If you have free trade and free circulation of capital and people but destroy the social state and all forms of progressive taxation, the temptations of defensive nationalism and identity politics will very likely grow stronger than ever in both Europe and the United States.
At some level, this makes common sense. Let me see if I can explain in a way sufficient to satisfy myself at least.
In the first place, I'm not sure there's much we can or want to do about "free trade and free circulation of capital." I am surrounded by people who want to buy American made, not foreign, products, particularly not those made in China. Fly rods and reels are a case in point. In our small store, we carried rods manufactured in China and Korea, and they came with reasonable price tags. There were any number of people who professed to buy only American, and there are American made fly rods, but for the most part they are "premium" or "luxury" brands -- that is to say, they cost on order four to six times as much as the foreign manufactured product. I am pretty sure they are not four to six times "better" in any qualitative sense, except that sense of "better" that comes with brand snobbery. Moreover, I'm not sure they are "entirely" manufactured in the US. It is one thing to be "made in America," another to be "assembled in America" from parts manufactured elsewhere, or even more evasively "designed in the US."None of the big box retailer's rods at Cabelas or the chain retailers like Orvis, to the best of my knowledge, sell rods that are actually "made in" the US.
In the end, the "made in" sticker means little to me. I doubt that there is an extensive market for fly rods in either China and Korea, and indeed both companies, TFO and ECHO, are American companies distributing primarily in the US market. So yes, we have contributed to the standard of living within China and Korea, but ultimately, the actual manufacturing is a small part of the enterprise, when one considers all the other factors, to include the wholesale and retail sales distribution, that go into putting a fly rod in the hands of a fly fisher person. A good number of Americans made money off those fly rods (including me) and, insofar as it isn't quite what you'd call a necessity, a good number of Americans could afford $150 for the recreational TFO rod a bit quicker than they could afford $600 for at the equally recreational Sage rod. If we were to build a wall around the US, either literally or figuratively with tariffs, keeping out the cheaper foreign made goods or making them as expensive as the American made goods, we would feel the impact on our lifestyle quickly and considerably across the entire inventory of Walmart. There are, of course, unfair trade practices, and these need to be addressed diplomatically, but in the end agreements like NAFTA, which open the doors to "free trade and free circulation of capital," but also diplomatic solutions to unfair practices, are likely a good thing.
Of course, the GOP has been bent on "destroying the social state" and the "progressive taxation" that supports it. Picketty's translators use the term "social state," rather than the "welfare state" in part, I suspect, to avoid the loaded word "welfare," but before we touch that, let's start with "progressive taxation." I've tried to demonstrate why a "flat tax," or a "proportional tax" in Picketty's language, is a better deal for the wealthy. They would, quite naturally, resist any form of "progressive taxation." It takes more money out of their pocket and slows the geometric growth of their wealth. In some superficial sense, the taxes are "equal and fair," but even at what might be considered low tax rates, a 20% tax has a much, much greater impact on one's ability to live when one is making $50K a year than one's ability to live when one is making a million a year. In a deeper sense, if one considers even briefly the impact of a tax on the taxpayer, a progressive tax is more "equal and fair." Consider, it would take a tax of 95% to reduce the income of the millionaire to that of the median income person. A tax of 50% would leave the millionaire with an income 10 times greater than that of the median income person. This is overly simplistic, and doesn't reflect a "real" tax table, but I am simply suggesting that the more "realistic" tax of, say, 50% would leave plenty of "motivation" to earn that million dollars, if money is one's motivation. So, if one tries to minimize the impact of the tax on the median income taxpayer, without deleteriously affecting "motivational" factors of the millionaire, then a progressive tax is more "equal and fair." The progressive tax not only slows the geometric growth of inequality, but can be construed as "equal and fair."
It seems clear enough to me that the tax cuts advocated by the GOP have had mostly a deleterious effect on our country. It has put more money into the pockets of people, and I suspect that for the median income person, it goes directly into consumption of goods and services. The impact, however, is negligible and short lived. For the millionaire, I suspect the cuts simply go into savings, increasing their net wealth, but doing little to stimulate the consumption that drives the economy. As an aside, I believe the word "savings" means something a bit different to the median income person than it does to the millionaire. For the median income person, it means "deferred consumption" -- that is to say, they are "saving for" something, whether it be a "rainy day" or "down payment." For the millionaire, there is little reason to defer consumption. Saving is more like the image we have of Scrooge Duck, of the Donald Duck comics, sitting on sacks of money, except the sacks of money tend to grow on accumulated rent. Although the GOP claims the savings will "stimulate investment" and "grow jobs," I have seen little evidence of either. The stagnation we feel in the economy is the so-called "supply side" prioritization of "savings" of the rich over "consumption" of the median income folks.
