#My2K

Today my twitter feed (yes, I broke down and created a twitter account a few months ago) has been blowing up with posts retweeted by The White House bearing the hashtag #My2K.  These are posts from ordinary Americans telling the world what the just over $2,000 in increased tax burden the average household will pay starting next year should the "middle-class tax cuts" or the "Bush Tax Cuts" be allowed to expire as a larger part of the "fiscal cliff" aversion debates, means to them.  The ploy is fairly obvious in my mind: generate support and sympathy by stirring up the population to give an accounting of how their lives would be impacted by having to pay an average of $2,000 more each year in federal income taxes.  No new snow boots for the kids.  No money to pay for car repairs.  No money to cover student loans.  No money to shop at small businesses.  The list goes on and on, but much in the same vein.

And to be sure, this increase would be meaningful.  Many Americans are living on extremely tight margins, with little or no disposable income, a not insignificant number living hand-to-mouth.  So I'm not even in the slightest bit trying to minimize this impact - in fact I agree entirely in the concept of lower taxes.  Here's the catch though: I believe in lower taxes for everyone.

It's really quite exceedingly easy to say "I think people who have more than I do should have to pay more in taxes than I do.  They have more and I have less, so they should share what they have."  In fact, I would argue that it's human nature to feel that way.  The simplest solution to any problem is to make someone else solve it for you, right?  Well, maybe in the short-term at least.  Here's the larger issue the way I see it.  Whether you like it or not, the economic system of the United States of America is capitalism.  The way capitalism works is that private (as opposed to the state) individuals or corporations (which are really legal entities made up of private individuals) collectively own the the means of production and consumption.  They do this by injecting their own wealth, or "capital" into the system in the form of ownership or equity.  There is risk involved, because it is not a given that any particular capital put to work in a particular enterprise will yield a return, but that's what makes it fun, I guess.  This is obviously very simplified and you shouldn't use me as a source, but that's the gist of the idea.  People with capital put it to work in order to make the economy go.  And frankly, you don't have to have a lot of capital in order to put it to work.  Anyone can go and buy penny stocks, or even blue chip stocks for not unreasonable prices.  You don't need $100M and plans to build a factory to be a participatory capitalist.

In capitalism, there are winners, and there are losers.  The winners get rich, and the losers tend not to.  The cool thing about capitalism is that it tends not to be a zero-sum game, however.  Just because my business enterprise makes money doesn't mean yours can't.  We can literally create wealth by exercising free enterprise.  So fast forward from the start of capitalism a few hundred years ago to today, and you have some people with some pretty fabulous fortunes...and a lot of people without them.  Going back to the premise the the simplest way to solve a problem is to get someone else to solve it for you, logic states that if our problem is that the government can't afford the things we would like for it to afford, get someone else to pay for it.  Doesn't matter who, just not me.  Oh look, there are some rich people over there.  Have them pay.  Done!  Right?  Wrong.

It just isn't that simple, I'm afraid.  You see, the solution that has been put forward by many in government, and startlingly many outside of government, is simply to meet the United States Government's staggering shortfalls by increasing taxes on the rich.  However, in a sadly not surprising move towards demagoguery, the government has decided to curry political favor by saying, "Hey, sorry, we've spent ourselves into this massive hole.  We'd like to not stop spending, which means the only way we can get out is to take more money from you.  Well, not you specifically.  Those rich guys.  Sound alright?"  Since 99% of the wealth is held by 1% of the people, it's an easy political victory.  You won't hear many politicians have the guts to say, "Hey, guess what, we way overspent.  We're going to have to cut back on those things we give people.  Also, everyone is going to need to pay more.  Sorry.  We'll try to do better next time."  That would be the right solution, but no, instead we get a "soak the rich" proposal, which, since it requires nothing from most people, they are happy to go along with.

