Thursday, February 13, 2003

Bush's Declaration of Class War

War with Iraq? How about war upon the working class?

There should be little doubt about the nature of the Bush regime's proposal to eliminate the income tax and replace it with a national sales tax: It is all about making the rich richer, and shifting more of the nation's tax burden onto the backs of the middle and lower classes.

Not only that, Bush's proposal -- by eliminating any progressive features of the tax code, and replacing them with an openly regressive system like the sales tax -- threatens to create a permanent crater in the nation's fiscal infrastructure. The long-term consequences of this act are to create a permanent underclass of citizens for whom upward mobility is a phantasm. The result, in other words, is the Latin Americanization of the United States.

It is really very simple: Bush has declared open class war upon the rest of us.

And it's going unnoticed because of Bush's other war.

I'll be writing more about this in the coming days, but let's start out by examining the core documents in this declaration. They are in this report, from the president's Council of Economic Advisers:

2003 Economic Report of the President

Most of this is economic gobbledygook, not the kind of thing average citizens are likely to grasp. The key phrases are euphemisms, particularly the use "consumption tax" -- which is nothing less than a national sales tax.

The key information appears in Chapter 5:
The major objectives of tax reform are to reduce complexity, improve economic incentives, and address fairness. The central theme that brings these objectives together is that household and business decisions should depend on the tax code as little as possible. Taxing all income, but taxing it only once, is a key ingredient of many reform plans. This would involve broadening the tax base while lowering tax rates. Some efforts have also focused on a shift from taxing income to taxing consumption or consumed income.
Some opponents of reform argue that taxing consumption rather than income would necessarily place a relatively heavier tax burden on lower income taxpayers. Conventional distributional analysis typically considers a snapshot of taxpayers' economic well-being at a particular point in time. Research has shown that, when a longer view is taken, differences in well-being, whether measured by income or by consumption, tend to be not as great, because of the fluidity of household incomes over time. Also, analyses of the distributional effects of moving to a tax based on consumption rather than income often do not recognize that a substantial portion of capital income, which is earned primarily by higher income taxpayers, is taxed under both income and consumption tax principles. The distributional effect of moving to a consumption tax looks considerably more progressive when the taxation of a substantial portion of capital income under a consumption tax is taken into account. Indeed, both an income tax and a consumption tax levy tax on the extraordinary (or what economists call supernormal or inframarginal) returns to capital.
Consumption, rather than income, has been suggested as another potential tax base. As discussed above, one rationale is the claim that consumption is more closely related to a taxpayer's well-being than annual income. Also, by taxing consumption rather than income, the tax system would not distort taxpayers' decisions about how much income to save. In contrast, because the income tax includes the return to saving in the tax base, it taxes future consumption (that is, current saving) more heavily than current consumption. Under an income tax, current consumption is tax-favored relative to future consumption, thereby discouraging saving.

These are the basic rationales. As we'll explore in the coming days, they are based on assumptions that are manifestly false. And like most such proposals, upon close examination it becomes clear that they're only pseudo-intellectual cover for the desire of the wealthy to free themselves from their historic tax responsibilities.

The agenda, ultimately, is to wipe out the gains the working and middle classes made during the long struggle for labor and human rights earlier last century, and the flowering of the American consumer economy that accompanied it -- all of which were built upon a foundation of progressive taxation.

All just so that the rich can stay rich -- and the rest of us can stay poor.

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