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Thursday, February 7, 2019

The Ideological Fight for America's Future



The new crop of young socialists in Congress are ramping up their efforts to advance their ideology. With their hub group, a radical-leftist outfit called Justice Democrats, they are challenging the Democrat party establishment in a way that is being compared to what the Tea Party did to the Republican establishment.

And just like the Republican party insiders, the leadership in the Democrat party is taken aback and does not quite know what to do.

Short term, this is a problem for the Democrats to deal with, but over a longer term this new radical left presents the Republicans with a formidable challenge. As I have explained in earlier articles, the GOP Congressional leaders are almost aloof in their approach to this new, increasingly existential threat to the American constitutional republic.

This cluelessness does not just involve my own U.S. Representative, new Republican Conference Chair Liz Cheney, but also - sadly - President Donald Trump. As much as I like and respect our president, I would have hoped for a lot more on this subject than he has delivered thus far. For example, in his 2019 State of the Union delivery to Congress, Trump limited himself to a passing comment on the threat from socialism:
We stand with the Venezuelan people in their noble quest for freedom — and we condemn the brutality of the Maduro regime, whose socialist policies have turned that nation from being the wealthiest in South America into a state of abject poverty and despair. Here, in the United States, we are alarmed by new calls to adopt socialism in our country. America was founded on liberty and independence -- not government coercion, domination, and control. We are born free, and we will stay free. Tonight, we renew our resolve that America will never be a socialist country.
There are two problems with the president's reference to socialism. First, in the same speech he also pledged to create a paid-leave system for American parents. This is a major entitlement program that, when expanded to European proportions, will cost us taxpayers $370-$500 billion per year.

Furthermore, the paid-leave system will be a massive redistribution program, taxing away money from some people and giving it to others. This is the very essence of socialism; if the president signs a bill to create it, what is then left of his pledge to keep America from becoming a socialist nation?

The second problem with President Trump's reference to socialism is that a lot of Americans fail to see the stigma in the term. As I have noted elsewhere, six out of ten Americans actually think favorably of the term "socialism". In this context, the president's scant attention to the ideologically radical left is worrisome, to say the least. It shows that he, like Ms. Cheney, is grossly under-estimating not only the threat that the new, young socialists present to the very continued existence of our country, but also the effort it is going to take to defeat them in 2020.

Before we get to the major problems with this new string of radical leftist ideology, let us be fair and recognize some of their ideas that we should all at least take a favorable look at, especially we libertarians:

--They want criminal justice reform; from a libertarian viewpoint, it is completely unreasonable that you can get a longer jail sentence for possession of marijuana than for violent crimes;
--They do not want America to sell arms to regimes that violate human rights; as a libertarian, I have never liked how we and other Western democracies equip ruthless tyrants with military equipment that is all too often used against their own population;
--They want to abolish the death penalty; libertarians, being pro-life by principle, oppose killing in both ends of the "life line";
--They are for gay marriage; a principled libertarian position is that it is none of government's business whom consenting adults want to marry.

Unfortunately, there us quite a long list of issues where the Justice Democrats would do a great deal of harm, if given the change. The greatest, and most immediate harm would be done to our economy; even a partial implementation of their economic wish list would send the American economy tailspinning into industrial poverty and - at best - perennial stagnation. More realistically, their plan would be the beginning of a decline for America where the end station is not unlike Greece or Venezuela.

The poster child for this new brand of radical social justice politics, U.S. Representative Alexandria Ocasio Cortez, has already fired the opening salvos in their ideological war on America, proposing a sharp tax increase on the "super rich" to a confiscatory 70 percent. She is not alone: Senator Elizabeth Warren (D-MA), a 2020 Democrat presidential contender, has floated a similar idea. So has Representative Ilhan Omar, another politician backed by the Justice Democrats. She, however, has pledged to up the ante:
we can increase the taxes that people are paying who are the extremely wealthy in our communities. So, 70 percent, 80 percent, we’ve had it as high as 90 percent. So, that’s a place we can start
In a coming article I will look at the burden of the federal income tax from a new, innovative angle. I will also explain how this new measure of the tax burden correlates with tax revenue and economic growth. Until we get there, though, it is important that we understand the true nature of this new, radical left - and how dangerously naive Republicans are in addressing this new left.

