Tuesday, February 17, 2009

Rush Limbaugh and Newt Gingrich Are Wrong on Taxes, part 4 (Payroll Tax Holiday)

This is part 4 of my series on how conservatives have gone completely off the beam (not to mention around the bend) on taxes. Part 1 was aboutt he strage obsesssion with eliminating the capital gains tax that continues to haunt conservatives--seemingly a reversion to the old "fat cat", Wall Street roots of the modern Republican Party that Ronald Reagan left behind. As I stated the problem with elinating the capital gains tax is that it merely encourages games with the tax code to convert income into capital gains, and helps the economy but litttle. Part 2 exposed the same cardinal sin in reucing the corporate income tax rate (while leaving the individual rate the same), which further compounds the problem of creating a tax code catering to game players. That one will merely cause everyone to incorporate, and play further tax games (especially in combinatioin with an elimination of the capital gains rate--perhaps the worst combination of "conservative" tax policies ever proposed in this country). Part 3 was about the insane absurdity/stupidity of TEMPORARY tax holidays, which is merely a deceptive gimmick to conceal a "stimulus" payment like the one that failed last summer--essentially a one time welfare payment that no one can use to plan future conduct, because the tax "relief" is merely a temporary gimmick to disguise the welfare payment. Part 4 is an extension of part 3, as I explain the total perversion, beyond insanity, of the proposal to bribe "middle class" voters by keying a temporary "tax holiday" to the payroll tax--thereby undermining the entire concept of Social Security for all time, and adopting the Democratic/leftist tactic of using the Social Security tax as a political football.

This is bad stuff. I can tell you, correctly, that President Bush 43 and John McCain are not conservatives, and that conservatives can't be blamed for their betrayal of Ronald Reagan. I can't say the same here. The people who are proposing this insanity on taxes are the people that virtually define the present conservative movement. It is me that has to be regarded as out of step with them (the "maverick" in "maverick conservatve"), rather than the other way around.. Nevertheless, and I need to be as blunt as possible: Conservatives are now betrayig the genius of Ronald Reagan fully as much as President Bush and John McCain ever did. "Et tu, Brutus?" (Have I got that quote from Julius Caesar right?

Yes, I heard New Gingrich go on the radio this morening and advocate this disastrous new tax "program" around which conservatives are apparently rallying. Eliminate the capital gains rate. Reduce the corporate income tax to 12 1/2%. Do a 3 month rebate of half the payroll tax to both employees and employers--without affecting the totally mythical "Soocial Security Trust Fund". Gingrich, and all conservatives, should be totally ashamed of this last one, which is a pandering gimmick (and they know it). But they are all gimmicks that distort the tax code, and encourage tax games to manipulate the tax code, which is the very first thing to avoid when creating a rational tax code.

Contrast this with the genius of Ronald Reagan in 1981, as he faced the Carter recessions of 1981-1982 without panic or pandering. No gimmicks. Reagan simply proposed a simple tax code, that everyone could understand, with simpler, lower TAX RATES. This meant only 3 rates: 28%, 15%, and zero. The 28% applied to higher income individuals (the marginal rate), and corporations, That is, I think that rate applied to corprations. It should have, because the corporate rate and the top individual rate should be the same (to avoid trying to use the corporate form for those tax games I refer to). The 15% rate (marginal rate once you got past the income level with the zero rate) applied to the "middle class". The zero rate, of course, applied to the ost numerous category of people (some 40% of workers--"taxpayers"--now pay ZERO income tax). The 15% rate also applied to "long term" caital gains. Reagan eliminated most of the tax gimmicks beloved of politicians and central planners, where the tax code is used as a device to given out favors to the favored. Instead, the idea was to set up a simple system of low tax rates for basically everyone--a rate system upon which people could plan.

Reagan's idea worked. It INCREASED government revenue. It provided enough stimulation, along with the Reagan optimism and lack of panic, to send the economy roaring out of the Carter recession. Ronald Reagan inniated probably the best 20 year period (yes, including the Clinton/Gingrich years) any political entity has ever enjoyed on this Earth--certainly outside of the Roman Empire. What are conservatives replacing the simplicity of the Reagan concept with? Right. They are replacing it with GIMMICKS--the very thing that Reagan avoided. What is wrong with returning to the simple Reagan plan that WORKED (28%, 15%--could even be reduced to 12%), and 0%).

