The French celebrated Bastille Day last week, 219 years after beheading Marie-Antoinette in the French Revolution’s Reign of Terror. To this day, she’s the poster-child for upper-class excess, entitlement and insensitivity -- the ultimate “1 Percenter.”
However, Think Again before believing every demonization you hear, especially without factcheck.org. In truth, though a privileged aristocrat, Marie-Antoinette was not only a faithful Good Samaritan, she actually never uttered the notorious catchphrase “Let them eat cake.” Never mind those silly details -- social justice was at stake!
By portraying Marie-Anoinette as selfish and out-of-touch, the revolutionaries justified their bloodthirsty mob rule and indiscriminate savagery. Declaring “liberty, equality and fraternity,” they ushered in an anti-democratic period of unlimited governmental power, civil strife, and economic despair, though eventually Enlightenment principles transformed France into a vibrant democracy.
Today, France has Europe’s most state-directed economy, and among its most stagnant and indebted. Prioritizing “the collective interest,” the French prefer government to free market solutions spending more on social welfare than any other developed country. Recently, the anti-wealth rhetoric of newly elected President Hollande -- and his plans to hike taxes – made London the sixth largest French city, to its mayor’s delight.
Similarly Enlightenment-inspired, though resentful of strong government, American revolutionaries devised a system to protect individual liberties. James Madison wrote, “If men were angels, no government would be necessary. If angels were to govern men… controls on government would (not) be necessary. In framing a government… you must first enable the government to control the governed; and in the next place oblige it to control itself.”
While the French were sticking dissenters’ heads on bayonets, Americans enacted a Constitution designed to disperse authority in order to protect the moral promise in our Declaration of Independence: that every individual is born with equal and inalienable rights to life, liberty, property, and the pursuit of happiness. Thus, the American Revolution facilitated the creation of the freest and most prosperous society on earth.
Over the last century, while America’s free economy boomed attracting immigrants to our opportunity society, politicians were busy encumbering it, à la française. They instituted the income tax, asserted extra-constitutional powers to regulate, dabbled in cronyism and created entitlement programs that now consume 65 percent of the federal budget. Once 3 percent of gross domestic product, government spending is now 25 percent, crowding out the private economy and producing daily deficits of $4 billion.
Consequently, we suffer French-size economic stagnation, unemployment, and debt (up 50 percent since January 2009). Poverty rates are the highest since tracking began in 1959; food stamp dependency is exploding; and the percentage of Americans with a job is the lowest in decades. Not surprisingly, two-thirds of Americans say we’re on the wrong track and that there’s too much government power and too little individual freedom.
Meanwhile, clueless that government policies influence economic decisions, politicians now propose increasing taxes. “Taxmageddon” -- the toxic mix of year-end tax increases – is causing businesses to defer hiring and investment. Even if limited to the top two-percent with incomes over $250,000 (which includes small businesses responsible for half of private sector jobs and $720 billion in earnings), tax increases would create serious recessionary headwinds while funding only 8.5 days of federal spending, per the Congressional Budget Office. This is a blueprint to cripple job creation, and 23 million job-seeking Americans.
Though they agreed it was economically injurious to hike taxes in 2010 when the economy was growing at twice its current rate, tax-hikers argue it’s now about fairness while referencing the “roaring 90’s” when rates were higher but before explosions in spending, debt, and stagnation. What's fair about increasing taxes knowing the vulnerable will suffer disproportionately?
What is fair considering 2009 IRS data shows the top one-percent and top five-percent paid 37 percent and 64 percent respectively of federal income taxes, while the bottom half paid two percent? If the richest aren’t yet paying their fair share, doesn’t that suggest they don’t merit their earned success? By denying some Americans their earned success, doesn’t that undermine our opportunity society and social cohesion?
Having migrated toward French values, practices and even their anti-wealth rhetoric, its hard to recall our Founders' belief that government’s role is to protect – not grant -- individual rights and property. To reinvigorate our free society and market economy, we need a true “fairness agenda”: a simpler tax code with fewer special interest loopholes, no more corporate welfare, and reforms that preserve entitlement programs for future generations.