Strategically, the Justice Democrats have already carved out a spot in the Democrat party. From Politico.com:
Maybe you’ve heard the warning: The country is beset by a menace. A fringe conservative minority is holding Congress hostage, extracting radical policy concessions over the will of the majority. And it’s leading the nation to fiscal, environmental and moral ruin. Maybe you haven’t heard this part: These dangerous conservatives are Democrats. “I am talking about the radical conservatives in the Democratic Party,” said Saikat Chakrabarti. “That’s who we need to counter. It’s the same across any number of issues—pay-as-you-go, free college, “Medicare for all.” These are all enormously popular in the party, but they don’t pass because of the radical conservatives who are holding the party hostage.” Not long ago, this would have been an outlier position even among American liberals. Today, it’s the organizing principle of a newly empowered segment of the Democratic Party, one with a foothold in the new Congress.
The Politico also notes that these new radicals appear to be willing to split the Democrat party in their pursuit of more power and influence.

So what do the Justice Democrats want? Essentially, they represent the same brand of radical left that I grew up with back in Sweden, and in which I was involved in my ignorant youth. Here are their six points that can be said to represent their platform for growing the welfare state:

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1. The "living wage".

This is an idea that effectively reforms the minimum wage into a floating, government-regulated citizen's wage. While you still need to have a job to get it, government would require every employer to pay no less than what government deems is the "cost of living". The living expenses that go toward this cost are specified based on a moral statement on the quality of living, e.g., that a family should be as close to one bedroom for each of its children as possible.

Similar assumptions go into all items on the cost-of-living list; in other words, the idea behind the living-wage proposal is that government should legislate a standard of living - regardless of whether or not employers can afford it. Bluntly: it is not a person's contribution of value to his employer that should determine his compensation; it is what government deems is a morally acceptable standard of living.

There seems to be growing support for the living-wage idea among conservatives. This is tragic, as it let the door wide open to central economic planning. I have documented the problems with so-called indicative central planning in my two latest books (see links at the end of this article).

2. A federal jobs guarantee.

Here is what the Justice Democrats say about this dangerous idea:
The idea behind a federal jobs guarantee is that anyone who wants to work and contribute but can’t find a way to do that in the economy can do that. A federal jobs guarantee program would establish a floor for wages and benefits for the nation’s workforce. This program would provide a baseline minimum wage of $15 an hour and guarantee for public workers a basic benefits package, including healthcare and childcare. By investing in our own workforce, we can lift thousands of American families out of poverty and get people to work doing the work that needs to be done.
This is almost the same as a universal basic income, itself an idea that has spread deep into conservative layers. The only real difference is that recipients would - nominally - have to show up for work to collect a paycheck under this jobs guarantee.

Again, we have an idea with serious, unintended consequences. For one, the actual compensation under this jobs guarantee is considerably higher than the $15/hour. Just the child-care component in the benefits package that comes with the job guarantee, increases de facto compensation by approximately 40 percent to $21/hour.

3. Higher taxes.

In addition to demands for very high marginal income taxes, Justice Democrats want to take more money from corporations:
Corporations dodge $450 billion a year in taxes by using offshore tax havens. We should end this injustice, as well as chain the capital gains tax to the income tax, increase the estate tax, and implement the Buffet Rule so that no millionaire CEO pays less in taxes than his or her secretary. It’s time for a tax system that benefits the middle class and the poor, and makes the top 1% and multinational corporations pay their fair share.
There is no such thing as "dodging taxes" by means of "tax havens". These are countries and territories that choose to have lower taxes. It is no stranger for a business to invest its money where taxes are low than it is for an American family to move from a high-tax state to a low-tax state. Are they dodging taxes?

