Friday, March 04, 2005

Regressive Sales Taxes, Ripping off Retirees...What will they think up next?

"How could they tax the peasants more than the rich people?" My students always ask when I teach them about 17th century France, dumbfounded, "How could people put up with that?"
I wonder if they'll be as surprised with the new U.S. tax policy proposal. I read in the New York Times today about Bush and Greenspan's advocacy of a plan to replace income taxes with a national sales tax. The president's economic report doesn't even make sense to me. For example, it states: the tax "could increase personal savings by as much as 43 percent in the first year and ultimately lead to higher output and higher wages. By removing the tax on the return to savings and investment, a consumption tax would increase savings and investment," the report contended. "With a larger stock of capital, workers would be more productive and output and wages would rise."
I can see how it might increase wages, something that the Bushes haven't supported EVER, but how exactly will a larger stock of capital make workers more productive? Even if increasing worker wealth were the goal of the plan (which it isn't), I don't understand the cause/effect argument here. I know I personally wouldn't start working harder just because I had more money in the bank. The speedup we're living in now has already got most workers (including me) producing more for less reward, and capital likes that just fine.

Of course, the idea of saving/investing workers is just a smoke-screen. The reality is that most workers don't have money to save, and spend most of their income on basic necessities. This is simply a tax cut for the rich, who have more money to save and invest. What will the outcome of such a policy be? What,for example, would its impact be on consumer spending, which in recent years has been financed increasingly by debt? This article from Monthly Review provides the long term context of the latest taxation scheme, suggesting that it might be an effort to adjust the balance between investment and spending, The article written in the context of the waning Clinton "boom" in the Spring of 2000 argues that "The share of consumption expenditures in Gross Domestic Product (GDP) during the current expansion has risen nearly five percentage points above the average for all previous post-Second World War expansions, while the share of total fixed investment in GDP has fallen 1.4 percentage points below the average for all earlier expansions. Hence, investment remains semi-stagnant when compared with earlier expansions—reflecting the powerful tendency toward stagnation that continues to characterize the capital accumulation process."
Regardless of its logic, the tax plan would basically shift more of the tax burden from the rich and place it on the working class - and that fits with a whole bunch of neocon policies. Paul Krugman's column explained yesterday, it fits in with the "Starve the Beast" method of defunding and then wrecking social programs which has been going on since the 1980s. As Dave Lindorff points out, anyone who goes with Greenspan at this point is a supply-siding neocon.
The three prongs of this policy assault: the Social Security Privatization scheme, the insane sales-tax plan, and finally the bankruptcy law are all pretty obviously just different forms of handing money to the rich. In combination, they will have the "side effect" of creating some kind of debt-peonage for the vast majority of people, and dragging consumer spending further downward, which I can't imagine will be good even from the point of view of the capitalist "business cycle."

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