Most importantly, we must recover the private initiative that French historian Alexis de Tocqueville found exceptional in 1830s America: ““In every case at the head of any new undertaking, where in France you would find the government ... in America you’re sure to find an association.”
By renewing our commitment to individual liberties and the ethic that each of us – not government -- is our brother’s keeper, Americans “have it in our power to begin the world all over again,” as American revolutionary Thomas Paine wrote.
Wouldn’t our Founders want us to Think Again?
“The higher up in the tree the monkey goes, the more of his backside that shows,” goes the maxim. It would be hard to climb higher than Warren Buffett, the world's most celebrated investor. However, as the namesake of the Buffett Rule that imposes higher tax rates on the wealthy, Buffett and his backside dangle precariously “out on a limb.”
Residing atop Buffett's tree is New Jersey Gov. Chris Christie, known to deliver the best rhetorical broadside, probably because of his broad backside. Last week, Christie buffeted Buffett, forcing him to Think Again.
After two years of traumatic budget austerity, Christie's 10 percent tax cut for all New Jerseyans is central to his fiscal revival plan. Designed to stimulate economic growth, job creation and entrepreneurialism, Christie expects Jersey's economic pie to grow so more “haves and soon-to-haves” generate more tax revenue. After eschewing Buffett's Tax, Christie challenged Buffett to put up or shut up by writing the government a check, to which Buffett conceded, “It's sort of a touching response to a $1.2 trillion deficit, isn't it? That somehow the American people will just all send in checks and take care of it?”
Perhaps unwittingly, the “Oracle of Omaha” revealed the hard truth: No reasonable amount of taxation can address the catastrophic levels of spending, deficit, debt and doubt that plague Americans.
Even the 49.5 percent of Americans who aren't currently paying federal income taxes — a status for which they're wrongly disparaged since other taxes they pay support government (state, payroll, property, sales, gas) — know that increasing tax rates on high earners won't “take care of it.” Incredibly, confiscating the taxable income of America's millionaires and billionaires would only yield $938 billion, enough to run the government for three months.
Ominously, the nonpartisan Tax Foundation estimates the Buffett Rule could raise $40 billion annually, chicken feed compared with our deficit and bullish considering the United Kingdom's new wealth tax generated less revenue from top earners than before its implementation.
Most insidious, a large majority of America's small businesses, the sector responsible for creating two-thirds of all new jobs since 1996, file individual (not corporate) returns, thus ensnaring them in the Buffett Rule. Imagine the surprise of the technology entrepreneur who wants to expand her business but finds herself in Buffett's tax class!
The dirty little secret is that to reduce the deficit or avoid spending cuts, we'd need a “soak the middle class” strategy. That's because 98 percent of America's taxable income is in households that earn less than $250,000. As Buffett admitted, “The purpose of the Buffett Rule is not to close the deficit gap.”
So why promote the Buffett Rule if it's economically injurious and fiscally imprudent? Because in an election year, budget gimmicks and fairness illusions trump growth, job creation, tax revenue and economic logic. This isn't tax fairness; it's tax farce.
The million-dollar question is, What is fair? Is it fairer to equitably divide a stagnant or shrinking economic pie or to grow the pie so everybody gets more, albeit unevenly?
Since first implementing the income tax a century ago, we've agreed on the latter while operating the industrialized world's most progressive tax system. According to 2009 IRS data, Americans with incomes less than $100,000 paid an average rate of 8 percent while those making more than $500,000 averaged 25 percent. Furthermore, the top “1 percent” currently pay 38 percent of America's income taxes while the top “10 percent” pay 75 percent.
But as Buffett notes, “You can do pretty dumb things when you've got a big checkbook.” The real problem isn't that Americans (rich or not) pay too few taxes; it's that government is so over-extended, it's transferring hundreds of billions of dollars to the affluent. Why should a farmer making $2.5 million be eligible for farm subsidies? Should Buffett be entitled to the same Medicare and Social Security benefits as those without corporate jets? Should wealthy backers of green energy be entitled to billions in below-market loans whether or not they're political donors?
