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Romney’s five-point plan and five places he could have put it (you know, had he won)

 American fiscal sentiment is often overly rich-averse, but Mittens was still dreaming

In the past election, you may have been the 47-percent of America that the Republican candidate did not care about. Or, alternatively, a contributor of the over 40-percent of American wealth that is contributed by just one percent of its earners. The Economist magazine, identifying in one of the best arguments during the election cycle, the division in perspectives about wealth redistribution, showed that you don’t have to be one or the other. However, in the American electioneering, citizens were too often either maligned, hardworking beatniks, owed more than they got, or they were a ‘job creator’ whose wealth generated, for millions, prosperity they hadn’t earned.

Though it is in some ways more fun to be argumentative, we do not really need to be polarised to disagree about this. Taxation is a challenging moral and technical issue that often boils down to something deliciously simple. The budget deficit arguments, for instance, have intricacies, but generally nations earn when their citizens create, trade, purchase, and earn. They spend on armies, healthcare, research, the poor, the old, and the unemployed. And if they spend more than they earn, they have a deficit. Earn more than they spend, and have a surplus. These either add to, or reduce, the public debt.

Because Americans haven’t been shedding weight for some years now, they have amassed… some debt. Over 16 trillion dollars of it by the end of this year. They have been adding to that total to the tune of over one trillion dollars for four years running now. And a big portion of the problem is that it was not insignificant during the reign of the last administration.

-There’s a visine for that –

The two Presidential candidates running for office in the US had a policy on that fiscal deficit.    President Obama proposed keeping tax rates depressed and investing in job retraining and education. He hopes to increase federal revenue by raising taxes on high-income earners to 35% and 39%, where it was pre-Bush, and disallowing exemptions that cause income to be taxed at a lower rate if it is earned outside of America, or in certain incentivised industries, or is paired with contributions to charities. He would also save money that would be spent on Iraq, Afghanistan, and Healthcare. His plan is a bit bold. Savings in healthcare would be great, but they are mostly hoped-for under Obamacare, and you don’t save money from not being at war, you save money from cutting the defence budget, which President Obama hasn’t said he will do yet. Increasing revenue from high earners will also be a nebulous promise, until he provides details about which exemptions are to be cut. The Republicans on the hill are violently opposed to raising the actual tax rate in any way. Still, at least his plan recognises the need for both a reduction in spending and an increase to revenue.

Romney’s solution, by contrast, was a harsher cut to federal spending: down to 20 percent of gross domestic product. (Obama’s is only 4 trillion dollars, far less). He would have cut taxes almost universally, and also eliminated some of the deductions offered to incentivised industries. He hoped, in this way, to keep tax revenue pretty much even. While he had hoped, he said, for increases in revenue, these were almost entirely speculatory. He was banking on a growing economy that would generate more money for the federal coffers, with growth incentivised by reductions to regulation, and the repeal of Obamacare – intended to make business’ work easier. Generally, banking on economic growth was a safe bet for both candidates. Ultimately, no one expects another four years of poor economy or recession. But that means revenue should increase no matter who is President. The question, if both candidates care for low taxes, really seems to be: What is a better idea? Decreased business regulation and federal spending, or consistent federal spending and heaping a larger burden upon highest-income Americans? And does military spending need to stay at current levels, or can it be reduced after the war?

– I wish I may, I wish I might –

The statistics that indicate a growing economy are easy to also translate into direct benefits for individual citizens. When businesses are making money, and they are increasing sales and exports, they are more inclined to spend on their employees and increase the number that they have of them. It is not a guaranteed relationship, but enough successful companies crave growth and top-end employees that it is reliable enough.

But when one tries to add another level, bringing the relationship to one between corporate taxation and an individual citizen’s prosperity, it adds murk. Low corporate taxes do mean that businesses paying those taxes have fewer burdens to their bottom line. But assuming that the increased profit will automatically mean more hires is a position that is difficult to justify. Prosperous businesses are certainly more likely to hire, just as they are more likely to compensate better and to invest, but it’s not a foregone conclusion. So corporate tax rates’ relationship to the employment rate is a bit like guesswork. It should work out that there is a direct relationship between a low rate and increased hires, but there isn’t really a guarantee.

The guessing is not arrested at corporations either. Low income tax rates are intended to make individuals richer, and more willing to consume – and invest in – their surroundings. High taxes in turn increase federal revenue, but also risk depressing peoples’ spending by making them just that little bit poorer.

If we reserve the higher tax rates for wealthier individuals, the thinking goes that the deterrent impact of taxation is mitigated by both an ability to afford it and the wealthy class’ accommodation to a lifestyle. One that they are willing – particularly if it’s a status symbol like a home or car – to pay for. The assumption is that higher tax rates for the poor and middle class may siphon money more freely into the federal pot. However, additionally this will reduce consumer confidence and result in less prosperity for the retailers and service providers that surround those demographics. Unfortunately, however, there are millions more of the latter, so much more money (in raw numbers) can be raised.

– I hope they choke on their delicious cake –

In general, rich people individually are asked to spend much, much more money on the federal government than the poor and middle class. They simply have more to contribute. President Obama likes to speak on the necessity that the wealthy pay their fair share, but that is rhetoric, coloured to cater specifically to those who are not rich. His wording has been noticed by many of America’s elite. By independent assessments of fairness (ie, arithmetic), upper income brackets already pay far more than their fair share: their benefits are the same as any other citizen’s, but they contribute many more dollars. If tax rates were not scaled to rise as income increased, the individual rich would already be contributing hundreds of thousands more each year to federal income taxes than their poorer counterparts – but they are! So in addition to the added money they contribute simply by earning a larger value, they are asked to offer a larger share of that value as well.