Remember "supply side conomics"? Conservatives don't. They have abaondoned it. They have betrayed Reagan. There, I have said it again. Rush Limabaugh, Gingrich, and the rest are traitors to the genius of Ronald Reagan. The central conceopt of "supply side economics"--a correct concept--was that it INCREASED revenues, and set up the best tax system for a free econmy, to have a SIMPLE income tax system of (relatively) low tax RATES. This encouraged people to stop playing games to avoid taxes, because the rates were low enough to make such games not worth the hassle and expense of playing them. The economy was "stimulated" by low tax rates upon which people could plan (until the concept was first betayed by President Bush 41 and the Democrats).

Can "supply side economics", and the Laffler curve (indicating that a reduction in tax RATES--within reason--produces an INCREASE in government revenues) operate if you cut the rate to zero, or near zero (as conservatives are now proposing for capital gains and the corporate income tax)? Obviously not. Those GIMMICKS encourage tax games, and do not discourage them They cannot increase tax revenues, because the rates are way too low (what is it about "zero" that these people don't understand). Noope. This is a betrayal of the simple Reagan concept (and I say that, even if you cite me to some instance where Reagan agreed with eliminating the capital gains rate or double taxation of corporationgs--obviously not the cernerpiece of the Reagain plan, because it is not what he signed into law and put his influence behind).

Enough on the betrayal of Ronald Reagan. Let us go to this absurdity of a "holiday" on the Social Security payroll tax. This is the only part of the "Republican" tax relief that Obama has adopted, with his $1000 "payrool tax credit". That is no accident. Let us go now to part 4:

4. The temporary--or permanent--payroll tax relief. Do you realize that this was never done, even in the Great Depression? At least, I assume it was never done, wihout being absolutely sure, since it violates the very concept of Social Secruity as "social insurance" "paid for" by the workers (and employers, but this is a worker cost to employers that could otherwise be added to worker salaries). I assume that there was never any "holiday" from this "tax" in the Great Depresson, because the very concept of a forced (partial) retirement system into which everyone pays, and out of which everyone receives an ultimate benefit, was set up in the Great Depressiion as a supposed social contract, instead of as a welfare system (albeit the first recipients of Social Secuirty benefits were obviously welfare beneficiaries--not having paid anything in).

What are you doing when you have a "holiday" on payroll taxes". Well, of course, you are undermining the funding for a system (Social Security) already in trouble. Therefore, the second part oft he proposal is that the "hit" to the mythical "Social Secuirty Trust Fund" be "made up" out of the U. S. Treasury general funds. And where do those funds come from? They come mainly from the GRAUATED TAX SYSTEM. Suddenly, you have adopted the newly developing leftist position that the Socil Security Tax is merely another tax, and a regressive tax that "punishes" the poor. In other word, you are totally abandoning the original, FDR concept of Social Security, and paving the way for simply merging the "Scoial Security Tax" into the income tax system. If you don't believe this is an ultimate leftist goal, you have not been listening. This would, of course, represent a furtehr deterioration of the moral fiber of the country, and personal responsibility, as workers are relieved of even the responsibility of contributing to their own retirement--a responsibility we recognized even in the Great Depression.

Since the "payroll tax holiday" (or "credit" or whatever) is being fudned out of general tax revenues, and not out of the Social Seucruity system itself, how is it different from as simple welfare payment out of general tax revenues? In other words, how is it different from the Bush Administration/Democrat "stimulus" payment of last summer (which failed to accomplish anything)? Answer: It is not different. It is no different from making the same payment from general tax revenues, without mentionaing Social Security at all. The only difference is that you are undermining the entire concept of the Social Security system, which did not even happen in the Great Depression. It shows how far this country is sunk that even conservatives are buying into this utter deception.

Yes, I understand that at least limiting the payment to people who are working, and presumably (but not certanly) to the amount of payroll tax you are actually paying, at least avoids paying money to people who are not paying taxes of any kind (obvious welfare). That is a small difference with the "stmulus" payment of last summer. What you "gain" there is lost in the total undermining of the concept of Social Security--treating the Social Security tax as merely another tax to be manipulated by our politicians. Now that this "principle" is "established", we are well on our way to eliminating the original concept of Socieal Security altogether. And conservatives have bought into this fraud.

It does not matter that giving money to the people is better than this ridiculous "porkulus" bill containing every leftist program known to man--including a virtual repeal of the Clinton welfare reform. Yes, the bill basically again sest us back on the old--not new, not "cange"--leftist road of dependency (ever expanding welfare), tax and spend. However, just because a "payroll tax credit" is better than that, does not make it good policy. It is actually disastrous policy, which puts us well on our way to yet another leftist goal: eliminating the "insurance" aspect of Social Security, and turning it into simply another government welfare program.

To be concluded in a separate future entry, but you should get the idea.

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