Tax The Poor

Below is my column from the February 1, 2013 issue of the Sturbridge Times Magazine.  I take some vindication from the linked Christian Science Monitor article titled, New Tax Law will increase the burden on the poor. 

Anyway, the article is below.  Enjoy if you can.

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The fiscal cliff has come and gone and no doubt will come again.  As always, a deal was done, and the figurative can was kicked down the road.

A constant drumbeat during the run-up to the agreement was that if the exchequer could just put its hands in the pockets of the rich, why nirvana would ensue.  To cliché it, the tax the rich meme went viral.

I’m from a working class family and as resentful of my betters as the next guy.  The pitchfork is by the door and ready at a moments notice to storm the Bastille with me, at least rhetorically.

Certain segments of the wealthy should be fair game.  The ongoing crisis that began in 2008 had its origin in large banking institutions that are “Too Big To Fail” otherwise known as TBTF.  What that means is, as is said, that if they are allowed to sink, they crash civilization. 

In the recent presidential election, neither candidate addressed the too big to fail issue.  The incumbent never said that he had been working on the problem and the solution was in hand, because he hadn’t.  The challenger never suggested it would be a priority of his administration because he would have gargled razor blades rather than touch it had the votes had been counted in his favor.

We had a measure in place that kept the banks from getting TBTF.  It was called Glass-Steagall.  The Glass-Steagall Act of 1933, passed in a previous era of economic turmoil, prohibited Commercial Banks from engaging in the investment business.  What the act meant was succinctly put by economist and author of the book, Currency Wars.  James Rickards.  Rickards wrote on August 27, 2012 for US News and World Report, that under Glass-Steagall, “Banks would be allowed to take deposits and make loans.  Brokers would be allowed to underwrite and sell securities.  But no firm could do both due to conflicts of interest and risks to insured deposits.  From 1933 to 1999, there were very few large bank failures and no financial panics comparable to the panic of 2008.  The law worked exactly as intended.”

If life was not horrible under Glass-Steagall, why was it thrown overboard?  This can be explained by the nature of our party structure.  An anonymous Republican congressional staffer is credited with saying, “In America we have a two-party system.  There is the stupid party, and the evil party.  I am proud to be a member of the stupid party” The man then said, “Periodically, the two parties get together and do something that is both stupid and evil.  This is called bipartisanship.” 

Deep-sixing Glass-Steagall was bipartisanship at its most stupidly evil.  The people had not risen up and called for repeal.  Almost none of them had ever heard of it.  That’s what happens in a nation with a surfeit of laws.  No, it was the world of finance that used their influence to get what they wanted.  When they had sucked as much as they could out of the system, and it all started to go south, they went crying to the government for succor.  The bankers were all for profits staying privatized, but supported a healthy socialism when it came to losses.

So, a class of people did some looting on a vast scale and got away with it.  The cry has gone up, “Make them pay their fair share.”  To paraphrase the old western horse operas, “Taxing is too good for them.”  Unfortunately, they had gamed the system so that apparently the law, if not the force, is with them.  Of course, The SEC and the Department of Justice have been desultory at best in pursuing the wrongdoers.   There have been a few wrist slaps to pretend action, but nothing substantial.  We can’t even sentence them to having to listen non-stop to ABBA piped into jail cells for a few hours.  Okay, that is going overboard.

Taxing a class sounds like a fantastic idea.  Not all the rich were bankers and many provide honest employment for their fellow citizens.  Still, there is an argument that adjusting the tax rates upwards is a good thing.  The problem is, it is no panacea.  Most economists have admitted it can’t work magic. 

Taxing the rich inevitably reaches down into the pockets of the middle-class.  Don’t think so?  I have three letters for you, AMT.  They stand for Alternative Minimum Tax.  I don’t remember if it was Chet Huntley or John Chancellor or another newsreader in the 60s intoning in a serious talking head voice about an injustice.  The evil rich were getting away with murder.

By investing in municipal bonds, wealthy members of society were able to avoid federal taxes on the interest.  In doing this, they received a lower interest rate allowing governmental units to finance schools or bridges or other projects.  That did not matter.  Something had to be done.

What was done was the Alternative Minimum Tax.  In the early 1990s, the law was changed so the AMT could also tax people with lower incomes.  Our compassionate solons, troubled by the injustice, yearly “patch” it so most, but not all, of the middle class escapes.  Nothing permanent is ever done, though.

Adjusting the tax on the rich may raise a few dollars and make us feel good, but won’t solve the problem.  Taxing the middle-class other than the status quo is considered bad form.  What’s left?  Why of course, doing what has been done most consistently throughout history, taxing the poor. 

Unconscionable you say.  Balderdash.  We already tax the poor horribly, and couch it in terms of doing it for their own good.  The cigarette tax falls disproportionately on the shoulders of folks in the lower income bracket.  I have never heard a non-smoking fellow citizen decry this as an injustice though it raises the price of a small pleasure several times.  Taxes on alcohol are not light, but see how far you get proposing an excise that triples the cost of single malt out of compassion for the health of the wealthy.

Throughout history societies sooner or later get around to taxing the poor.  This can be fraught with danger.  Take the French aristocracy who had their heads handed to them.  No, a federal tax on the downtrodden will have to be done shrewdly.

Fortunately, there is a way to do it that, if not loved, will be embraced with enthusiasm.  In this the states have shown the way.  Many of us have stood in line waiting to pay for gas or coffee at a convenience store.  Often there is someone ahead of us taking what seems years to make several choices.  To the more highly evolved, they are wasting time, but to that man or woman, it is a momentous choice.  With each new day, it is the most important decision of their life.  If their choice of scratch ticket or lottery numbers is correct, the drudge job they hate is history, at least till the money runs out.

As a math professor once said, “The lottery is a tax on people who can’t do math.”  It is the shrewdest form of impost ever devised.  Why should not the federals use it to solve our ongoing fiscal crises?  A nightly national Powerball drawing will beat even Dancing With The Stars’ ratings.

Ah well, this may take a while to come to pass.  There are a few tricks left like a trillion dollar platinum coin so why worry.  After all the Congress saw it’s duty, came together and raised taxes on the elite, and while you were feeling good on you too, Mr. and Mrs. Two Earner Family.

Yup. The two percent increase in payroll tax will affect you more than anything that might have been done to Warren Buffett

My countrymen and women, you were like marks for a three-card monte dealer.  While the barker kept yelling beat the rich, he took your money.

Bipartisanship, ya gotta love it.