It also seems clear enough to me that the progressivity of the ostensibly progressive American income tax has been undermined in many, many ways. In the last election cycle, when it was demonstrated that Mitt Romney, a very wealthy man, had a tax rate LOWER than his secretary, we had some inkling that real tax rates, at least for the very wealthy, are actually regressive, not progressive. I cannot begin to enumerate the ways to "beat" the tax system, in part because I have never had the means to "beat" the system. One must be able to make the "right" kind of investments, in the "right" places, with the right legal and tax advice to "capitalize" on those exemptions, and it all takes more money than I have ever had. I have simply had to pay my taxes.
Having said that, why a progressive tax? Let's consider something simple, like health care and health insurance. Before I get to it in earnest a couple of disclosures.
First, I think any profit based, private insurance suffers from contradictory motivations. They are highly motivated, that is, to take your money in premiums, but only reluctantly motivated to pay out money in claims. They will pay, of course, but only to the level of the contract you have entered into, not to the level of your need, and they will pay ONLY what insures them a reasonable return on their capital. If there is any "legitimate" reason to avoid paying a claim, they will -- "legitimate" in the sense that they will prevail in "litigation" should it come to that.
Second, I think employer based, private insurance is unsustainable. At my last benefited job, during wage negotiations, our president wanted us to argue that the health benefits were "real" compensation, and in a sense they were. The escalating cost of the benefit cost the college real money, and were a real benefit to the employee, so if you added the increased cost of health benefits to the money paid in wages, it would appear that the employees indeed received a "raise." In reality, despite the increased costs, the benefits were increasingly less beneficial. The employee contribution rose at the same rate as the college contribution, taking money directly out of their paycheck. Co-pays and other out of pocket expenses also went up, taking money out of their paycheck. As a result, although total compensation went up, take-home pay went down, meaning of course that our employees actually had LESS money to pay their mortgage, buy gas to get to work, feed their family, et cetera. The rising cost of their health care nibbled away at this ability to be good consumers. At the same time, they had the added benefit of an increased cost to access the insurance. Fewer claims were made, particularly among those at the low end of the pay scale, not because they had less need, but because they lacked the immediate ability to afford the co-pays. The rising out of pocket costs nibbled away at their ability to access quality health care.
OK, why a truly progressive tax? Because it is necessary to pay for the social state, which begs the question of why a "social state?" More on this in part II.
At some level, this makes common sense. Let me see if I can explain in a way sufficient to satisfy myself at least.
In the first place, I'm not sure there's much we can or want to do about "free trade and free circulation of capital." I am surrounded by people who want to buy American made, not foreign, products, particularly not those made in China. Fly rods and reels are a case in point. In our small store, we carried rods manufactured in China and Korea, and they came with reasonable price tags. There were any number of people who professed to buy only American, and there are American made fly rods, but for the most part they are "premium" or "luxury" brands -- that is to say, they cost on order four to six times as much as the foreign manufactured product. I am pretty sure they are not four to six times "better" in any qualitative sense, except that sense of "better" that comes with brand snobbery. Moreover, I'm not sure they are "entirely" manufactured in the US. It is one thing to be "made in America," another to be "assembled in America" from parts manufactured elsewhere, or even more evasively "designed in the US."None of the big box retailer's rods at Cabelas or the chain retailers like Orvis, to the best of my knowledge, sell rods that are actually "made in" the US.
In the end, the "made in" sticker means little to me. I doubt that there is an extensive market for fly rods in either China and Korea, and indeed both companies, TFO and ECHO, are American companies distributing primarily in the US market. So yes, we have contributed to the standard of living within China and Korea, but ultimately, the actual manufacturing is a small part of the enterprise, when one considers all the other factors, to include the wholesale and retail sales distribution, that go into putting a fly rod in the hands of a fly fisher person. A good number of Americans made money off those fly rods (including me) and, insofar as it isn't quite what you'd call a necessity, a good number of Americans could afford $150 for the recreational TFO rod a bit quicker than they could afford $600 for at the equally recreational Sage rod. If we were to build a wall around the US, either literally or figuratively with tariffs, keeping out the cheaper foreign made goods or making them as expensive as the American made goods, we would feel the impact on our lifestyle quickly and considerably across the entire inventory of Walmart. There are, of course, unfair trade practices, and these need to be addressed diplomatically, but in the end agreements like NAFTA, which open the doors to "free trade and free circulation of capital," but also diplomatic solutions to unfair practices, are likely a good thing.
