Taxes!

Taxes…… The word is almost hissed by everyone I know. Ronald Reagan went from selling Boraxo as a washed up B actor to President of United States based on a universal hatred (manufactured and real) of taxes. He reasoned that high taxes were hurting an economy that was suffering inflation and stagflation. Of course, he never actually proved that high taxes caused inflation and unemployment. He did cut marginal tax rates for the wealthy by several points and shifted millions in taxation from his wealthy actor friends to the middle class.

Franklin Roosevelt decided to balance the federal budget in 1936 as the nation had seemingly recovered from the worst of the great depression. He cut spending and cut taxes and the nation lapsed into a double dip recession. He later said it was the worst decision he ever made, which is taunting when you consider all the decisions he had to make to end the depression and win World War II.

California has the dubious distinction of being the birthplace of the “tax revolt”. Wealthy retail and rental owners decided that their property taxes were killing them, and the inflation in home values of the 1970s panicked homeowners into voting for Proposition 13 that slashed property taxes while providing no substitute for the billions that were taken from supporting public services; especially public schools.

Modest changes in property tax law, that would have protected long term home owners, would have worked, but were bullied over by greedy rental owners like Howard Jarvis.

Nobody talked at the time about the plus side to home price inflation; many middle class people became millionaires in the Bay Area because their $25,000 homes were now worth $1,000,000 with absolutely no property improvement. This was false value of homes through no real action of the homeowner.

Hence, the housing bubble essentially started with Prop 13; home values were actually encouraged to increase with no basis in reality, because higher property taxes were stopped. In fact, as time wore on, houses that turned over frequently, were taxed at a much higher rate, while large apartment rental properties, whose value also exploded, were guaranteed ridiculously low rates because they rarely changed hands.

In California, newly married couples, paid thousands of dollars more than their neighbors for houses of exactly the same value, because the other house has not been sold (and re-appraised) . Houses stand in California, mostly vacant now, next to one in the neighborhood whose property taxes are thousands of dollars less than their neighbors. This inequity has NEVER been addressed.

The governor and legislature, realizing that schools could not open with the decreased revenue, shifted support of public schools to income and corporate taxes. This was a huge shift, since before Prop 13 eighty percent of local schools revenue came from property taxes.

This was done in a climate of tax cuts will cure the national inflation problem (which was completely false) so other tax cuts were passed, mostly through California’s Proposition system. The ultimate result of this was to cut taxes while raising state spending, especially relative to school spending. Basically, the bills were NOT paid. The result was a low and inconsistent revenue stream that did not even keep up with the rise in population growth.

For the past forty years California has continued on this path. Meanwhile, conservative think tanks have popped up, mostly funded by the oil lobby, who purport to prove that endless tax cuts revitalize the economy. They, of course, revitalize the petroleum companies, insuring that they make record profits year after year. Low tax rates on petroleum encourages consumption and enslaves us to foreign oil.

The historical record show no empirical evidence that tax cuts stimulate the economy. Tax cuts for the rich and corporations do not result in economic growth. In fact, they retard economic growth because of the greed effect. The rich, who have excess revenue anyway, take their tax cuts and sit on them, or invest them overseas. Corporations do not necessarily expand with their tax cuts. Right now, for example, American corporations are flush with cash but are not hiring or expanding. They are hoarding, ostesibly because they are worried about the economy. One wonders what will happen after the 2010 elections. Could Republican corporate C.E.O.s be sitting on profits hoping to keep unemployment up so Republicans can be elected? The recent evidence of excessive C.E.O. compensation proves the greed factor is alive and well and screwing the middle class.

In 2001 and 2003 huge tax cuts were enacted over Democrat’s fillibusters. Because of this, a time limit had to be attached to them. During the next eight years the economy saw a housing bubble, but no real economic growth. In fact, de-regulation resulted in a financial meltdown that almost put the country into another Great Depression (we call this one the Great Recession).

The middle class has watched as its real income has dropped. Unemployment is at record levels and shows no sign of letting up. And the tax cutters, what do they purpose to undue the disaster they caused? More tax cuts!

American stands at a cross roads. If we buy the garbage the Republicans are spewing, that we MUST cut social programs (Medicare and Social Security) to get “wild spending” under control, and cut taxes, an economic disaster WILL result.

Look at California! The public education system, up through the University of California, has declined massively. Class sizes are soaring, thousands of teachers are laid off, I am sure vouchers will be the next trick. Democracy dies an inch at a time.

Meanwhile, California is considering electing another Republican governor who is promising to revitalize the economy by……cutting taxes.

Even Alan Greenspan, whose leadership of the Fed led us into an economic disaster, now says he was wrong, and de-regulation and tax cutting in fact damages the economy.

If you raise taxes, and cut spending (let’s start with the Defense Budget), you can quickly get the federal (and state) deficit under control. This will lessen the massive governmental borrowing that is going on, and will loosen the lending market, allowing more loans to go to businesses so they can expand. This will be particularly true in innovative business like green energy, that we must grow to start attacking the global warming phenomenon that may kill us all (anyone been to Russia lately?).

California Democrats made a recent proposal to end the budget impasse. This one involved leveling taxes, reducing reliance on income taxes on the rich, taxing petroleum production and basically rescinding a few tax cuts made over the past forty years. A family of four would see about a $250 increase in income taxes. That is $250 a year, and quick math results in about $21.00 a month. That is $21.00 a month!

You would think the Republicans had been threatened with water torture. The first thing out of their mouths was the neat catch phrase, “job killer bill”. Next was “attack on middle class”. What? Of course, they NEVER complain, as their tax cuts have zapped millions of middle class jobs and wrecked the American Dream.

So keep on cutting taxes for California and America. And watch as both become second class entities. Right now the average living standard in America ranks below Mexico! That’s right, Mexico, whose immigrants the Republicans love to hate.

Cutting taxes has NEVER stimulated the economy. There is simply NO empirical evidence (even the Kennedy tax cuts of the early 60s) that tax cuts stimulate the economy.

In fact, there is more evidence that tax cuts harm the economy. Why?

Because the government must pay its bills, even if it doesn’t collect enough tax revenue to do so. How does it make up the difference? One, government prints more money, which is inflationary, and thus harms the economy. Or, the government borrows the money, from a variety of sources, and that borrowing distorts the financial markets and HARMS economic growth.

We have listened for forty years to those who tell us that tax cutting is the ONLY way to stimulate economic growth. For the past forty years, both on the state and federal level, tax cuts have not only NOT stimulated economic growth, but have retarded it.

But, the allure of tax cuts is almost like night light to a moth. The American People keep coming back to it again and again, in spite of the considerable damage it is doing.

Stop it or America dies!