There are many wealthy Americans who own property in several states. Many of them choose to have their residence in a low-tax state. Are they dodging taxes?

4. Single-payer health care.

This is an issue that the left is going to push hard, fast and furiously in the 2020 election. I predicted this already back in May last year, when I also warned that this idea is creeping into the layers of big-government conservatives. Back in August I explained how single-payer health care cannot, and will not deliver health care the way its proponents believe, and how the reality of such systems is heavy rationing and centralized resource distribution based on cost, not medical needs. Then, just last month, I pointed out that a single-payer system would run a tab of $2 trillion per year - in addition to the current costs for Medicare and Medicaid.

5. Free college.

Every student who wants to go to college is apparently going to be eligible for a 100-percent tuition-free experience. Presumably, this includes free room and board as well. This means an expense for taxpayers of something like $800 billion per year.*

There is also the question of what strings government will attach to the funding. Will government see a need to secure future tax revenue in order to pay for this program? If so, it is right of government to demand that people get degrees with which they are likely to get good-paying jobs in the future.

Since there are only so many art historians and gender studies experts needed in any given year, but the demand for engineers is always high, one could expect government to limit quotas on the free-college program under the humanities and social studies, and to reallocate the money into engineering schools. Would young people who support this free-college plan be willing that government attaches such strings to their free ride?

6. General income security.

This is more than the paid family leave idea that is currently floating around in Congress. It is, as I have warned before, a full-blown entitlement program of Scandinavian proportions.

Depending on size and configuration of this entitlement program, the cost could run deep into the hundreds of billions of dollars. In previous writings have placed the cost in the $370-500 billion bracket for a fully developed general income security program with mainstream European eligibility criteria.

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In other words, counting single-payer health care, free college and general income security, we are looking at spending increases of up to $3.3 trillion per year. Compared to projected federal outlays for 2019, this represents a 75-percent increase in government spending.

To obtain that kind of tax revenue, the Justice Democrats would have to take to extreme measures. If they were obtain it all through taxes on "the rich", then according to IRS income-tax data for 2016 (the latest available) they would have to tax every income earner above $300,000 at a 100-percent tax rate.

Yes: literally confiscate their income.

As mentioned earlier, the Justice Democrats believe that there is a great deal of money to be obtained from corporations. Is there any money to be had there? Well, suppose Congress doubled the corporate income tax, in other words raised the tax rate outright from 21 percent to an extremely uncompetitive 42 percent. Suppose also that businesses did not react in any way, shape, matter or form to this drastic increase.

Even under these exceptionally unrealistic, and for the Justice Democrats unmitigatedly favorable assumptions, the best they could hope for is an extra $225 billion in tax revenue.

They still need to come up with $3.1 trillion elsewhere - in other words, confiscate every dime that individuals make above approximately $300,000 per year.

This may sound like a lot of money - and it is - but about five million tax returns report an income above $300,000. This group includes skilled physicians; top-notch scientists; specialized engineers; highly productive computer programmers; lawyers; successful real estate agents; managers and executives, and not just in big corporations; even CEOs for many non-profit organizations.

Again: the underlying assumption here is that people would not change their workforce participation, and businesses would not alter their business operations, in response to these confiscatory tax hikes. Such an assumption is, of course, a complete fantasy, yet the notion that you can tax higher incomes with impunity is widespread, not only among the American left. Let us listen to Oxfam executive director Winnie Byanyima, as she discusses the difference between taxes that spread out over a broad tax base, and those that specifically target higher incomes:
Tax systems that put a high burden on the poor mean public services are underfunded, stretching the gap between rich and poor and fuelling global public anger, Winnie Byanyima, executive director of Oxfam International, said on Monday. The Nairobi-headquarted charity said in a report that a new billionaire was created every two days last year, just as the poorest half of the world's population saw their wealth decline by 11 percent. The report, released on Monday as political and business leaders gather for the [January 2019] annual World Economic Forum in Davos, Switzerland, said governments are increasingly underfunding public services and failing to clamp down on tax dodging.
Again, as I explained earlier, there is no such thing as "tax dodging". So long as a person or a business change their behavior and lawfully avoid paying taxes, their behavior is no stranger than a family in Washington state crossing the state line to Oregon to buy groceries, because Oregon has no sales tax.

