Little noticed in this "Arab Spring"

By Carl 

Israeli citizens are demanding more liberal government:

TEL AVIV, Israel -- While the world has been focused on the anti-government movements that sprang up during the Arab Spring, the largest protests in Israeli history have been sweeping the country for the past two months, threatening to destabilize the government with calls for extensive change.

The protests began with a Facebook petition over the cost of cottage cheese. They now include a litany of demands, including a return to the days when the government took a more active role in subsidizing costs. Protesters also want changes in the tax system, more subsidized government housing and more spending on health and education.

Last weekend, more than 150,000 people participated in a nationwide march to protest high housing costs. The organizers are calling for another march this weekend and promising an even larger turnout.

Israeli officials admit surprise at the strength and staying power of the protesters, and Prime Minister Benjamin Netanyahu responded this week by canceling a scheduled increase in the price of gasoline that was to have gone into effect Tuesday.

That's not popcorn popping, that's the sound of the heads of neo-conservatives and right-wing Zionist bloggers like Pamela Geller exploding.

In a time of austerity measures in America and much of Europe, tiny Israel is deciding, yes, we the people need more.

In fairness, Israel is a nation built on socialist values. As a small island of Judaism in a larger hostile environment, people who are crammed together learn the importance of looking out for one another.

Here in America, we could have adopted the same basic moral values, but chose instead to live with the romantic illusion of "rugged individualism."

Bollocks, as the British would say. "No man is an island," as John Donne put it. Opportunity in America is defined as the culmination of the tribe fostering the one. No one gets rich in this nation on his own, and our tax codes and social constructs ought to recognize this. For behind every rich person in this nation lies an entire community and network of people who work to support his or her opportunities. 

And since greed drives the acquisition of wealth, you can guaran-damn-tee he or she ain't rewarding those folks adequately.

America stopped being about "fairness" a long time ago. It stopped being about opportunity more recently, but still, the barriers to entry in any market are in direct violation of the basic principles of laissez faire economics put down by Adam Smith (who believed in soaking the rich, by the way).

That kind of rugged individualism, where a person through the sweat of his own brow and the dirt under his fingernails, could carve out a modest life for himself that allowed him to be free of working as an indentured servant on someone else's farm, that kind of rugged individualism one can admire. But it's not the rugged individualism people think of today.

It's not the rugged individualism of free enterprise and competition. Now, markets close to competition. Companies will patent everything in sight, including your own DNA, to claim rights to them. Try "going Galt" when you leave your DNA everywhere.

Today, if you don't wear a helmet while riding a motorcycle, you're a rugged individualist. An idiot, but an RI nonetheless. Note that you're middle class enough to *afford* the motorcycle in the first place. You were not someone's slave who suddenly freed himself through dint of hard work and savings. 

Americans have a very hard lesson to learn. We are not individuals. We pretend we can be. And in some small ways, we can be, but not in ways that matter.

A friend of mine said to me recently, "You can be a slave to the corporatocracy under Republicans or a slave to government under the Democrats." There's at least some truth to the latter, and a lot of truth to the former -- although I challenged him to show me how he could be a slave under Democrats. I got a lot of talk about Spain. Not sure it was relevant.

We are slaves. Nearly all of us earn a living making someone else wealthy.

A few of us earn part of our living making someone else wealthy, and part of our living siphoning wealth off other people: in other words, with an economy that is effectively a zero-sum game, you are either being sucked dry or sucking someone else dry. Neither is a particularly pleasant moral position to take.

That the corporatocracy has dug it's siphons so deeply into our society was an inevitable outgrowth of Republican policies (and sadly, many Democratic ones, too).

For my part, I'd rather be a slave to a government that at least once in a while has to get my authorization to enslave me, and that every so often, gets overruled. It sure beats an autocracy of boards of directors and CEOs with no fealty to shareholders, much less other stakeholders like employees or vendors.

Americans could learn a lesson from the Israeli people. When the notion of fairness goes out the window, the best strategy is not to be more antisocial, but less. 

(Cross-posted to Simply Left Behind.)

Flat tax flounders

By Carl 

Inherent in the current sooper sekrit budjit soopercommittee Congress is setting up in response to the budget crisis, a re-write of the tax code is inevitable.

The time has come for an overhaul of the tax code, to be sure. Right now, taxes on the rich are the lowest they have ever been since Herbert Hoover was president (You'll notice the bookend of terrible unemployment and low taxes on the wealthy, too.) The effective tax rate on the wealthiest one percent (i.e., the rate the wealthy actually pay in total, after deductions, deferrals and exemptions) is the lowest it's ever been.

