Conservative tax and deregulation agenda will leave us in a mud pit

Bill Martin
35-year public employee
CalSTRS pensioner


There’s a well-worn line that “those who ignore history are doomed to repeat it,” along with another about the definition of “insanity” (doing the same thing over and over while expecting a different result). Seems like the country is engaged in both. We should stop.

Conservative election victories last fall will make the history books, sure, but they continue an ideologically driven agenda of insanity we’ve seen for 30 years, solving neither the national debt nor the Great Recession. The two lightning rod terms of the day are “taxes” and “deregulation.”

I recall the progressive movement of 100 years ago, when “trust busters” and journalist “muckrakers” fought against monopolies in corporations and railroads, as well as the political corruption that flourished. Such fights protected the many from the excesses of a wealthy few and attempted to check unbridled capitalism.

Child labor laws, a 40-hour workweek, women’s suffrage, a social safety net (Social Security), all are examples of the progressive effort. But lately it looks like work-related issues — the standard work day, workweek, wages, overtime, pensions — might all change, and for the worse.

As one letter writer to The Sacramento Bee said last month, “Conservatives control media, banks, the U.S. House; and thanks to the Supremes, corporations can now contribute without limit to the candidates and causes of their choice, acting on their behalf.” But the validity of this view is refuted by millionaire pundits and broadcasters on conservative radio and television, every week.

My preferred description of the conservative tax agenda can be found in the book “America, What Went Wrong?” by Bartlett and Steele. These two investigative journalists (with multiple Pulitzers, Polk and National Magazine awards) from The Philadelphia Enquirer published their book in 1992, unifying a series of articles they did based on blind tax data in 1980 – 1990. They showed how the period’s tax code changes shrank the middle class, increased the impoverished and accelerated the ranks of multimillionaires. This occurred while tax incentives rewarded multinational corporations for exporting jobs offshore, resulting in a variety of U.S. manufacturing closures. It also showed that foreign multinationals paid U.S. taxes on their earnings here at a fraction of the lowest personal tax rate for U.S. citizens.

Tax history shows that the highest marginal brackets were 90 percent in the 1950s, decreased to 70 percent, then to 50 percent, and to 28 percent in the Reagan years. While nearly everything spent in business is deductible against revenue, personal deductions began a decided contraction with the 1986 tax year, and loss of the mortgage interest deduction has continued to be sought by reformers ever since. But hedge fund managers (earning in the tens to hundreds of millions annually) remain in the 15 percent bracket.

Many proposed to “simplify” the tax code over the last 30 years — by going to a flat tax, a national sales tax, a value-added tax, or other mechanisms — but credible analysts have shown that tax “reform” proposals are never simple; they are often loaded with custom loopholes, and they only reduce taxes for the wealthy.

Former Congressman Dick Armey of Texas wanted to move to a 17 percent flat tax with no deductions. This was introduced as “The Freedom and Fairness Restoration Act of 1995.” Money Magazine calculated that taxpayers (married, filing jointly) making up to $335,000 would pay more in federal taxes — only those above that figure would pay less. Fairness for whom?

Progressives believe in “progressive” tax rates, where the more you earn, the more you should (and can afford to) pay in tax. The wealthy have succeeded in pushing their case that nearly all they earn should be theirs to keep. Others have used the present tax code to “zero-out,” paying nothing. And there are corporations that shift their profits offshore, keeping it all. Our present tax code is loaded with loopholes that benefit the well-off while gouging the middle class.

In a phrase coined in the Reagan years, wealth will “trickle down” to the rest of us in the form of job creation. But if the Bush tax cuts of ’01 and ’03 were so good for us, where is the boost in our net worth and where are the jobs? This is a mere 10 years later. Is that history something we’ve chosen to forget? Perhaps the topper was last year’s deal preserving tax cuts for the wealthy while continuing to exempt the largest fortunes from inheritance taxes.

It’s little comfort that the wealthy can’t vacuum up as much from the rest of us during a recession. Recessions happen when people don’t have jobs, can’t consume goods and services that could maintain the GDP, and therefore don’t contribute to tax revenue. As proof of conservative success over the last 30 years, tax cuts have become both a goal and an entitlement. But as I said, if the 90 percent and 70 percent marginal brackets didn’t kill off economic growth in the ’50s and ’60s — why are we still fighting about tax rates?

And “regulation” has become a bad word, linked, often without support, to another phrase: “job killer.” Remember your history — deregulation brought us both the S&L meltdown of over 700 thrifts (adding $503 billion to the public debt in 1989), and the 1999 repeal of the Depression-era Glass-Steagall Act, which allowed banks and insurance companies to create and sell securities, commodities and futures.

This broken regulatory dike made money for the “too big to fails” in two ways. They made profits with initial sales of falsely rated assets and then took billions in taxpayer bailouts when the music stopped (but the bonuses didn’t). Goldman-Sachs even pioneered a third way — they short sold the same toxic assets they were selling to others (betting against them), then cleaned up when those assets approached zilch.

Our $27 billion state deficit began in 1996, when Gov. Wilson signed electricity deregulation that caused the sell-off or leasing of the major utilities’ generation capacity. Enter Enron, Dynegy and Reliant with their gamesmanship, and we got rotating blackouts during a cool summer of less demand than previously. Two of the three major utilities went bankrupt from stratospheric peak pricing, and the state stepped in to purchase $9 billion of power for them to distribute (only $3 billion of which was recovered later through litigation).

In 2003, “I’ll fix California” Schwarzenegger made his first action a rescission of what he called the “car tax,” a revenue generator that normally produced $4.25 to $6 billion a year. When Arnold arrived, the measure (signed by Wilson) had activated twice and ceased once. It was a contingent and progressive tax with sunrise and sunset triggers, only activating when state revenues were low and ceasing when they recovered. Those who didn’t buy new cars frequently paid less. Those who did paid more. Do the math — add Wilson’s $6 billion deregulation loss, and, say, $5 billion a year of lost “car tax” revenue since 2003 for Arnold’s executive order. I get well over $27 billion; what do you get?

In the current effort to eliminate California’s deficit, the governor has proposed a reduction achieved half by cuts and half by tax extensions, provided voters agree. Presently, Republican efforts have prevented a legislative two-thirds vote from placing the question on a June ballot. It appears that they want to thwart a June vote, let the current (temporarily higher) taxes expire, then semantically frame any new proposal as higher taxes promoted by the Democratic majority.

Public employment and pensions are the newest target in conservatives’ “blame game.” But there have already been public employee concessions via bargaining that will ease the deficit, and this week, the state’s largest union (CCPOA) agreed to a 5 percent pay reduction and higher health care contributions.

Pension liability of the state’s (and nation’s) largest fund, CalPERS, was more than 100 percent fully funded as recently as 2004. The reason for losses incurred by 2009 is a deregulation-caused recession that depressed all markets. The fund is recovering, however; using the equivalent of a fiscal tsunami to justify elimination of defined benefit pensions is hardly valid. There were reasons public employees were offered this type of pension in the first place: to attract skilled, educated workers to the public sector. There are adjustments that can and should be made, but junking the entire system isn’t one of them, in my view.

A look at our history in terms of both tax policy and deregulation clearly shows that pursuing the conservative agenda will take us right back to an economic mud pit from which it will be tough slogging to escape.

Tax policy in the last 30 years has already reduced both the income and net worth of many of those referred to as middle class, to say nothing of the Great Recession, which was the result of unregulated Wall Street sleight-of-hand.

So why don’t people see this? Investor billionaire Warren Buffet does. He’s become famous for noting that the tax rate he pays is far less than his secretary pays.

Does that make any sense?

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