The objective for nations adopting a GCIC is to harness the process of
globalization to spread economic and political democracy. In this way citizens will obtain both
the power and means to protect their environment to sustain humanity on the planet. Nations and
regions adopting the code would improve the investment returns for shareholders by providing a
tax concessions to corporations on condition that their ownership rights of the company
transferred over a 20-year period without cost to citizen stakeholders in the host community.
During the 20-year ownership transfer cycle participating corporations could expand their
operations by forming "offspring" companies that would also transfer ownership and control to
local citizens over a 20-year period. In this way, communities could attract more external
investment while increasing local ownership and control to avoid overpaying investors that drain
out the wealth of their community. At the end of the 20 years cycle, Ownership Transfer
Corporations (OTCs) would be recapitalized to provide stakeholders with cash and/or shares in
new and/or offspring OTCs established to continue and/or expand operations.
The cost of the corporate tax concessions would be more than recovered from higher tax
collections from citizens who typically pay tax at a higher rate than corporations or foreign
investors to create a win, win, win result for shareholders, stakeholders and governments.
Shann Turnbull Ph.D.
Adjunct of the Graduate School of Management, Macquarie University
Sydney, Australia
Yes, if the idea is to stimulate spending then you want to get the purchasing power into the hands
of the people who are most likely to spend, and into as many hands as possible. It is true that
there is only so much you can do along these lines with income tax cuts because the upper
income groups do pay a large share (see "Tax Cut Facts" at:
http://www.cfeps.org/cgi-bin/publication.pl?pn=2001/01).
But payroll taxes could be reduced, benefitting both employees and employers. This increases
take-home pay, reduces labor costs (when will we learn to tax bads not goods?).
We could also double the Earned Income Tax Credit, and provide additional tax credits for health
care, educational, and childcare expenses. The state and local governments also need relief, as
they are pressured to respond pro-cyclically (cutting spending and raising taxes) in the face of
budget crises. Federal transfers to state and local governments could support infrastructure and
social spending, which can also increase productivity.
The fiscal program has to be a lot bigger than either party in the U.S. realizes or is willing to
admit. They still suffer from an outdated mind-set, viewing budgetary policy in a very
"pre-Keynesian" way. The dividend cut proposal is a good example, confusing saving and
investment, or dependent on an unwarranted faith that savings is always turned into investment
via the financial system.
We need to speak out against the follies of the Republican proposal, but we also have to stand up
and speak the truth about the Democrats' budgetary stance. As long as the Democrats continue to
try to score political brownie points by calling the Republicans fiscally irresponsible, we will
never get a sensible package on the table. The unemployment lines will continue to grow, new
records will be set on personal bankruptcies and credit card delinquencies, and the misery
index will inch its way upward.
Mathew Forstater
Center for Full Employment and Price Stability
University of Missouri--Kansas City
After a short time, the Bush tax cuts will prove disastrous for the economy. They will stimulate
the stock market for a short while, but only for a short period. Half the tax benefits will go to
funds that are not taxed now in any case. By greatly increasing the national debt at a time that the debt will increase because of one or possibly two wars "borrow and spend" will again
become the rule. This will lead to inflation, sharply rising interest rates, a decline in housing
value and the decline of the economy.
Using the money to pay for medical care (a benefit to poorer people, and expenditures that will
stay in the US) would stimulate the economy much more. As would a decline in payroll taxes.
We currently have a surplus in the social security fund. A temporary decline in those taxes would
only reduce that surplus and not add to inflation the way a great increase in government
borrowing would.
The Republicans have declared class warfare already. Recognizing it is not the same as creating
it.
Gerald Marwell
Richard T. Ely Professor of Sociology, Emeritus
University of Wisconsin, Madison
The Bush tax proposal is good for the entire income distribution. In fact, it is better than the
American people deserve since they did not vote for Bush - Gore received a majority of the
popular vote. Both the Mellon tax cuts of the early 1920's and the Reagan tax cuts of 1986 cut
the marginal tax rates of the top income group. In both cases the percent of total income taxes
paid by the top group rose, which lowered the income tax burden of every group below them
while increasing real growth and income mobility. Today the bottom 50% of the income
distribution pays less than 4% of federal income taxes. From 1975 to 1991, 29% of the lowest
fifth of the income distribution made it to the top fifth. Less than 1% of the bottom fifth remained
at the bottom every year from 1975 to 1991. See: Myths of the Rich and Poor, by Cox and Alm,
pp 72-78 and pp 14-22.