Of course, the GOP has been bent on "destroying the social state" and the "progressive taxation" that supports it. Picketty's translators use the term "social state," rather than the "welfare state" in part, I suspect, to avoid the loaded word "welfare," but before we touch that, let's start with "progressive taxation." I've tried to demonstrate why a "flat tax," or a "proportional tax" in Picketty's language, is a better deal for the wealthy. They would, quite naturally, resist any form of "progressive taxation." It takes more money out of their pocket and slows the geometric growth of their wealth. In some superficial sense, the taxes are "equal and fair," but even at what might be considered low tax rates, a 20% tax has a much, much greater impact on one's ability to live when one is making $50K a year than one's ability to live when one is making a million a year. In a deeper sense, if one considers even briefly the impact of a tax on the taxpayer, a progressive tax is more "equal and fair." Consider, it would take a tax of 95% to reduce the income of the millionaire to that of the median income person. A tax of 50% would leave the millionaire with an income 10 times greater than that of the median income person. This is overly simplistic, and doesn't reflect a "real" tax table, but I am simply suggesting that the more "realistic" tax of, say, 50% would leave plenty of "motivation" to earn that million dollars, if money is one's motivation. So, if one tries to minimize the impact of the tax on the median income taxpayer, without deleteriously affecting "motivational" factors of the millionaire, then a progressive tax is more "equal and fair." The progressive tax not only slows the geometric growth of inequality, but can be construed as "equal and fair."
It seems clear enough to me that the tax cuts advocated by the GOP have had mostly a deleterious effect on our country. It has put more money into the pockets of people, and I suspect that for the median income person, it goes directly into consumption of goods and services. The impact, however, is negligible and short lived. For the millionaire, I suspect the cuts simply go into savings, increasing their net wealth, but doing little to stimulate the consumption that drives the economy. As an aside, I believe the word "savings" means something a bit different to the median income person than it does to the millionaire. For the median income person, it means "deferred consumption" -- that is to say, they are "saving for" something, whether it be a "rainy day" or "down payment." For the millionaire, there is little reason to defer consumption. Saving is more like the image we have of Scrooge Duck, of the Donald Duck comics, sitting on sacks of money, except the sacks of money tend to grow on accumulated rent. Although the GOP claims the savings will "stimulate investment" and "grow jobs," I have seen little evidence of either. The stagnation we feel in the economy is the so-called "supply side" prioritization of "savings" of the rich over "consumption" of the median income folks.
It also seems clear enough to me that the progressivity of the ostensibly progressive American income tax has been undermined in many, many ways. In the last election cycle, when it was demonstrated that Mitt Romney, a very wealthy man, had a tax rate LOWER than his secretary, we had some inkling that real tax rates, at least for the very wealthy, are actually regressive, not progressive. I cannot begin to enumerate the ways to "beat" the tax system, in part because I have never had the means to "beat" the system. One must be able to make the "right" kind of investments, in the "right" places, with the right legal and tax advice to "capitalize" on those exemptions, and it all takes more money than I have ever had. I have simply had to pay my taxes.
Having said that, why a progressive tax? Let's consider something simple, like health care and health insurance. Before I get to it in earnest a couple of disclosures.
First, I think any profit based, private insurance suffers from contradictory motivations. They are highly motivated, that is, to take your money in premiums, but only reluctantly motivated to pay out money in claims. They will pay, of course, but only to the level of the contract you have entered into, not to the level of your need, and they will pay ONLY what insures them a reasonable return on their capital. If there is any "legitimate" reason to avoid paying a claim, they will -- "legitimate" in the sense that they will prevail in "litigation" should it come to that.
Second, I think employer based, private insurance is unsustainable. At my last benefited job, during wage negotiations, our president wanted us to argue that the health benefits were "real" compensation, and in a sense they were. The escalating cost of the benefit cost the college real money, and were a real benefit to the employee, so if you added the increased cost of health benefits to the money paid in wages, it would appear that the employees indeed received a "raise." In reality, despite the increased costs, the benefits were increasingly less beneficial. The employee contribution rose at the same rate as the college contribution, taking money directly out of their paycheck. Co-pays and other out of pocket expenses also went up, taking money out of their paycheck. As a result, although total compensation went up, take-home pay went down, meaning of course that our employees actually had LESS money to pay their mortgage, buy gas to get to work, feed their family, et cetera. The rising cost of their health care nibbled away at this ability to be good consumers. At the same time, they had the added benefit of an increased cost to access the insurance. Fewer claims were made, particularly among those at the low end of the pay scale, not because they had less need, but because they lacked the immediate ability to afford the co-pays. The rising out of pocket costs nibbled away at their ability to access quality health care.
OK, why a truly progressive tax? Because it is necessary to pay for the social state, which begs the question of why a "social state?" More on this in part II.
No comments:
Post a Comment