Desperate Voodoo

Ah, another day, another data dump – the Congressional Budget Office released a new report on income inequality – and it shows, to no one’s surprise, that the rich are getting richer and the rest of us are just drifting along, at best. Of course everyone kind of knew that, but kind of knowing isn’t the same as having the facts and figures. And it comes down to this. Since 1979, adjusted for inflation, incomes of the broad middle class – which they identify as the 21st to 80th percentiles – have increased about forty percent. And that works out to all of one percent a year. And during the same period, the incomes of the richest one percent – that now famous One Percent – have increased about two hundred eight percent. That means that their income went up seven percent per year. The One Percent folks made out like bandits – seven times better than everyone else. So maybe they’re smarter or better people than everyone else. That is the Republican argument. Yes, the incomes of the rich are rather unpredictable – they drop a lot, and fast, during recessions, but they also almost always bounce back quickly and immediately regain their high growth rates as soon as the recession is over.

That’s not a problem the rest of us have. The rest of us must resign ourselves to dealing with relentless grinding… stability. We’re not going anywhere, and we never will.

Kevin Drum has a full discussion of this with all the key charts and graphs – but it’s more depressing than enlightening. And he adds this:

Business income, which means income going to owners of private businesses, has grown much more concentrated, probably due to the growth of high incomes among privately owned professional firms (law, medicine, and finance). And capital income, which is largely dividends and rental income, has become far more concentrated as well. I’m not quite sure what story this tells, but one thing it tells us for sure is that most of the growth in income since 1979 has been in non-labor income – which is to say, not the kind of income that people like you and I get much of.

But that’s the way it is. You shrug and accept your lot in life. Or you are told you should.

And who would tell you that? Rick Perry would. And in his New Yorker blog, John Cassidy explains Rick Perry’s latest brainstorm:

With time and public opinion running heavily against his stumbling, bumbling Presidential campaign – in the latest CBS/New York Times poll of Republican voters, he is down to six per cent – Texas governor Rick Perry today hoisted a Hail Mary pass high into the sky, hoping against hope it would land in a favorable spot. Blatantly attempting to steal some of the thunder from Herman Cain’s “9-9-9” tax plan, Perry launched a rival flat-tax proposal of his own – or did he?

Even before Perry had formally unveiled his plan, at a factory in Greenville, South Carolina, critics were poking big holes in it – and those critics included some people on the right. “Rick Perry’s tax-and-spending plan: Less than meets the eye?” asked Jennifer Rubin, a conservative blogger for the Washington Post. “Rick Perry’s Tax Plan Would be a Disaster for America,” trumpeted a headline on a column at FoxNews.com. (Yes, on FoxNews.com.) “It is an embarrassment,” harrumphed Reihan Salam, of the National Review Online.

Cassidy offers links to all that if you want to confirm that even those on the right thought this was nonsense. Yes, since Steve Forbes, it has been a Republican wet-dream to have everyone pay the same tax rate – the Flat Tax – so all the progressive mechanisms in the tax code, which have the rich chipping in a slightly larger percentage of their considerable income, would simply disappear. The rich would be let off the hook. The damned parasites, who don’t have the moral superiority to get filthy rich, would have to pay far more into the system. But what Perry is proposing, as Cassidy notes, may have been a bridge too far:

On the admittedly somewhat dubious principle that virtually anything Fox News and National Review commentators agree upon must be suspect, part of me was tempted to write a column pointing out the great virtues of Perry’s plan. But having read the background materials his campaign has posted on his Web site, I couldn’t do it. Whether you look at this proposal from the perspective of politics, economics, or ethics, it is a hideous clunker. If it doesn’t mark the death rattle for Perry’s candidacy, it certainly suggests that last rites could soon be necessary.

As for the politics, Herman Cain’s 9-9-9 Plan, as silly as it is, is at least simple and snappy. You tear up the tax code and tax workers, businesses and consumers at nine per cent – period. At least that is how the Cain plan started out, before Cain conceded it wouldn’t work and made a few tweaks, and then a few more, and so on and so forth. But Perry’s plan is, as Cassidy notes, neither simple nor snappy:

Perry’s plan, by contrast, keeps the current tax code in place but gives people the option of opting out of it and paying a flat tax of twenty per cent. This means that under President Perry – say it to yourself a few times and see how it sounds – there would be two tax systems, not one. Perhaps in Texas, that counts as simplifying the tax code and cutting out the army of accountants, tax experts, and other leeches who feed on the current system. Elsewhere, it would mean hiring an accountant to figure out what is the best deal for you. Perhaps it should be called the “H&R Block Plan.”