France and Germany, among others, have tried high tax redistributionist policies and real growth
and job growth are stagnating. Their unemployment situation would be much worse except for
their below replacement birth rates. However, that raises other grave difficulties beyond the tax
issues.
As important as the Bush tax proposal is, it is dwarfed by another tax issue, the unfunded age-based entitlements. Germany recently privatized their social security more extensively than Bush
has proposed privatizing ours and the Social Democrats and Greens vote it in, they had no choice
but it does not go far enough. Crisis will drive policy changes.
In our situation virtually everyone under the age of 50 faces severe financial penalties over their
entire life. The proposed prescription drug benefit for the 65 and over group will make this
situation worse.
The expert opinion that the system is funded for 30 or 40 years is false. In 1978, an expert
commission "fixed" social security for 50 years. In 1983, an expert commission headed by Alan
Greenspan "fixed" Social Security again for the long run. What happened to collapse the 50-year
solution to less than 5? Double digit inflation and recession put the 1978 "fix" in the garbage
can where it belonged. The same thing will happen to the 1983 "fix."Accelerating inflation, a
series of recessions, medical breakthroughs in treating the major killers (heart disease and
cancer), a decelerating birthrate, rapid reduction in people smoking, and early retirement, are
among many things that can put crushing financial stress on the age-based entitlements system.
See:
1. Restoring General Balance in U.S. Fiscal Policy by Auerbach, Gokhale and Kottihoff.
Economic Review,Vol. 31 No. 1, Federal Reserve Bank of Cleveland
2. Federal Reserve Bank of San Francisco, Economic Letters No. 99-20 Understanding the Social
Security debate; No. 99-34 Rates of Return on Social Security
3. Gray Dawn by Peter G. Peterson
4. The Return of Thrift by Phillip Longman
5. Privitizing Social Security, Martin Feldstern, editor
6. Generational Accounting Around the World, Auerbach, Kotlikoff, and Leibfritz, editors
The mendacity characteristic of the discussion of the age-based entitlement situation is worse
than it is on the tax redistribution issue, so, since crisis is necessary for major change I propose
the following:
1. A 100% marginal tax on all incomes above $200,000
2. A 100% marginal wealth tax on all wealth above $300,000
3. All of the money collected from 1 and 2 will be distributed to the lower 50% of the income
distribution on a per capita basis.
According to the redistributionists the increase in spending will lead to job creation, rising real
income, an expanding economy and a booming stock market. Actually, this would solve what
some see as excessive immigration, since few people now would want to come here. In fact,
people would be leaving Florida for Haiti and Cuba in rowboats because they could not afford to
buy gas for motors.
Many years ago, a man was extolling the virtues of democracy when a wise man stopped him and
said, "Sir, your people are a great beast, they devour each other." More recently it was said that
democracy was the theory of government that the people should get what they voted for and they
should get it good and hard.
John Mathys
Associate Professor of Finance
Elmhurst, Illinois
I tend to believe that tax benefits for the middle and lower classes will result in more consumer
spending, and it is consumer spending that has kept the economy from sinking deeper into
economic slump.
Wm. Alex McIntosh
Texas A&M
College Station, TX
There exists more than a problem of money, or rich-versus-poor class issues; it is a question of
trust and confidence for the American people regarding its future. How do you restore a broken
confidence? Is it by tax cuts, or another way?
Firstly, what is the essence of trust in one's own future as a citizen of a country? President Clinton was surfing on
the wave of money market growth, entertained by a bright team of business people able to do a permanent mass psychology
assessment; the notion of "credit" here meant belief in economic growth, and politics come second.
President Bush has another view of civil life and military stakes; his priority is the nation's
protection, and spending will be definitely accepted if it is justified by security reasons; the
notion of "credit" here means belief in the strength of the nation, and politics come first.
Secondly, How much compromise is acceptable between politics and economics? A compromise is always necessary.
But it seems as if this compromise is shaken by the view of the war in sight. Usually the personal interests of
most citizens are sacrificed to the war issue, at least in France. After all, depending on the level of
tensions and worries, a people might be willing to sacrifice its well-being to the success expected from a war;
then caring for the rich is a way of having the most influential people join in the acceptance of strong
strategic moves.
