BOB BOWMAN – TAX REFORM AND MORE

1998-06-07

Carolyn Ballard


TAX REFORM AND CLASS WARFARE

by Dr. Robert M. Bowman, Lt. Col., USAF, retired

 

Advocates of social justice are often accused of engaging in class warfare. The 
truth is that class warfare is indeed being waged, but not by us. It is being 
waged against us, indeed against 90% of the people in this country, by the 
wealthy few, the corporate owners, the bondholders, the oligarchy.

The Reagan revolution was a major battle in that war, and we lost. The war on 
poverty became the war on the poor, then on even the middle class. The worst of 
it is that the working people don't even understand that they've been attacked, 
plundered, chewed up and spit out by the oligarchs. Let's look at some facts.

At the beginning of the Reagan era, the richest one percent of Americans owned a
little under 20% of the country's assets. Now, they own well over 40%. We are 
always told that there are so few rich people that if you spread their wealth 
around it wouldn't make any difference (except to them). What a colossal lie! If
the wealth of this country was divided equally among us, every American family 
would get over a quarter of a million dollars!

The rich are getting richer. During the 80s, the total wages of those earning a 
million dollars or more a year shot up an average of 243% - per year! The 
average corporate CEO now rakes in about four million a year, about 
three-fourths of which is in stock options and other tax-sheltered compensation.

Meanwhile, the poor and middle class are getting poorer. Incomes have declined 
since the 1960s, and the trend is accelerating. Until 1980 the war on poverty 
was slowly being won. The number of families in poverty was going down. But the 
Reagan revolution changed that, and the fraction of our people who live in 
poverty is increasing rapidly, especially for children and minorities. This in 
spite of the fact that productivity has shot up dramatically. Based on 
productivity gains, we all ought to be working ten hours a week yet enjoying the
same standard of living we had in the 1950s. Obviously, that's not happening. In
1952, the average factory worker had to work one day to earn the closing costs 
for a brand new home in Levittown, PA. In 1991, it took the average factory 
worker (if he was lucky enough to have a job) 126 days to earn the closing costs
on the same (now 40-year old) house. What's worse, the average factory worker 
(never mind service and retail workers) doesn't earn enough to qualify for a 
mortgage on that 40-year old tract house. Home ownership is declining as the 
American dream is rapidly becoming a nightmare for the younger generation. The 
net worth of the median non-home owner American family is about three thousand 
dollars. That's middle class?

How did all this happen? How did the gap between the rich and poor in this 
country become the worst in the world - even worse than Mexico and Brazil? The 
ultimate answer, of course, is power. The big multinational corporations have 
become more powerful than any government, and indeed dictate the policies of 
many governments. They dominate most political parties (including both major 
parties in this country), and own the major media, allowing them to mold public 
opinion and manipulate the people. But in this article, I am not addressing 
ultimate answers. I am dealing with the specific mechanisms they use to pump 
money from all levels of society up to their own. There are three of these 
mechanisms: wages, debt, and taxes.

MECHANISMS OF

WEALTH APPROPRIATION

Wages:

When wages started falling in the 1960s, many families made up for it by having 
the wife go to work. But even this is no longer filling the gap. Even with two 
wage earners, family income fell 7% in the 1980s and another 7% in the first 
four years of the 90s. Why have wages been falling at the same time that 
productivity has been rising and the stock market soaring? One answer is that 
they can get away with it. Artificially high unemployment has created a 
permanent pool of talented workers ready to take the job of anyone who complains
about a cut in erty unless we get them out of debt. The federal government owes 
about five trillion dollars. We individuals owe about eight trillion in consumer
debt. Companies borrow billions to buy up other companies, using junk bonds to 
finance their deals. All of it is owed to a relative handful of bondholders. On 
it they make hundreds of billions each year in interest, at real rates of 
interest higher than any in history. In the middle ages, this would have been 
called usury. Today it's called usual. It's one more mechanism for pumping 
wealth from the rest of us to the top.