Are they tax dodging, too?

However, the big point here, of course, is the idea that government should provide a range of services and benefits - entitlements - to one group of people at the expense of another group. So long as this idea is not addressed on principle, by those who claim to oppose socialism, the debate will shrink and collapse into a technical conversation about various ways to run and fund the welfare state.

Back to Ms. Byanyima:
"Poor people suffer twice from being deprived of basic services and also paying a higher burden of taxation," Byanyima said in an interview. Billionaire fortunes increased by 12 percent last year, or $2.5 billion a day, while the 3.8 billion poorest people saw their wealth drop $500 million every day, Byanyima added. The charity said tax rates for the rich and corporations had been cut in recent decades. And when governments fail to tax the wealthy, they pass the tax burden on to poor people through consumer levies like value added tax, Byanyima said. "An indirect tax like that, that taxes salt, sugar or soap, the basics that people need ... then poor people pay relatively more out of their income than rich people," she said.
It is noteworthy how the Oxfam CEO avoids entirely discussing the positive side of the tax cuts she so dislikes. Lower-tax countries have higher growth than high-tax countries, especially in terms of private consumption and domestic spending in general. Any nation can grow its economy by means of exports; the problem is that such policies rarely trickle down to the rest of the population in terms of sustained growth in wealth.

That point aside, it is truly remarkable to hear someone in such a prominent position speak so ignorantly of the economic destruction that follows in the footsteps of high taxes. In a sense, Ms. Byanyima's comments are as predictable as they are ominous. The path to economic destruction, namely, runs through high taxes on "the wealthy".

Those taxes never pay for themselves. Either the wealthy emigrate, or - if forced to say by a totalitarian government - the taxes destroy the economic activities that generate, and re-generate the tax base. Every country that tries this, fails, from Sweden in the 1970s (leading up to their economic implosion in the early 1990s) to Greece in the 1990s (leading up to their collapse in 2009) to Venezuela under Hugo Chavez.

Once the welfare state has destroyed the forces of prosperity, it turns to another tactic in pursuit of an ever larger tax base.

In fact, countries that have relied on exports to build prosperity have also gotten stuck in economic stagnation. We need not look further than to Japan and Sweden to see how true this is. Contrast their economic troubles with the United States, a growing economy where exports have always been a small, almost fractional part of the economy.

The problems with export-driven growth are important, as exports is often relied upon in countries with big, costly governments. High taxes on income, wealth and consumption suppress consumer spending, which in turn suppresses business investments for domestic purposes. The economy becomes increasingly dependent on the fluctuations of the global economy, and the tax base shrinks accordingly.

In reality, the reason why the taxes thar Ms. Byanyima talks about, are so burdensome for low income families, is that the welfare state that those taxes pay for, has already destroyed large swaths of the forces of prosperity. By

a) taking the welfare state for granted, and
b) taxing the wealthy out of their wealth,

governments that insist on economic redistribution find themselves pursuing poorer and poorer layers of their populations in order to squeeze yet another tax dollar out of their economy.

To paraphrase F.A. Hayek and Ayn Rand, the road to serfdom runs through the welfare state, and it is only a matter of time before its travelers reach its end point: the totalitarian state.

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*) This number assumes 20 million students in college and an average individual yearly cost of $40,000 for tuition, room and board. The last number is derived from estimates made by collegedata.com.

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