As the president's bipartisan Debt Commission recommended, wealthy Americans shouldn't get benefits they don't need nor tax preferences that distort and undermine our economy. But withdrawing voters' goodies isn't smart politics when you're trying to secure electoral majorities. Conversely, it's politically wise to distract voters from current realities like the following: One in six Americans lives in poverty — the most since tracking began in 1959; government dependency is at an all-time high; and the percentage of Americans with a job is the lowest in decades.
Imagine the possibilities if Buffett turned his attention to the challenges of income stagnation. He already knows that American prosperity derives from entrepreneurial activity and the incentives that inspire it, having once said, “You can change behavior by incentives, but you can't usually change behavior by sermons, although people try every Sunday.”
Think Again, Warren — that's good advice.
When I told my mother that The Aspen Times had offered me this column, she was concerned I would be maligned for expressing my views. After all, elite opinion-makers often paint conservatives as bigots and worse, an unseemly prospect for her nice Jewish daughter.
Notwithstanding my mother's concern, I'm delighted for this opportunity to offer readers perspectives they might not otherwise have considered. Whether readers change their mind is less important than whether they “Think Again.” Hence, the name for this column, because I believe in Mahatma Gandhi's dictum, “In true democracy, every man and woman is taught to think for him or herself.”
What most compels me to write this column is my dismay at the gradual erosion of American values and the simultaneous rise of an entitlement culture. It's tempting to want favorable treatment while expecting someone else to pay for it. But when we displace responsibility and blame others, we stifle the inclinations that made us great. Like the frog that can't detect the source of its gradual demise, Americans must be prodded to jump out of the boiling water.
Throughout our history, we've been the “land of the free and the home of the brave,” and a beacon to the world. Rugged individualism is in our national DNA. Our nation emerged from the unlikely victory of an outmanned army led by a valiant and stoic general, George Washington, who is our greatest American icon. We're all about overcoming adversity and stiff odds to grow, innovate and progress, and it's our hardiness and brazen independence that made us the freest, most creative and most prosperous nation in world history — and the most charitable. It's in our national creed to extend the underprivileged a “hand-up,” though not a “hand-out.”
Immigrants who flocked here did so to parlay pervasive opportunity into the American Dream. I am the lucky descendent of immigrant grandparents who, through tenacity and fortitude, realized their dream of a better life in the melting pot of America.
At the same time, other countries have thrived by adopting our values and practices. In my tenure at the World Bank, I witnessed the turn-around of countries that implemented our American model of limited government and free markets, while those that rejected it were caught in a cycle of dependency, corruption, market distortion and further poverty.
It's because of our unique “American Character” that De Tocqueville coined the term ”American Exceptionalism” in 1831. He observed an America characterized by a strong work ethic, self-reliance, independence, productivity, creativity, entrepreneurialism, charity and personal responsibility. Today, these values are being displaced by a growing sense of entitlement that is not only unsustainable, it has a corrosive effect on our identity as citizens ... it makes us smaller.
As America has moved away from our founding principles (limited government, liberty, and the American work ethic) many of our citizens have become less independent, less self-reliant and more expectant. All the while, special interests have ravaged our political culture and economic viability. Politicians, interested mainly in self-preservation, indulge us by feeding unrealistic expectations for favorable treatment, like parents who don't set boundaries for their children.
But as any parent knows, a sense of entitlement is toxic because it undermines initiative and gratitude and breeds self-centeredness, unhappiness and anger, giving rise to feelings of victimization and resentment when the “toys” are taken away. If we won't tolerate a sense of entitlement in our children, why should we accept it in our fellow citizens?