Here's the problem though.  You remember how I said that in capitalism, capital (read: wealth) is the fuel for the economic engine?  And remember the distinction about private versus state-controlled (that's called socialism.  It's in the dictionary)?  Yeah, well if you take wealth from the wealthy people, how likely do you think they are to keep putting their capital to work?  I mean, there's a risk that capital put to work will be lost, in part or in total.  And since most humans are more or less risk averse, the less available capital one has, the less likely they are to risk it.  No capital at risk, no capital at work.  No capital at work, the economy runs out of gas.  No amount of government spending can fix that.  Unless you become a socialist state.  And that's a rabbit hole I don't want to go down right now.

So what does this have to do with #My2K?  Well, it occurred to me that the White House was interested in knowing what $2,000 means to average Americans, and what they would be able to buy if they had it, and what they wouldn't be able to buy if they don't have it (which is an interesting reversal from the Administration's penchant for spending money - now they want to convince Americans it's better to not give it to the government).  But what does that $2,000 mean to wealthy Americans (and let's ignore for a moment that the actual dollar amount would be higher than $2k, because the tax rate is higher at higher income levels, so it could be anywhere between $5k and $100k, possibly more)?  Well maybe that's how much less a "wealthy" person gives to their local food bank.  Maybe that's how much less a "wealthy" person donates to their alma mater.  Maybe that's how much less a "wealthy" person gives to the arts.  Maybe that's how much less a "wealthy" person is able to loan to a friend in need.  So you see, we're not necessarily talking about movie stars selling one of their mansions, or oil tycoons giving up a private island in the Caribbean.  What if charitable giving in this country dries up?  That would be a huge problem, even if you reject the notion of rich people no longer putting their capital at risk in a high tax environment.

And why, you might ask, did I say "wealthy" up above?  Well, the simple answer is because the highest tax bracket includes people earning roughly $380k/year and up.  Yes, there are billionaires like Warren Buffett who can easily afford a 3-5% increase in their marginal tax rate, and not even notice.  But if you're earning $380k/year, you probably aren't a billionaire.  You probably aren't even a millionaire.  You could be living an extremely comfortable lifestyle, but that doesn't mean that you have a lot of liquid cash laying around that you could comfortably do without.  Also, many, if not most small businesses in this country are taxed as individuals.  Meaning that a "person" could have income of $500k/year, but that's the income of their business, and their actual personal earnings left over after business expenses is $50k/year.  That's a big difference.  And that couple percent tax cut that the "middle class" should have preserved is going to be meaningful to them.  So maybe they have to close their business, or at the very least lay off some employees (and let's not even start talking about healthcare).  So you see how this could get out of hand really fast.

Now, will the economy melt down if the middle class keeps their tax cut but the upper income earners get a tax increase?  Probably not, or at least not only because of that.  Could it contribute to an economic slowdown?  Absolutely.  Is that better than a tax increase on everyone?  In my mind, yes.  So what's the problem here?  I think the real problem is the active practice of demagoguery by our nation's leaders.  They are acting like the leaders of Rome, and we the people are the infamous Mob.  Keep us happy with panem et circenses (bread and circuses - also where the name of the country in The Hunger Games comes from, and if that doesn't freak you out I don't know what will), and we won't notice that they aren't actually solving any problems (and in some cases are creating larger problems).  So really, my aim in writing this is not to convince you to see my point of view, because I know a lot of people, really smart people in fact, disagree with me, and I don't have the lack of self-awareness to think that I'm definitely right about it.  What I do want is for people to look deeper than just the superficial banalities from our leaders.  Demand more than a sound byte and a hashtag.  Ask deep questions, because the answers matter.  Don't be fooled into thinking that someone else can solve your problems for you.  The piper must be paid.

Nearly 52 years ago, at his inaugural address, President John F. Kennedy famously said, "Ask not what your country can do for you.  Ask what you can do for your country."  Wise words.

Keep calm and carry on, my friends.

P.S.~I was going to start a separate blog for my musics about politics, and I came up with a really great name for it that was a play on Spackle and was totally clever, but I've forgotten it, so no new blog for now.