Boortz Double Talk on Taxes

There's an old saying my mother used to use to get me thinking when I was a little boy, it goes like this..."If you pick up a newborn calf and hold it over your head on the day it is born and then you come back to the barn the next day and do the same thing and keep that up every day, then when the calf is grown you'll be able to lift that full grown cow over your head." The wry smile and glint in her eye as she finished the story clued me into her true meaning. My mother wasn't trying to teach me how to become the world's strongest man, she was teaching me how to sniff out a line of bull when I heard it. I think this is a good parable for today and it cogently points out how easy it is for any would be con artist to start with a little fact and turn it into a big lie, that seems factual.

Such is the case with the notion that corporations and rich people pay no taxes (in essence) because any tax levied against them will simply be countered by their increasing their prices for consumers. And so it's said (by Neal Boortz and other rightwing talk show hosts) that if we increase taxes on corporations today, they will simply pass that increase on to the consumer, but this is as big a lie as my mother's cow story. Yes the corporations would like to pass this tax on the consumer in it's entirety and they certainly will try, but there's a little thing in their way called free market capitalism. If the USA had no rules governing commerce and disallowing monopolies in the market place this canard would be true. That is, if one large corporation were able to leverage its wealth and eventually buy out all competition so that this 'super corporation' was the only economic entity in the country, if they sold consumers 100% of the goods they purchase, then yes, they could theoretically charge whatever price they wanted, but this is not the case. We don't allow monopolies in America, although there is a wave of political sentiment (funded by large corporations) pushing us in that direction.

But here are the facts. Pertaining to this idea, income taxes on corporations function in the same manner as individual income taxes and various sales taxes and user fees in our society. One could argue that any sales tax at the grocery store isn't really deducted from the store's gross income because the store just raises prices to get around it, likewise one might argue that the tax on gasoline doesn't come out of the filling stations profits, but the consumer as the tax leads to higher prices. One could say that this formula applies to all taxes even individual income taxes, since in fact we all produce 'something' for the money we earn and if we are taxed at a higher rate might not we all demand more in wages to make up for it?

Proponents of lowering taxes on the wealthy and corporations use the term 'pass thru tax' to describe this supposedly inalienable fact of nature. It sounds sensible and it serves their purpose, but as I will explain here, it's just not true. Sadly, just as it is far easier to break something than to build it, it also takes a lot more work/words to disprove a lie than to tell one, but here goes.

If one assumes that corporations and wealthy business people charge the 'minimum' price for their goods and services in order to garner a profit that would be one thing, but they don't, they charge the 'maximum' price that the market they're in will bear. Any business entity which is operating with the bare minimum in profits to survive would be most tempted to raise prices with increased taxation, that is unless they had some cash reserve and decided to 'ride the storm out' and not raise prices (even in the face of short term losses) in the hopes that business might pickup and increase their profit margin. But in the case of a business entity which is experiencing large profits, even record profits (as oil companies presently are, along with corporations who have outsourced their workforce to cheap foreign labor) the temptation to raise prices to match increased taxation is tempered by the firm knowledge that if they can make do with slimmer profits and keep their prices the same while their competitors are opting to raise prices, then that might well be a formula for their increasing their market share, or sell more of their product and therefore increase their profits even more even in the face of higher taxes. It's called 'free market capitalism'.

We all hunger for 'easy answers' to the difficult questions we face on a daily basis. We wish we could come up with a simple rule of thumb for thorny issues like taxation and then just stick to it and be done with all the analysis of the situation, but in reality that doesn't work. While we may wish we could settle all troublesome matters with one short cogent sentence of wisdom, the truth on the ground is that things are always changing around us and so are the solutions to our problems.

It is an undeniable fact that before the stock market crash in 1929 and the ensuing Great Depression, tax rates in the US for corporations and wealthy individuals were relatively similar to what they are today and the solution FDR and the US Congress turned to in dealing with the dire straits we found ourselves in was to raise taxation on the most wealthy to double and triple what they had been and what they are today. The results? From 1940-1980 the wealthiest Americans paid between 70% and 90% in income taxes. Between 1940-80 we fought and paid for WWII, the Korean War and the Vietnam War, we built our entire US Interstate Expressway system and we went to the MOON six times and we were able to pay for it all in the end with debt and deficits only a fraction of what we are seeing today! That was America at our best, in our shining hour and not only did we set world records for economic growth and for bringing people from poverty to good middle class lifestyles (the American Dream) but we also saw a dramatic increase in the income of wealthy individuals because the US government used the money garnered from taxes to 'invest' in our nation's infrastructure (roads, bridges, highways, hospitals, communications, public education etc.) which created a far superior environment in which business could prosper. Investments like these in major projects are all but undoable without governmental leadership. That's not 'communism' that is common sense capitalism.

Taxation naysayers are fond of pointing out that liberal hero President JFK actually lowered taxes on the wealthy. Yes, the JFK administration did lower the upper income tax bracket on the most wealthy...to 70%. That's double what it is today! In the 1980s President Reagan slashed that tax rate in half and we got along ok for a while. In a growing economy it is possible to lower income taxes and simultaneously increase revenue to the federal government, but it still left us well short of the federal income from taxation that we needed to maintain our high level of investment and maintenance of the nation's infrastructure and it was these types of investments that had led to the forty years of explosive growth in our economy! So we were in fact 'eating our seed corn' so to speak. What that old saying means is this...a farmer might be tempted in the midst of winter to conclude, 'We could save a lot of money now while our income is low if instead of buying food at the store, we just eat our stored up grain. or seed corn.' The only problem is that come spring and the growing season, the farmer has nothing to plant and therefore no crops to harvest and sell later. It's a shortsighted recipe for disaster.

To make things worse, at least when Reagan was in office we still had almost 100% of the manufactured goods we consume produced here in the USA. That meant that despite the lower income taxes all of the money made by the US workers who produce the products we consume 'stayed in the system' and was spent here in the US thereby funding the tax coffers of every city and state. But then came Newt Gingrich and the Republican Revolution. That congress passed super-free trade legislation (with GATT and the WTO) which led inevitably to the loss of most of our manufacturing base and all of the income tax from workers in US manufacturing which had funded the USA so well for so long. It's true that a Democrat president (Bill Clinton) signed these deals while under the the coercion of impeachment over personal malfeasance, but lets keep track of who was really behind this whole thing, it was the Republicans.