Before Reagan, inflation increased the value of the things we bought, like 
houses. And it let us pay back our debts with less valuable dollars. For us 
debtors, it was a good deal. It was a mechanism for transfering some of the 
wealth from the wealthy bondholders to us debtors. The affluent middle class was
built on inflation. But Reagan and the Federal Reserve did away with that. They 
killed off inflation with a very deep recession and kept it from coming back 
with a high level of permanent unemployment and with unusually high real 
interest rates. This made it more difficult to pay back loans. Millions of small
businesses and family farmers went bankrupt. So did some of the small banks that
made the loans, and of course, the S&Ls. But bondholders are happy.

Debt has been the mechanism for oligarchs to suck the wealth out of third-world 
countries. And it has been an important mechanism for turning a once-affluent 
America into another third-world country.

Taxes:

Probably the most important mechanism for pumping wealth uphill has been tax 
"reform."

In the 1950s, corporations paid 39% of all income taxes. By 1990, it was just 
17%, and it's still going down. In 1970, an average family paid $1,689 in income
and social security taxes. In 1989, they paid $8,491. Meanwhile, in the same 
time period, the average taxes paid by millionaires went down by $436,389 per 
year. Then in 1989, the top 1% received another tax cut saving them an average 
of $82,000 per year. They told us that if we agreed to pump all this money to 
the top, it would trickle down. But, of course, it didn't. It wasn't even 
invested in job-creating new businesses. It was loaned to increasingly 
debt-ridden people and their government. Some of it was invested overseas in 
more profitable sweatshop ventures than can be gotten away with at home. We poor
suckers who allowed our wealth to be pumped to the top actually financed the 
moving of our jobs out of the country.

We also financed foreign oil exploration for Exxon, while their $8.2 Billion 
profit goes completely untaxed. We paid to build logging roads through national 
preserves so mills can export our trees (for which they pay a nickel apiece). 
But we do not tax their profits. We subsidize companies to mine our national 
parks. We even pay for overseas advertising for McDonald's and other huge 
corporations; but we do not tax their profits on overseas sales.

If the Reagan revolution could be characterized by any one thing it would be 
shifting the burden of taxation from the rich to the rest.

So now that the enormous damage is apparent and the super-rich are coming closer
and closer to owning everything in the country, what do they prescribe? More of 
the same! Last time they called it supply-side economics. This time they are 
calling it the Flat Tax.

THE FLAT TAX

There are actually four main Flat Tax proposals - by Forbes, Armey, Gramm, and 
Buchanan. The most modest is Buchanan's. It is much like the existing system, 
except that there's only one rate - 17%. It taxes all forms of income, just like
the existing system. And it allows deductions for mortgage interest and 
charitable donations in addition to the standard deduction. Phil Gramm's is 
similar, except that the mortgage interest and charitable contributions 
deductions are only useful to wealthy folks, since they are only deductible to 
the extent they exceed $22,000.

The proposals of Dick Armey and Steve Forbes are more extreme. They allow no 
deductions, and do not tax all kinds of income. Neither taxes interest, 
dividends, or capital gains. The only difference between the two is that Forbes 
would tax only wages, while Armey would tax pensions as well. While this 
difference would be important to pensioners and retirees, to most folks, the two
plans are indistinguishable. Both give wealthy folks essentially a free ride. If
such a plan were passed, the wealthy would soon arrange to get all their 
compensation in dividends and other non-taxable forms, and would pay no tax at 
all. If just those making in excess of $100,000 per year beat the system, then 
the "flat" tax rate would have to be raised to 81% to make up the shortfall, and
all of it would be paid by us wage earners.

Figures 1 and 2 show how these various proposals would affect the after-tax 
income of a family of four. (Figure 2 is a blowup of the extreme lower left 
corner of Figure 1, for us folks with modest incomes.) The lines for the Forbes 
and Armey plans are almost on top of each other, and are the closest to the line
for no tax at all (and these assume no one beats the system, but keeps receiving
a major portion of their compensation as salary). All four of the Flat Tax 
proposals lie considerably above the line for the existing system, meaning 
everyone gets to keep more of their income. Since everyone pays less tax, the 
government receives less revenue. Figure 3 (on the back cover) shows this 
dramatically. Tax revenues under Forbes would be about half what they are under 
the existing system. This is a way to eliminate the deficit? We saw such voodoo 
economics once before (under Reagan) and it resulted in a quadrupling of the 
national debt.