Do the rich benefit more from federal spending than do the poor, to justify their increased contributions? Probably not. Of the limited examples of government expenditure I listed earlier – armies, healthcare, research, the poor, the old, and the unemployed – the rich arguably benefit as much or more from just the military that protects them (because they have more goods to protect), and government research (because wealth could make it easier to take advantage of technological developments). Many of the other services offered by the government get quickly replaced by the wealthy in favour of more luxurious private sector alternatives. So in addition to spending more money than their poor and middle-class counterparts, they also leave a bigger share of what they’ve paid for to those who need it.

Why does so much of the developed West’s political narrative rest upon vocal demands that those with riches contribute to what those without need most?

– Mmmm, delicious kool-aid –

There is a paradox within the rhetoric of our economic system. We value highly the benefits of wealth when discussing it as economic prosperity or employment, but vilify success when it comes in the form of corporate largesse and excessive compensation. The resulting message is that it is only socially acceptable to be a certain amount of successful. That is for a simple enough reason. As the most populous demographic group in our societies, the poor and the middle class define the political narrative.

Upper classes of earners do have some exclusive benefits: Fiscal privileges afforded by capital worth, including the low tax rates that incentivise investment earnings and the deductions that are allowed for owning second homes and contributing to charitable causes. But these benefits were not put in place to make easier the lives of those with excess – they serve a purpose. For the privilege of saving money on earnings made on capital gains – like lucrative investments or real estate – they must surrender the capital that earns those gains to the investments generating them. That money goes towards providing capital-hungry ventures with the means to accomplish their own successes. The deductions from charitable giving and second homes help incentivise the rich to spend their money on real estate, or give it away, rather than sitting on it. Money is garnered for the state, from those who have lots of it, when they save, when they spend, when they invest, when they donate, and when they die. We should promote wealth, and we should be grateful to the wealthy.

– Bringing it back to Mittens –

Generally though, in an election, we don’t – at least not loudly and in public. Democracy is about catering to the electorate, and the most populous electorate in the western world is the lower-middle class. Plus, democratically speaking, there may be nothing of more importance than prioritising the needs of the majority over the needs of the outliers.

The five point plan that the former Governor of Massachusetts profiled while he was running did not do that. He campaigned on energy independence – recently projected as attainable by 2035 – education and skills training, trade for America, deficit cuts, and small business championship. Training programs, to take one example, were also the focal orientation behind the stimulus spending that President Obama put in place over his term to help stem the blood loss from the recession – along with massive infrastructure investment. These are programs that fall pretty squarely in the discretionary spending area of the budget and are thus the part of the budget that would have been cut heavily to 20% of GDP. Prioritising domestic energy is another area where his plan was similar to that of the President, but he was interested in keep keeping tax revenue neutral by removing subsidies to the energy industry. Depending on how cynical you are, you may believe that those eliminations would have fallen entirely on the green energy industry and spared both shale gas and oil drilling – popular piñatas of the left.

But where the Governor truly strayed from the lower income portions of the country was in his plans for the removal of Obamacare – ostensibly to support small business. The Patient Protection and Affordable Care Act intends the provision of health insurance for those who would struggle to afford (or find) it, and helps focus the healthcare insurance industry around providing care for all Americans. Governor Romney’s only provisions for small businesses – outside of the corporate tax shelter that he and President Obama already agree on – would be the removal of this bill. More responsible health insurance coverage of the bulk of the middle and lower-middle class is not a boon to the wealthy any more than that it would eventually mean reduced healthcare expenditure by the federal government as insurance companies do the work of covering the most destitute. However, to the families and earners who are beneficiaries it means a better lifestyle, more financial stability, and a higher lifetime earning potential because of a lower risk of debilitating health crisis.

Essentially, though undue benefit need not be heaped upon the wealthy, our financial system prioritises the creation and use of wealth in a number of ways that makes life easier for those with excesses of capital. It does not however provide justification for blindness, corruption, willful ignorance, pandering, or misplaced hope, and it does not, at least not at the moment, need bolstering. The wealthy provide great benefit to the United States, and income taxation is a progressive system, but they also reap institutionalised benefits. The best focus for the economy, and the most democratic plan in the running this past election, was Barack Obama’s focusing on the lower and the middle class. Mitt Romney’s five point plan was unduly top-heavy, and it avoided recognising that for all the great assets provided to the United States by its class of successful high earners, theirs is not a cadre that needs heavy political support. The less individually wealthy are.

 

Jonathan Holtby is a Masters of Communication student at Bond University. He is currently in Washington DC.

 

Links: (order of appearance)

http://www.economist.com/node/21564407

http://www.reuters.com/article/2012/10/25/congress-deficit-idUSL3E8LP1L120121025

http://www.barackobama.com/taxes?source=primary-nav-om

http://www.mittromney.com/jobsplan

http://www.newyorker.com/reporting/2012/10/08/121008fa_fact_freeland

http://www.iea.org/newsroomandevents/pressreleases/2012/november/name,33015,en.html

http://www.economist.com/node/21564410

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