Category Archives: American Politics

Inequality 7.

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According to the CIA, income inequality in the United States now is more extreme than in Red China.[1] So what? What matters is that a “rising tide lifts all boats,” as JFK said when arguing for a tax cut. However, some economists argue that the evidence for this “true that” statement is sketchy (as young people used to say). President Clinton got Congress to raise the top tax rate from 31 percent to 39.6 percent and the economy boomed (admittedly with the “Tech Bubble” that collapsed after he left office); President George W. Bush got Congress to cut taxes on high earners to 35 percent, but the economy floundered (admittedly with the “Housing Bubble” that collapsed before he left office). In this analysis, what really matters is the amount of demand for goods in the economy. That is an argument for shifting resources to consumers.

The “Great Bull Market” of the Twenties (and other stuff that pundits don’t want to know about) led to the Great Depression. The Great Depression led to the New Deal and 20 years of Democratic dominance in Congress. The Depression discredited businessmen as prophets-of-the-New Era. The New Deal imposed all sorts of restrictions on business and raised taxes on the rich swells (who were in some vague way blamed for the Depression). By the 1950s the top rate on marginal incomes had risen to 91 percent, essentially a confiscatory tax on high incomes. Proponents of relative income equality point to this period as the ideal society because it coincided with the period of American economic ease. Good-paying working-class jobs allowed many people with only a high-school diploma to enter some version of the middle class.

However, the Great Depression ended in 1940. By the 1970s a whole new generation of businessmen had come on the scene. They were unburdened by the sins of their elders. They campaigned for a reduction in the punitive tax rates of the New Deal era. One can see this as Republicans responding to the Democratic strategy of “tax, spend, elect” with their own mantra of “tax-cut, spend, elect.” In theory, savings create investment capital and investment capital creates jobs. Therefore, the tax rate on capital gains fell to 70 percent in the 1970s, then to 50 percent in the first Reagan administration, and then to 28 percent in the second Reagan administration. Bill Clinton pushed for and won a reduction in the tax on capital gains from 28 percent to 20 percent. George W. Bush pushed for and won a reduction in the tax on capital gains from 20 percent to 15 percent. However, President Bush also pushed for massive cuts on taxes paid by lower income groups.

Two things resulted from the Bush tax cuts. First, the US government lost $400 billion a year in revenue. Of this lost revenue, “only” $87 billion came from people earning $250,000 a year or more. The other $313 billion came from people earning less than $250,000 a year.[2]

Second, taxation became much more progressive. While cutting taxes overall, Bush shifted the burden of taxation onto upper income earners. After the Bush tax cuts, the top 1 percent of income-earners now pays 40 percent of the income tax bill (and 21 percent of all taxes), while 47 percent of Americans now pay no income tax at all.[3] Despite his bitter condemnation of the Bush Administration on many scores, President Obama fought hard to confirm 98 percent of the cuts.

There are three observations worth making. One is that there are big long-term trends or swings in tax policy. The huge deficits looming as the “Baby Boom” ages may herald an end to low taxation for everyone.

A second is that President Obama has loudly condemned the plutocrats “who tanked the economy” in the financial crisis. How did Bill Gates or Steve Jobs or Warren Buffett or the idiots who ran American car companies “tank the economy”? They didn’t. In fact, only about 14 percent of the richest Americans work in finance. Yet Gates, Jobs, Buffett and a lot of other ordinary, successful entrepreneurs were hammered by the Obama tax increases.[4] They have also been subject to his frequent dispensation of moral opprobrium.[5]

A third is that the Democrats need to define what they mean by “fair.” As in, “the rich should pay their fair share.” The rich are already carrying a disproportionate share of the fiscal weight while almost half of Americans pay nothing at all for the programs that benefit them. As Woody Guthrie might have said (had he been an entirely different person), “A poor man with a ballot-box can rob you just as easily as can a rich man with a pen.”

[1] “Taxing the rich,” The Week, 4 November 2011, p. 11.

[2] Can you impeach a former President?

[3] If “taxation without representation is tyranny,” then what is representation without taxation?

[4] Perhaps it is worth pointing out that of the “one percent,” about 16 percent are in medicine; about 12 percent are lawyers, and about 50 percent of the members of the House of Representatives and the Senate belong to the “one percent.”

[5] See: “Stuff my president says.”

The Clin-tons. See: Theme for “The Simpsons.”

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After leaving the White House in 2001, Bill Clinton found himself at loose ends. He didn’t have a ranch with brush to clear, so he started a little foundation to help children in Harlem. In 2002 he added an effort to raise money to lower the cost of AIDS drugs in Africa. In 2005 he launched the Clinton Global Initiative: an annual meeting of the smart, rich, and “concerned.”   This mini-Davos still runs, providing an opportunity for powerful people from many domains to hob-nob. However, the Clinton Foundation soon saw itself awash in donations ($2 billion and counting) from big business and foreign governments. In addition, Bill Clinton found himself much in demand as a speaker: he’s earned $26 million in fees.[1] It is, or should be, hard for any American to carp about this tale of a poor country boy who made good.

One fly in the ointment is that examination of the tax records of the Clinton Foundation for 2011-2013 shows that only 10 percent of the donations it has received go to actual charitable projects. The rest goes to administrative expenses.[2] Those administrative expenses include a staff of 2,000 that is packed with Clinton loyalists. .

A second fly in the ointment is that Hillary Clinton launched her own political career at the same moment that Bill Clinton launched his profitable post-presidency. She won election to the Senate, ran for the Democratic nomination for President in a year when the Democrats actually did win the White House, served for four years as Secretary of State as a consolation prize from Barack Obama, and is no the front-runner for the Democratic nomination for President. The millions of dollars pouring into their joint account began to look very much like a slush fund and as influence-peddling.

In the second term of the George W. Bush Administration, the US sold about $85 billion in weapons to twenty State Department-approved countries. In the first term of the Obama Administration, the US sold about $165 billion in weapons to twenty State Department-approved countries. Those twenty countries had made millions of dollars in donations to the Clinton Foundation.[3] For example, the government of Algeria donated $500,000 to the foundation, then received State Department approval for a 70 percent increase in authorized military purchases from the United States. That looks bad, to my eye, but it gets worse. The Obama administration had extracted a promise from the Clintons that all foreign donations to the foundation would be fully reported. Somehow, the foundation forgot to report this one and others as well.

When the Hillary Clinton e-mail “scandal” first broke, 44 percent of Republicans thought it was a “very serious problem,” while 17 percent of Democrats thought it was a “very serious problem.” After a week of both parties spinning the issue for all it was worth, the divergence had increased. By late March 2015, 68 percent of Republicans thought that it was a “very serious problem,” while 8 percent of Democrats thought that it was a “very serious matter.”[4] That “scandal” centers on Hillary Clinton’s use of a potentially insecure private e-mail server located in the Clinton family home in New York. Under pressure, she turned over 30,000 e-mail messages that bore on State Department business. Some Republican inquisitors may hope to find a smoking gun with regard to Benghazi. However, the real issue may be in the many other “personal” messages that she deleted. Worming around in the minds of many people is the suspicion that “If it walks like a duck and it quacks like a duck, then it’s a duck.”

[1] “The Clintons’ controversial foundation,” The Week, 3 July 2015, p. 11.

[2] “Clinton Foundation: Is it a true charity?” The Week, 15 May 2015, p. 16.

[3] “Noted,” The Week, 12 June 2015, p. 16.

[4] “Poll Watch,” The Week, 27 March 2015, p. 17.