Thirdly, what is the most important value to be held in the governance of a country? What are the
prospects of governing people , is it to let their name in history with a flavor of "pride" and
"fame" and "conquest" and "bigness"? If so, look at Napoleon III, who typically encouraged the
rich, was imperator of France for 18 years, and did interesting things thanks to his wife Eugenie
(who had some clever social action); but see what happened in 1870 when the Kaiser said this
man and his (my) country were fragile.
For me the USA represents a sanctuary of freedom and development, which helps train most of
the researchers working around the world; as a nation, its message cannot be entirely trapped in
the arguments of politics.
B. Kitous, Ph.D.
Institute of Political Studies
Rennes, France
Taxes and rates should be cut for everyone.
Cutting working peoples' taxes doesn't do enough to stimulate the economy. When wealthy
people's taxes are cut, more money does go into savings. Those savings tend to be invested in
equities or savings accounts creating more capital for businesses to create more jobs.
There is a 90:10 rule in life. 90% of the people have 10% of the money and vice versa. If we're
trying to stimulate the economy, we need to cut taxes where the income is. Wealthy people have
the money.
A wise person once said that if we redistributed all of the income equally among all of the
people, it would resemble the original distribution within five years.
Jack McCarthy
Managing Director
AppleTree Institute for Education Innovation
Washington, DC
The Bush Administration's new tax proposal is quite clearly loaded in favor of the people with
whom members of that administration most closely identify -- the wealthy. Eliminating taxes on
dividends is one of the major features of the proposal, and all of the spin about spurring
investment cannot disguise the fact that elimination of the tax is meant to benefit the wealthiest
10% of the population. More modest tax relief to increase the disposable incomes of wage
earners will be an adequate stimulant without as much danger of adding to budget deficits. And
the argument that taxing dividends is unfair because it constitutes double taxation is
unconvincing. Most flows of money through the economy are subject to more than one form of
taxation; for example, every time I purchase something with a sales or excise tax, there is double
taxation because I pay income tax on the earnings I use for the purchase.
We should also look carefully at a provision of the proposal that sounds good on the surface:
setting up accounts to help the unemployed find new jobs. I am in favor of helping the
unemployed, but this provision contributes to the continued erosion of communities in our nation
because it is an incentive to move. We allow corporations to move at will and expect workers to
follow them; we allow states and local communities to offer incentives for businesses to relocate
from one community to another. What we need are investments in communities that will allow
citizens to remain in their communities so they can develop and maintain networks of neighbors,
friends, and families.
James Garofalo
Professor, Administration of Justice
Carbondale, IL
The President believes that those who work for a living should go on being taxed, but that money
gained from investments in the stock market should not be taxed, and that there's nothing useful
our government could do with $600 billion. These mistaken beliefs (assuming he's sincere) are
on top of his purported belief that eliminating taxes on dividends is a useful way to stimulate the
economy.
He couldn't be more wrong on all three points.
When people are working hard for a living (or, in many cases, less than a living) it is indecent to
throw more of their money to those making a profit off their work. Our federal and state
governments are in desperate need of money for very popular programs, such as schools, to pick
just one.
Permanent tax cuts of any sort have nothing to do with short-term stimulus, and tax cuts for the
wealthy are clearly not the type of temporary cut that could work, anyway.
If we really wanted to stimulate the economy, we could do much better on expanding
unemployment insurance than what Congress is considering. We could expand Medicaid for the
unemployed. We could restore lost value to the minimum wage. We could pass the National
Housing Trust Fund. And we could increase, rather than decrease, funding for LIHEAP
(Low-Income Home Energy Assistance Program). While the President refuses to release $500
million in emergency funding for LIHEAP and advocates slashing regular funding from $1.7
billion to $1.4 billion or less, families are trying to live with no heat, or are choosing between
heat and food.
Mr. President, the people whose taxes you want to cut are already paying their heating bills and
are unlikely to crank their thermostats up any higher.
David Swanson, communications coordinator
ACORN, the Association of Community Organizations for Reform Now
I favor tax breaks for the poorer members of society. If Bush wants to restructure the tax code by
eliminating double taxation of dividends, is he also willing to restructure executive
compensation? The gap between the rich and the poor has grown dramatically both in the US
and internationally. Changes are needed to reduce these gaps, not increase them.