And then Perry’s flat-tax plan is potentially unpleasantly regressive:

Why is this so? Let me turn you over to Bob Borosage, the president of the Institute for America’s Future, a progressive think tank, writing at Politico: “If you pledge to lower the top rates of the income tax, raise the rates on the bottom to one rate and eliminate deductions, then, as night follows day, the rich pay less and working and middle-class people pay more. The higher number of poor people who are exempted from the tax, the higher the rate has to be on the rest.”

But that’s just the flat tax part of the plan:

Perry is also proposing to abolish taxes on dividends, capital gains, and estates – all of which would greatly benefit the rich. Now, you might think a Presidential candidate proposing yet more big tax cuts for the rich would want to sugarcoat them in some way for everybody else. But if you think that, you don’t know Perry. Asked on CNBC this morning whether he was concerned about the perception that his plan would generate millions of dollars in additional tax breaks for the wealthy, he replied:

“I don’t care about that. What I care about is them having the dollars to invest in their companies, to go out and maybe start a business because they got the confidence again because they actually get to keep more of what they work for. Those that want to get into the class warfare and talk about, oh my goodness, there are going to be some folks here who make more money out of this, or have access to more money – I’ll let them do that.”

And Cassidy takes him up on that, and dives into the Perry plan:

Because it is optional and because it would retain some deductions – for mortgage interest, charitable giving, and state and local taxes – it doesn’t automatically qualify as your typical reward-the-rich/soak-the-middle-and-working-classes flat tax. The reward-the-rich part is certainly present. Investment bankers, film actors, and sport stars would face a marginal tax rate of twenty per cent rather than thirty-five per cent. But, theoretically at least, the ordinary American could avoid paying more taxes than he does now by choosing to remain within the old system.

When you think about it, in fact, the logic of the two-system approach leads to a conclusion that some might find reassuring. Under President Perry… nobody would end up paying higher taxes than they do now. But since some folks (Jamie Dimon, Matt Damon, Albert Pujols) would end up paying considerably less, federal tax revenues would fall off a cliff. Unless, of course, the tax reform itself magically transformed the entire economy into high-growth, high-productivity Valhalla, thereby mushrooming the tax base – something like the Texas of Perry’s dreams, perhaps. And that, as you might expect, appears to be the vision that underpins the plan. In Perry’s words – “The flat tax will unleash growth.”

Of course no one can see how that will happen:

Unlike Cain, Perry is not proposing a national sales tax to make up some of the revenues that would be lost under his plans for the income tax. But even if we give Perry a pass and go with his numbers, they still don’t add up. Federal spending is currently running at about twenty-five per cent of GDP. In the article on FoxNews.com I cited earlier, Peter Morici, an economist at the University of Maryland, pointed out that Perry’s tax plan “would require $900 billion in annual spending cuts, when the Congress is having trouble agreeing on an additional $100 billion.”

Yes, you can raise the retirement age for Social Security and Medicare, but that’s small potatoes. There really is no way to make his arithmetic work. As for Social Security, Perry’s plan for allowing younger workers to divert some of their payroll contributions to private accounts, would balloon the retirement system’s deficit, and thus kill Social Security. And all the required cuts would plunge us into an immediate far deeper recession, or worse.

And there’s this:

Since Perry exempts the Pentagon from spending cuts, he is forced onto the hoary old path of slashing other forms of discretionary spending, such as science and education grants. (Not surprisingly, these cuts are unspecified.)

Cassidy is not impressed:

In short, Perry’s tax plan is ill conceived and half-baked. It is too redolent of voodoo economics to be financially credible and too confusing to impress the voters. Taken together with the witless decision to try and resurrect the “birther” controversy over President Obama’s American citizenship, it will only strengthen the perception that Perry is an overmatched Texan numskull. Somewhere up there on his campaign plane, Mitt Romney is smiling.

So Perry is proposing a tax plan which will mean huge tax cuts for the rich in an era of already skyrocketing income inequality, now verified in that CBO report.

And as for that other matter, in the Perry interview with John Harwood of the New York Times there was this gem:

Q. Why did you choose to keep the birther issue alive?

A. It’s a good issue to keep alive. You know, Donald [Trump] has got to have some fun. It’s fun to poke him a little bit and say “Hey, let’s see your grades and your birth certificate.” I don’t have a clue about where the president — and what this birth certificate says. But it’s also a great distraction. I’m not distracted by it.

