Where I Stand: Is it STILL The Economy, stupid?
By Bill Martin
Former business instructor
What you know (or what you believe) connects with where you stand (or sit). When it comes to money in our pockets, we compare ourselves to others, often with envy toward those with more than we have. Can we someday get to where they are? If so, how quickly?
Part of that concern depends on whether there’s a roof over our head and whether we have a shot at gainful employment. Who has time to worry about retirement—we’re already struggling against income inequality. The same dreary questions repeat: how much do I need? how much can I earn? and what does that cost me in taxes?
In this mid-term election season, you can’t miss the obvious. Governmental majorities are being contested by candidates and the results may portend a change in policy. History suggests to us that the party in power loses ground in mid-terms. This season, issues of bodily autonomy and record low unemployment are taking a back seat to inflation, which no political party can control.
Inflation-
When inflation soars, the party in power suffers. Fiscal policy (read that interest rates) are controlled by an independent federal reserve system—not the Executive Branch of the U.S. Government. Fiscal easing is often seen as too late and fiscal contraction as too soon.
The condition of U.S. seaports to import and export material goods is not controlled by the federal government, either, but big slowdowns there complicated the economy’s higher prices during the recent pandemic and continues to hurt during the recovery. Like me, you may have felt the sting of delayed access to parts and equipment through the “supply chain.” The feds cannot comandeer waterfronts, railroads, or trucking companies to make improvements.
Energy costs affect every segment of our economy, starting with transportation and extending to chemicals, plastics, lubricants, and prescription drugs. Delivery costs have risen with higher fuel prices attached to everything that travels. We’re in a worldwide market that has been disrupted by the attack on Ukraine by Russia, and European nations are importing refined fuels and liquified natural gas against this winter’s cold because Russia has cut off their usual supply. Saudi Arabia is reducing its output on purpose, and crude prices will go up.
The only thing our federal government can do in the short term is release crude oil from the Strategic Petroleum Reserve to improve supply—but that doesn’t necessarily direct more refineries to supply Americans rather than seek profit on world markets while tightening supply here.
GeoPolitics-
Is it worth denying Russia extra revenue by not buying its oil and gas via sanctions to kneecap its war on Ukraine—or would you rather take the risk of Russian hegemony into NATO territory toward World War Three? Perhaps a separate rogue state will copy Russia’s plan to conquer neighboring territory—what then?
My favorite long-term strategy for nations like ours to not exist “over a barrel” is to move toward renewable energy as quickly as possible. This would reduce geopolitical supply extortion while keeping fuel prices lower. The recently passed Inflation Reduction Act (funded by extra tax revenue) is scheduled to pay for itself. Again I ask, what price are we willing to pay for energy independence coming from renewables which Russia, Saudi, Venezuela, and others cannot affect?
Tax Policy-
It is widely claimed that no single action has contributed more to income inequality than 40 years of regulation influenced or anchored in supply-side economics, which argue that lower tax rates equals more jobs (by the job “creators”) and greater tax revenue. This has never worked in the U.S.
Widely misunderstood is the tax “rate,” which during the Eisenhower years of a strong economy was 90% and then 70% prior to the Reagan years, when the top marginal rate became 36%. Many who are anti-tax spread the incorrect message that ALL one’s income is taxed at these rates. Progressive taxation policy provides that the higher the portion of your income falling in the top bracket—that’s the portion that is taxed at such rates.
Supply-side economics (referred to by presidential candidate George H.W. Bush as “Voodoo Economics” reduced him to Ronald Reagan’s VP). This tax policy, advanced by economist Arthur Laffer, has remained unsuccessful here and recently ended Britain’s new Prime Minister Elizabeth Truss’ term after 44 days, following a record drop in the English Pound.
Still, proponents continue to fight for lower taxation, although some have other outcomes in mind if they achieve success. The founder of ATR (Americans for Tax Reform) Grover Norquist has uttered dozens of interesting quotations. Here’s a sample:
“I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”
“Bipartisanship is another name for date rape.”
Norquist has also been successful in the same way as Donald Trump has—by promising that those that don’t align with his preferences will be “primaried” (challenged by well-funded opponents from the same party). Norquist’s universal demand is that every newly elected Republican congressman sign the following pledge:
“I _____ pledge to the taxpayers of the __________ district, of the state of __________, and to all the people of this state, that I will oppose and vote against any and all efforts to increase taxes.”
Political Intentions-
Norquist’s influence may have reached its full potential in the 2010 mid-terms, when the Tea Party (“Taxed Enough Already?”) was formed. Debt ceiling fights occurred in 2011 and were followed by “fiscal cliff” threats that if enacted would have defaulted on U.S. Treasury Bonds. This would have roiled worldwide markets and raised U.S. borrowing costs. Reductions in Medicare and Social Security were suggested as trade-offs.
Last spring, GOP leader Senator Rick Scott from Florida let the same cat out of the bag. If the majority changes, we are heading for fiscal cliff territory by early January, and the Affordable Care Act along with Medicare and Social Security could be on the block.
Here’s an important comparison between tax cuts (for supposed job creation) versus social welfare programs. The cuts usually go to stock buy-backs and to transfers through inheritance. Social spending on behalf of citizens generates new tax revenue as it hopscotches through the economy, and lower income households will spend, helping the economy, or they’ll invest against destitution in retirement. Only one of these income streams provides repeat economic stimulus and tax revenue.