Stuart Umpleby
Dept. of Management Science
GWU
The broad trends observed historically in the economy are very probably the result of the
interaction of numerous variables (supply, demand, interest rates, confidence, war shocks,
unemployment, etc.). To make matters even more difficult, it is very likely that these
variables interact in what scientists would call nonlinear ways, with time lags. At present, there is
no known way to model and predict the outcome of such complicated interactions.
Therefore, economic policy initiatives, such as tax relief, etc., cannot honestly be proposed with
the conviction that anyone can predict the net result of the action. Instead, "economic" proposals
are usually social programs. They are also usually enacted after the damage has been done, which
is consistent with the notion that no one can predict the trend of the economy.
President Bush's tax cuts are best viewed as social policy, namely, as a desire to give aid to those
citizens that the people in power see as deserving assistance. Will it help the economy to aid
these people? I doubt that anyone knows the answer to that. Perhaps when enough people who
do not have access to the current political leadership are hurt enough that it starts to look
dangerous for the incumbents, we'll see some policies to assist those people.
Personally, I would strongly support efforts by the political leadership to address social policy.
For example, unemployment is high and looks like it will go a lot higher. Jobs bring lots of
benefits to those having them, which in turn benefits all levels of society.
Charles Freifeld
Brookline, MA
I agree with your suggested rationale. If family A is accustomed to $200,000 per year income
and is now only taking in $100,000 due to reduced investment value, I believe they are spending
pretty much the same as always. However, if family B is only getting $25,000 per year where
before they received $35,000, obviously they are cutting back on expenses drastically. A
$10,000 tax break to family A will likely go into the bank, whereas a $1,000 tax break to family
B will go directly into the economy. The best spur to the economy would be to give an $11,000
tax break to family B and none to family A. Ultimately the boost to the economy would send
family A's investment value back up, increasing their income more than a tax break would have.
How many times does the "trickle-down" theory have to be debunked? "Trickle-up" seems more
in line with what happens in the real world!
Jim Flechtner
Findlay, Ohio
While I have not read through all the particulars of President Bush's tax plan, his intent to
eliminate taxation of stock dividend income has tremendous long term potential as a boon to
future stock market growth. Financial professionals are aware that long term returns are equal to
dividend rate plus the rate of dividend growth. While dividend rates themselves have fallen to a
paltry 1.7%, the main prospect for returns is the rate at which dividends grow, which by
definition is GDP growth for the market as a whole (plus inflation for nominal returns). With a
long term growth rate of 3%, currently we are staring at 4.7% future real (before inflation)
returns, a full 2% below what we experienced throughout the 20th century. If dividend income is
no longer taxed then investors will demand higher dividend payouts which will increase overall
returns for the long haul. Even taxing dividends the same as capital gains would be a huge step
toward a higher long term market return.
Thus Bush's plan is no sop to the rich but a plan to give a boost to everyone's portfolio, including
(especially) the millions of Americans who primarily save and invest through their 401(k)s.
Rob Evans
Investment Advisor Representative
Sigma Planning Corp.
I believe that tax relief should focus more on working and middle class people than the Bush
proposal seems to do. On the other hand, I agree with the president that the double taxation of
dividends doesn't make sense. Perhaps a compromise might be negotiated to eliminate taxes on
dividends received by individuals and to increase corporate tax rates a bit to reduce the windfall
for the wealthy. Then, perhaps possibly alternative tax reductions that benefit ordinary people
more directly could be agreed upon.
David Perry
Tuscaloosa, AL
One issue conspicuous in its absence in the debate regarding tax reform in the United States of
America is an attempt to address the following question: what effect will the proposed reform on
the redistribution of wealth in the United States of America? Given existing trends toward
concentration of wealth in the hands of a privileged few, any furtherance of this trend is almost
certainly bound to have unpleasant consequences, in the short and long term alike.
To the extent that any proposed tax reform tends to concentrate too much wealth in the hands of
too few, it ought to be opposed, if for no other reason, as bad public policy. The present
administration's proposals invariably fail this test.
Historically, the bellwether of the economic well being of the United States of America is the
economic well being of the middle class. The middle class probably achieved its highest
aggregate prosperity in the middle '60's. Therefore, the wealth and income distribution achieved
during this period may serve as the initial benchmark in terms of restoring economic
commonweal to the United States of America.
There is one aspect of socio-politico-economic leadership at which both the Democrats and
Republicans fail miserably: neither party seems to be capable of designing a
socio-politico-economic system which exhibits dynamic equilibrium. In fact, neither the
Democrats nor the Republicans exhibit any interest in doing so, much less recognizing the need
to do so. This is an error of catastrophic dimension.