And Kevin Drum adds this:

I wonder what he thinks those last two sentences mean. Or is it just word salad, like much of the rest of the (short) interview, which is mostly just a core dump of the conservative id? It’s hard to tell.

Maybe it’s voodoo. It seems Voodoo Economics has returned, as Drum says this about the Perry tax plan:

Perry is going to lower the corporate tax rate, move to a territorial tax system, pass a Balanced Budget Amendment, ban earmarks, freeze federal hiring and salaries through 2020, halt all pending federal regulations, repeal Obamacare and Dodd-Frank, repeal section 404 of Sarbanes-Oxley, and add private accounts to Social Security (presumably without paying for them, per normal Republican doctrine).

I’m disappointed. Perry only wants to repeal section 404 of Sarbanes-Oxley? Why not the whole enchilada? What a sellout.

What can you even say about this?

Well, Drum can say this:

It sounds less like a tax plan than a big ol’ stew pot of right-wing applause lines, all the way up to the inane insistence that eliminating the estate tax has nothing to do with rich people and is only designed to provide “needed certainty to American family farms and small businesses.” Should we laugh or cry? Perry has actually managed to combine two separate conservative memes (the estate tax is all about family farms, uncertainty is hobbling the economy) into one single sentence that makes even less sense than either of them separately. It’s hard not to be impressed.

And then Drum really lets loose:

But can we please spare a moment for the people who are really going to suffer because of this? Yes, I’m talking about whichever poor schlubs at the Tax Policy Center draw the short straw and have to go through the dreary motions of scoring this. We all know the basic answer, of course: Perry’s plan represents a massive tax cut for the rich and a huge loss of revenue for the federal government. But we want numbers, damn it! Not that they really matter, since once they’re produced we’ll merely be told that they represent old-fashioned static thinking. What we need is a shiny new dynamic scoring of Perry’s plan that takes into account the fact that it would, as James Pethokoukis puts it, “supercharge growth.” I assume he tweeted that with a straight face, but on the internet you never know, do you?

But there is this concession:

You sort of have to admire Perry’s gimmick of allowing everyone to choose between his plan and the existing income tax. You can almost imagine the conversation: one of his advisors points out that no matter how careful you are, someone will pay more under the new plan. Probably people with low incomes – and you just know the librul media will have a field day with that. “It’s regressive! Rick Perry hates the poor!” It’ll be a nightmare.

But Perry has a brainstorm! Give everyone a choice! This means that not one single person will pay more under his plan, because they can always choose the old system if they want. This means keeping all 60,000 pages (or whatever) of the old tax code, of course, so nothing really gets simplified. Still, no one pays more, and that’s a guarantee. Beat that, Herman Cain.

This is pretty desperate voodoo, and Richard Oppel in the New York Times has more:

The plan also proposes reducing the scope of the federal government by requiring drastically austere federal budgets – compared with what exists now – that spend no more than 18 percent of the nation’s gross domestic product, which analysts said would most likely force big cuts in government spending at almost every level. That would equate to a cut of one-quarter of the budget from 2011 expected levels, and it would mark the lowest level of spending relative to GDP since the mid-1960s, though rising tax receipts during the roaring economy of a dozen years ago temporarily brought the level close to 18 percent.

Mr. Perry pledged to not cut any benefits of current Social Security retirees or those about to tap into the system. But to do that, and cut the budget to 18 percent of GDP, would require cutting at least one-third of the remaining federal budget, said James R. Horney, the vice president for federal fiscal policy at the Center on Budget and Policy Priorities, a liberal research group in Washington. It would require “a dismantling of federal programs,” Mr. Horney said, and “draconian cuts in virtually every kind of spending.”

Well, maybe that’s the idea. Kill the government, even if it means killing the economy. Economists warn that if put in place immediately, anything that cuts the size of the federal government as severely as this proposal would throw the nation back into a recession. But what do they know? Or… who cares, as long as the government dies?

But there is this:

What remains to be seen is how much appetite there is among Republican primary voters for such an ambitious reshaping of tax policy and, potentially, entitlement programs. A New York Times/CBS poll released Tuesday found that 65 percent of Americans say taxes should be increased on households earning $1 million or more, while 66 percent say money and wealth in the country should be distributed more evenly. Another 69 percent say the policies of Republicans in Congress favor the rich, while 67 percent say it is a bad idea to lower taxes for large corporations.