In turn, deductions that are available to the middle class that promote what had been good public policy (for example, the mortgage interest deduction in order to encourage home ownership) have become warped and twisted to such an extent that they actually create bad public policy. The recent collapse in the housing market is a terrific example of too much of a good thing, in terms of taxes. It only occured after the right to deduct the first $125,000 off the gain on the sale of a home, which had been limited to senior citizens as a one-time-only deal, was expanded to include practically the sale of any residence.

The alternative minimum tax (AMT), originally devised to ensure that the wealthiest pay a fair share of their income in taxes, has become a bane of the middle class. It was never indexed when first implemented in 1986 (at the $30,000 threshold for individuals, $40,000 for a married couple) and only peaks this year at $48,450/$75,000. It drops again next year to $33,750/$45,000. The AMT penalizes people who live in expensive states with high taxes, people who own homes (it phases out the mortgage interest deduction,) and/or have children, and people who like to give money to charity to lower their tax burdens.

It is, in other words, effectively a flat tax of 26% (28% if your income is over $175,000).

Which leads me to today's topic: the flat tax.

Now, given that there are so many "libertarians" who would call for a flat tax in the midst of this rigamarole, I thought it would be a useful prophylaxis to examine why it's a bad idea.

First and foremost, the flat tax is highly regressive, penalizing the poor while subsidizing the wealthy. On it's face, it seems fair (this is part of why many have euphemistically called it a "fair tax"). After all, dollar one gets taxed at, say, 10%, dollar one hundred at 10%, dollar one million at 10%. The guy making a million pays $100,000 in taxes. The guy making $100 pays $10.

Flip the numbers, though. The guy making $100 is left with $90 to buy food, clothing, shelter. The guy making a million is left with $900,000 to buy the same things. Granted, the millionaire is likely to buy more expensive stuff, but here's the thing: he has a choice as to how much he can spend, but not how little. It's that last part, how little to spend, that comes into play.

The guy left with $90 has to meet a threshold to feed, house and clothe himself. Let's say that will cost him, in total, $80. He's left with $10, and must make a choice what to do with the rest of his money: put it away for retirement, splurge on a movie, save it for a rainy day. The guy making a million, also spending that $80, is left with $899,920 to just go nuts.

How is this subsidizing the wealthy? Glad you asked. Unless you want to assume private roads and private infrastructure, the government is going to be the one who wires the community, who paves the roads, who builds the subways. You'll notice the poor soul can't afford a car and walks to work, yet his taxes are paying for things he can't possibly avail himself of, much less benefit from.

A guy making a million bucks is part of a population that is less than one half of one percent of the whole. Good thing, too, because it will take 10,000 people making $100 bucks to equal his income (and to be fair, his tax liability).

None of whom can benefit from the spending that he benefits from.

So it's regressive in terms of the actual taxation, but also regressive in terms of the benefits derived from that taxation. The poor will receive less from the government than the rich under a flat tax system, by definition.

Too, the income tax helps mask another annoying fact of the American tax code, which is that other taxes are highly regressive: sales taxes, property taxes, excise taxes, tolls on highways, mass transit fares, all have to be paid by rich and poor alike in direct proportion to the value of the benefit obtained, which means the rich skate by yet again on the backs of the poor.

There are other reasons the flat tax is a ludicrous proposition. For one thing, it discourages savings, since that would become effectively a double tax: you're taxed on the wages and the interest earned on the money you've socked away. It discourages investment in businesses, for similar reasons. It discourages saving for retirement, since the income that is building towards that is taxed now.

Some might argue, well, Social Security would be off the table. OK, except that the employer portion is taxable at the corporate level (since we're flat taxing all income, no restrictions) so you're double taxing the same money. Revenue is fungible. It doesn't matter how it's apportioned.

Plus, you'd have to raise Social Security taxes to cover the now-heavily-reliant population. And that means wages would now be double taxed even more heavily (you pay SSI and Medicare tax on gross income. You pay income taxes on gross income).

In other words, a flat tax would kill the few American businesses still left.

Lower the corporate tax rate to compensate? American corporations already pay a marginal rate that's among the lowest in the world, and the effective tax rate of the corporatocracy is (based on the Fortune 500) about 18%. So if anything, a flat tax would raise taxes on corporations. Not a bad thing, in my book, but you can bet your bottom dollar ExxonMobil would disagree vehemently, and continue to offshore money.

Proponents of the flat tax point to the success it's had in other countries (Montenegro and the bankrupt Iceland, neither of which is an economic model I'd choose to follow in any other respect), conveniently forgetting that no state that currently has a flat tax had to transition from a progressive taxation to the flat tax.

And in many of these countries, adding in the equivalent of the Social Security tax raises their tax levels *higher* than many if not most states with progressive rates.

It seems to me the Clintonian shibboleth about welfare -- "mend it, don't end it" -- applies to the progressive tax system, too.

(Cross-posted to Simply Left Behind.)