It is axiomatic that an economic system which concentrates wealth in the hands of a privileged
few is unstable and must ultimately collapse. It is equally true that one which taxes wealth out of
existence must also fail. The task of leadership in charge of economic commonweal is to find the
point of dynamic balance and strive to maintain it. No one seems to be interested in this task.
The ship of state appears to be headed for the shoals of economic disaster and no one is at the
helm. Our political leaders don't even know where the door to the bridge is located, nor do they
seem to care.
The mathematical discipline of applied chaos theory deals with the behavior of systems of
nonlinear equations. It is easy to show that relatively simple systems of nonlinear equations give
rise to extremely complex behavior.
While the mathematics of applied chaos theory is an admittedly arcane discipline, and typically
beyond the understanding of most non-mathematicians (in particular politicians), there are deep
lessons to be learned therefrom. The lessons which apply here are found in a subset of applied
chaos theory: the mathematics of self organizing nonlinear dynamic systems. Unfortunately,
the lessons, and the guidance they offer, are ignored.
Self-organizing nonlinear dynamic systems typically exhibit their structure in the form of nested
layers of nonlinear feedback loops. This is the fundamental model. Feedback loops are structures
requiring three elements. Therefore, applied chaos theory has some interesting things to say about the
political organization of the United States of America, and most particularly about the "two party system."
Not too many years ago, the Reform party squandered an historical opportunity when it chose to
attempt to carve its piece of the political pie from the far right instead of from the center. If it
had done the latter, the political landscape in the United States of America might look much different today.
A three party system, either with centrists dominating or controlling the balance of power, is
capable of dealing with the fundamental issues underlying the political and economic survival of
what is known, in the non-pejorative use of the term, as "liberal democracy." A two party system
is theoretically incapable of doing so, and the historical record of the two party system offers
substantial proof that this is the case.
Robert Jansen
Anaheim, California
The simple fact is the upper half of wage earners, a full 50%, pay 96% of federal taxes. Under a
progressive system, any tax cut will go disproportionately to upper income brackets because they
are paying a disproportionate share of taxes. Taxes are both a moral and a fiscal issue. Money
belongs to those who have earned it, not the government. Allowing people to keep more of what
they earn is not government largesse but the manifestation of a sacred covenant. The agreement
between the government and the governed is to forcibly take from the people only what is
necessary to fulfill the government's constitutionally limited responsibilities. On the fiscal side,
tax cuts will not only stimulate the economy but will benefit government coffers pressed down,
shaken together and running over. A healthy, growing economy benefits all. Unlike government
spending, tax cuts always work.
Joe Graziano
Stafford, Virginia
Both the administration and the media make a mistake by characterizing the Bush tax proposals
as a stimulus package. Many of the proposals (exempting corporate dividends from tax,
providing some relief from the alternative minimum tax, etc.) are tax reform, not relief. They are
simply offered to reduce some of the inequities in the current system. Further, the rhetoric about
any tax cut proposal "benefitting the rich" is somewhat disingenuous, since it's the "rich" who are
paying the taxes. Last I heard, the top 5% of income earners in the U.S. were paying over half the
personal income taxes paid in the country. It's hard to provide much broad-based relief in
our "progressive" income tax structure when the "poorest" 50% of the population are paying less
than 5% of the income taxes.
Perhaps rather than trying to fine-tune an economy which will likely recover on its own, we
should try to simplify the tax system we have, thereby putting to productive use the millions who
make their living helping the average person wade through an incomprehensible tax system.
Richard R. Albrecht
Seattle, WA
Here's how it works. Faced with a real problem - terrorism, the economy, nukes in North Korea -
the Bush administration's response has nothing to do with solving that problem. Instead it
exploits the issue to advance its political agenda.
Bill Ellis
Mindful of the concerns expressed in your question, I have am intrigued by alternative ways to
stimulate the economy other than by tax cuts. At the risk of over-simplification consider this:
Give each citizen a "debit card" linked to the Treasury. Whenever the government wants to
stimulate aggregate demand they simply wire funds to each person's card. The amount wired
would be equal for all persons, thereby eliminating issues of distributive fairness. Additionally,
the impact of this method would be immediate whereas tax cuts unfold slowly as people earn
income over time. (The payments would be funded via treasury bonds that are paid off by
increased future government revenue.)