And Perry says he is not certain Mr. Obama was born in the United States. See Jeb Bush, Haley Barbour warn GOP field to avoid distractions such as “birtherism” and Karl Rove issues “birther” warning to Perry and Even Pat Robertson Agrees That The Republican Party Has Moved Too Far To The Extreme Right – all saying, flat-tax ideas aside, enough with the nonsense. Obama may win by default. That happens when you run against a clown – Perry or Cain.

And then there’s Matt Taibbi, who taped a segment on CNN with Will Cain from the National Review, and got into a nasty argument on the air – they agreed about a lot of the problems on Wall Street, but when it came to the protesters, they disagreed on one big thing:

Cain said he believed that the protesters are driven by envy of the rich.

“I find the one thing [the protesters] have in common revolves around the human emotions of envy and entitlement,” he said. “What you have is more than what I have, and I’m not happy with my situation.”

Cain seems like a nice enough guy but I nearly blew my stack when I heard this. When you take into consideration all the theft and fraud and market manipulation and other evil shit Wall Street bankers have been guilty of in the last ten-fifteen years, you have to have balls like church bells to trot out a propaganda line that says the protesters are just jealous of their hard-earned money.

And this is pretty simple, logically:

Think about it: there have always been rich and poor people in America, so if this is about jealousy, why the protests now? The idea that masses of people suddenly discovered a deep-seated animus/envy toward the rich – after keeping it strategically hidden for decades – is crazy.

Where was all that class hatred in the Reagan years, when openly dumping on the poor became fashionable? Where was it in the last two decades, when unions disappeared and CEO pay relative to median incomes started to triple and quadruple?

The answer is, it was never there. If anything, just the opposite has been true. Americans for the most part love the rich, even the obnoxious rich. And in recent years, the harder things got, the more we’ve obsessed over the wealth dream. As unemployment skyrocketed, people tuned in, in droves, to gawk at Evrémonde-heiresses like Paris Hilton, or watch bullies like Donald Trump fire people on TV.

Moreover, the worse the economy got, the more being a millionaire or a billionaire somehow became a qualification for high office, as people flocked to voting booths to support politicians with names like Bloomberg and Rockefeller and Corzine, names that to voters symbolized success and expertise at a time when few people seemed to have answers. At last count, there were 245 millionaires in congress, including 66 in the Senate.

Nope, we don’t hate the rich, and Perry’s talk about class warfare is absurd on its face:

Come on. Success is the national religion, and almost everyone is a believer. Americans love winners. But that’s just the problem. These guys on Wall Street are not winning – they’re cheating. And as much as we love the self-made success story, we hate the cheater that much more.

We cheer for people who hit their own home runs in this country – not for shortcut-chasing juicers like Bonds and McGwire, Blankfein and Dimon.

That’s why it’s so obnoxious when people say the protesters are just sore losers who are jealous of these smart guys in suits who beat them at the game of life. This isn’t disappointment at having lost. It’s anger because those other guys didn’t really win. And people now want the score overturned.

So the contention here is that people aren’t jealous and they don’t want privileges. They just want a level playing field. And they want Wall Street to give up what Taibbi calls its cheat codes, which he lists and explains. But it comes down to this:

People don’t want handouts. It’s not a class uprising and they don’t want civil war – they want just the opposite. They want everyone to live in the same country, and live by the same rules. It’s amazing that some people think that that’s asking a lot.

But that’s what the flat tax ideas are about. If everyone plays by the same rules then everyone pays Cain’s nine percent or Perry’s twenty percent – and the rich get far richer and the middle-class and the elderly and the poor get hammered. Fair is fair, after all.

Now that’s a puzzle. But Rick Perry hasn’t solved it, nor has Herman Cain. We have a progressive tax system and a social safety net of sorts – which everyone once agreed on, for everyone’s sake, and for the general good. And these desperate voodoo alternatives to that lead to disaster, one way or another. They just sound kind of cool. Voodoo always sounds cool.

Oh, and that term above, that Taibbi uses to describe Paris Hilton – the Marquis St. Evrémonde is a character in Dickens’ A Tale of Two Cities. He’s a noble and he runs over and kills a small child with his carriage, and is later murdered by the kid’s father. But Evrémonde does get angry with all the disgusting peasants, always demanding more, and he likes to tell the driver of his carriage to chase after them – it amuses him. And this one time, as the peasants run away in terror, with the Marquis laughing, his carriage runs over that poor little child. So he tosses a coin to the father, as payment for killing the kid – what the heck. But Madame Defarge, who is busily knitting the Marquis into her register, then throws the coin back at him. And the rest is history, with a guillotine. There’s a lesson there.

About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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