These figures also contain data for an "ISSS Proposal" which goes in the 
opposite direction from the Flat Tax proposals. It is described in the following
section.

ISSS PROPOSED INCOME TAX SYSTEM

All forms of income would be taxed, as now, but Capital Gains would be 
calculated using an Inflation-Indexed Cost Basis. Deductions for Mortgage 
Interest would be limited to $10,000 per household. The Social Security (FICA), 
Medicare, and Medicaid taxes would be eliminated. Every American, regardless of 
income, would get an untaxed Basic Subsistence Allowance of $6,000 for adults 18
through 64, $9,000 for seniors 65 and over, and $1,000 for each child through 
age 17 (with the first child in a family receiving an extra $2,000), all 
children's allowances paid to the parents. The allowance for convicts would go 
to the appropriate jurisdiction, and that for deadbeat parents would go to the 
custodial parent. The above allowance amounts would be adjusted annually with a 
Cost of Living Adjustment (COLA). Every American would get basic health care 
under a Canadian-style single-payer system. All auto accident claims would be 
paid by a National No-Fault Insurance Fund paid for out of gasoline taxes. All 
payroll taxes would be eliminated, saving businesses $400 Billion per year.

The $1.5 Trillion cost of all this would be paid for by elimination of 
duplicative programs (social security, medicare, medicaid, welfare), by the 
proposed increase in income taxes, by a corporate profits tax offsetting the 
eliminated payroll taxes, and by taxing offshore multinational corporations 
doing business in the U.S. A $1 per gallon increase in gasoline taxes would all 
go toward deficit reduction.

Think of some of the advantages of this system. The poorest family with even one
child would receive $15,000 per year, and would get health care and auto 
insurance. Any money they made over that would not be taxed until their income 
had doubled. Going to work would not mean losing basic support or health care. 
No one would be trapped in poverty any more. Jobs would be easier to find, since
businesses would not be taxed for providing them. At the same time, the stigma 
and indignity of the dole would be gone, because the unemployed would be 
receiving no more than any other citizen, including the very rich. They, along 
with everybody else, would have access to the doctor of their choice for 
preventive treatment, checkups, pre-natal care, well-baby checkups, and the 
illnesses and injuries that now inundate emergency rooms. Health would be 
improved, and red tape and health care costs would plummet.

Working class people would have money in their pockets and no fear of losing 
everything if they lost their job or got sick. Think what this new buying power 
would do for the economy!

Churches and charities would prosper, because the wealthy would again have an 
incentive to give. Under a Flat Tax, it costs 83 cents to give a dollar to 
charity. Under our ISSS Proposal, it would only cost 30 cents.

Of course, this means raising the top tax bracket back to where it was in 1972 
(although at much higher income levels). The very wealthy aren't going to like 
giving up the gains they made under Reagan. But then we're not asking them to. 
They can keep all the billions they salted away in the last two decades. We only
want to restore fair tax rates on what they earn in the future.

The oligarchs are playing us for fools with their Flat Tax proposals foisted on 
us by their hired henchmen. Don't be fooled. A flat tax is no simpler than a 
progressive tax. The complication comes in deciding what to tax and what 
deductions to allow. Neither do these proposals compensate for lower rates on 
the rich by closing loopholes. Indeed, they open many more new loopholes than 
they close. And the simpler a tax system looks, the bigger are the loopholes. 
Closing loopholes is, by nature, complicated. There can be no such thing as a 
simple, fair income tax. And the tradeoff between simplicity and fairness has 
absolutely nothing to do with how many tax brackets you have.

The Flat Tax proposals are a slickly-packaged way to pump even more wealth to 
the top. They are another round of class warfare being conducted against us.

We didn't start this war. But we sure can't afford to lose it. We must educate 
the people.

==============================================

We are sometimes criticized for straying from our space and weapons forte. We 
are not economists. Yet you don't have to be a rocket scientist to figure out 
that a Flat Tax is a sweet deal for the very rich. The fact that Dr. Bowman is a
rocket scientist should not disqualify him from saying his piece!

 

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