Adam White
Saint Paul, MN
"Soak the rich?" What does "soak" mean? To "levy an exorbitant charge against"; "to punish
severely." What does "exorbitant" mean? It means "not coming within the orbit or scope of the
law" or "exceeding in intensity, quality, or size the customary or appropriate limits." Is the
position of the WSJ that at current tax rates and under the broader economic policies that have
prevailed in the US the rich are being severely punished? Who could take such a suggestion
seriously? Or that the current economic regime is beyond law or what is customary? That too
would be nonsense.
So, is the suggestion, then, that tax rates are in the present context beyond "appropriate" limits?
How would one judge that? Taking a small step back, how would one judge whether our
economic policies have enabled the after-tax income and net worth of the rich to grow beyond
"appropriate" limits? Or the after-tax income of the poor to fall below "appropriate" limits?
Coming after a decade in which the real income of the top 1% rose more than 160%, the real
income of the middle class rose only 10%, and the real income of the poor rose not at all, the
indignation of the rich strikes me as contemptible hubris. 90% of savings in the US are
inherited. Shall we continue with the elimination of the inheritance tax, making the disparities of
opportunity for American children even greater than they already are? Shall we continue to
tolerate a shameful adult illiteracy rate of 40%, and all that implies for economic productivity and
the future prospects of the children of those illiterate adults? Shall we continue to acquiesce in a
growing housing crisis, which contributes to the predicament of the 40% of American workers
(including most of those being moved off welfare) who can no longer earn a wage sufficient to
cover food, medical expenses, and housing for themselves and two children? When might we
acknowledge that the expansion of our prison system to accommodate an unprecedented (in the
history of the world) "correctional" population of 6.6 million, or 1 in every 32 adult residents (2
million currently behind bars) is itself a manifestation of "class warfare," of our willingness as a
society to let our cities disintegrate in chaos, taking care only to contain that disintegration so the
rest of us can enjoy the illusion that our civilization is not disintegrating.
As communitarians, what should we think is "appropriate" in economic policy? My own view is
that to live together under one common system of law, enjoying the advantages we derive from
it, requires as a matter of basic justice that we preserve some semblance of being a national
community, held together by a credible belief in a common good, by a credible prospect of
mutual advantage and the universal opportunity that requires. The distrust in this society
associated with the perception that it is not a regime of mutual advantage is already profound,
and it is inconceivable to me that we could allow the gap between rich and poor to continue
growing as it has for twenty years now, without costs that communitarians should care about
deeply.
So if the WSJ has framed the debate as growth and jobs v. class warfare, part of my response
would be that the rich have been waging a new class war since 1980, that they have greatly
strengthened their hand both economically and politically by doing so, and that they frame the
debate in this way in order to shame the rest of us into not complaining. It is perhaps because the
American middle class is so afraid of being poor itself, that it does not dare to expect more.
There may also lurk here the assumption -- something of a dogma in some circles -- that as a rule
economic growth requires inequality. If this were true, then there would be some general basis
for framing the debate as growth and jobs v. class warfare. But this assumption is misguided. As
Amartya Sen and others have convincingly demonstrated, policies that enhance the capabilities of
rank and file citizens can also be highly efficient in promoting economic development and
expansion.
With regard to our present economic circumstances and what is economically stimulating, my
own view is that we may be on the cusp of a major collapse of consumer demand, and the fear of
this is dampening business investment. So I find Bush's suggestion that his tax cuts will spur
business investment by increasing the supply of funds for investment implausible -- "voodoo
[supply side] economics," as his father called it. What would help is getting money into the hands
of people who would spend it, not save ("invest") it, especially people who are out of work or
only marginally employed, because the fate of those people also influences the willingness to
spend of others whose jobs are not secure.
With the ratio of total debt to GDP at an all time high of 3-1 (in 1929 it had reached 2-1), the
additional debt required to add a dollar to GDP climbing (in the neighborhood of $1.70), the peak
spending years of the post WWII baby boomers soon to be behind us (already behind us?), the
Fed having already done what it can, and pockets of deflation already evident, Bush has good
reason to worry that the stock market crash of the past 3 years is only the harbinger of things to
come. His package looks to me much more like an insurance plan to help the rich ride out a
depression, than an attempt to prevent one.
Randall Curren
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