The Big Lie: Tax policy has made the Wealthy richer and the Poor relatively more Poor!

October 6, 2011: I listened to an interesting debate this morning among guests on a show called “Morning Joe” The Joe is Joe Scarborough, former member of the House of Representatives, and middle of the spectrum Republican. His co-host is Mika Brzezinski, whose father, Zibignieu Brzeinski, is a global political analyst and was once a consultant to my old firm, Dean Witter and Co. The guests included, Pat Buchanan, Donny Deutch, Mike Barnacle, Tom Brokaw, and Willie Geist. Pat Buchanan, a political advisor to Presidents Nixon, Ford and Reagan, is a TV personality and columnist in his own right. He sought the Republican presidential nomination in 1992 and 1996. He ran on the Reform Party ticket in the 2000 Presidential Election. Mike Barnacle, is a left leaning columnist and is a quasi-permanent guest on the show along with advertising scion, Donny Deutch, a liberal who joins the show from time to time. Tom Brokaw is a well known TV personality.

This morning after the group commented on what they thought was the meaning or purpose of the so called Wall Street Demonstrations, Joe Scarborough (taking up the Mike Barnacle mantra) complained that for the past 30 years, the Wealthy in our country have become wealthier and the Middle class and Poor have become poorer. He said “this is because of the prevalent tax policy in which the Rich were not taxed enough”. Furthermore he said, “It is not only unfair it is wrong”.

I have a Question. Just how does increasing tax rates on the wealthy (those defined now as earning over $1,000,000 income or capital gains) make the poor financially better off? Will those revenues be transferred to the Middle class families and the Poor by a negative tax of some kind, a dole, direct payment? Of course not. Well then if not, is he saying that the government will take those revenues and create numerous enterprises with high paying jobs and gift an equity ownership of them to the Middle class and Poor workers so they can enjoy dividends or capital gain from them? Sure you bet, every homeless person will be given shares of “Obama Enterprises”, Not! I have heard the following voiced by President Obama and his supporter’s ad-nausea. “The wealthy are not paying their share!” When he says the Wealthy are not paying their share, I must ask: their share of what? Does he mean bigger government, more services and entitlements? This sounds like it could develop into “a chicken or an egg” argument. The higher the tax rate, the more the government spends on the government. If supposedly the government is going to invest these tax revenues in businesses, does the average citizen really want our government to replace the role of the free capital markets by assuming a greater responsibility to allocate capital to the private business sector”? Would this take the form of a direct transfer of equity or in some beneficial form of ownership for the middle class and poor citizens of this country? I’d like to hear from someone what country has done that and generated rising standards of living for it’s less fortunate citizens. The fact is that there are more examples like China, Russia, India, Brazil and Vietnam among others, all having had growth restrained by a command society government for years, currently have adopted capitalistic methods of incentivizing private investment capital to create growth.

No, I can’t believe any thoughtful person would really want to go that way. While it is essential for the government to partner in many ways with our country’s Bill Gates and people like Steve Jobs and all the other aspiring and enterprising individuals whose creativity and willingness to “bet it all” benefits all of mankind, the Government should limit its involvement to making the business environment reasonably safe from fraud, free of excessive regulations or the violation of human rights and then get out of the way.

Both Obama and Bush increased government spending and continued to execute one or more wars without adopting a means (War tax) to pay for them or without setting lower priorities for discretionary spending for administrative expenses of the government, its agencies and their operations. As a result, our national debt is growing at a rate that will crush our economy within the next decade. Tom Brokaw said the right thing when he replied to Scarborough’s comment, “any so called “Millionaire’s tax should be accompanied by a restructuring of the tax code”. I believe we should eliminate most deductions and replace the progressive tax with a consumption tax. The latter has the benefit of providing individuals the control, to a certain degree, over how much tax they will pay, how much they will spend on their life style and how much investment of their savings they will make. Those that live the good life, traveling all over the world, drive Lamborghinis or live in mansions will bear the burden of paying largest part of taxes collected by the government. Those that save more and invest more will enjoy the fruits of providing capital for businesses to grow and hire more people. There is no question, however, the transition to this stage could be uncomfortable, but with certainty about the future tax law, our small businesses, individuals and corporations will begin to expand or invest in new markets and, in my opinion, this will provide real jobs that create real value over the long term.

One Man’s Opinion–Bud Brewer