We shouldn't, because these attitudes undermine everybody's economic security, propelling us toward “Greek Tragedy” — a dead-end where our national debt has grown so large, it's the greatest threat to U.S. national security, according to Admiral Mike Mullen, chairman of the Joint Chiefs. Despite the class warfare waged by unprincipled politicians, Americans know we can't simply tax the rich to meet the demands of a burgeoning and unaccountable bureaucracy.
So, I ask you to consider this advice from an old sage: “Everyone should have two pockets, each containing a slip of paper. On one should be written: ‘The world was created for me.' And on the other: ‘I am but a humble servant.' The secret of living comes from knowing when to reach into each pocket.” Currently, too many of us reach only for the paper “The world was created for me.”
President Kennedy discouraged the entitlement mentality and invoked American exceptionalism when he urged, “Ask not what your country can do for you, but what you can do for your country.” As Americans, we should “think again,” revert to the values that made us great, and reach more for the paper in our other pocket, “I am but a humble servant.”
In a Russian joke, there are two friendly farmers, Boris and Ivan. Both are prosperous, though Boris owns chickens and Ivan doesn't. When a genie offers Ivan anything he desires, he ponders his wish and orders, “Kill Boris' chickens!”
As Americans imbued with entrepreneurial spirit, a tradition of social mobility, and a sense of fairness and morality, we're bemused by this joke. Why didn't Ivan aspire to own chickens himself, or cows? Doesn't Ivan realize he's hurting everyone's standard of living by depriving everybody of eggs and chicken meat? Why deny opportunity to shopkeepers, butchers and restaurants — and all their employees?
By living in a zero-sum world where one can only profit at the expense of others, Ivan can't comprehend (as Americans do) that a neighbor's prosperity can enhance our lives, raise our standard of living and create economic opportunities for more people. Ingenious billionaires who developed the automobile, laptop, Facebook and iPhone were rewarded because they improved society's standard of living, not by clawing a fortune out of society's guts.
If you believe this “beggar-thy-neighbor” mentality doesn't exist in the U.S., Think Again. Economic distress creates fertile ground for “the politics of envy” allowing opportunistic politicians to distract us from real problems by accusing wealthier Americans of not paying their “fair share” and by bashing selected (poll-tested) industries. However, the “soak-the-rich” narrative is dangerously divisive, socially corrosive, economically detrimental — and untrue.
The Organization of Economic Cooperation and Development studied 24 economies and concluded “Taxation is most progressively distributed in the United States.” Here, the wealthiest 10 percent (individuals and small businesses) making more than $92,400 per year pay three-quarters of the nation's income taxes, while half of Americans pay none and nearly 70 percent receive more government benefits than they've paid in.
Social justice doesn't require such a progressive system, though it allows society to express compassion for its neediest. The question is: At what point does forced redistribution of income as a means of social policy destroy individual initiative, becoming economically detrimental and socially unjust to all strata of society?
Given our economic straits, we're there. According to IRS data and based on current government spending levels, even if the government instituted a 100 percent tax on both corporate profits and incomes above $250,000 per year, it would only yield enough revenue to run the government for six months. That's because government spending has swollen to 24 percent of GDP from 18 percent in 2000.
Despite these facts, politicians promote resentment to create sympathetic voting blocks, pointing to widening income gaps between rich and poor. However, Americans don't begrudge our neighbor's success; we crave it, relying on social mobility to achieve it. While acknowledging the need for a sturdy social safety net, we know instinctively what IRS data proves — the vast majority of “the poor” do not remain poor in America.
Like an elevator, Americans ride the income ladder, from one statistical category to another. Three-quarters of Americans whose incomes were in the bottom quintile in 1975 were also in the top 40 percent during the next 16 years, according to the Federal Reserve Bank of Dallas. IRS data shows that incomes of taxpayers in the bottom quintile in 1991 rose 91 percent by 2005, compared to those in the top quintile whose incomes rose only 10 percent — those in the top 5 percent actually declined by 26 percent. So much for the “rich getting richer and the poor getting poorer.”
Though tax-rates (and loopholes) influence economic behavior, government revenues correlate more with economic growth. One hundred years of IRS data show the wealthy avoided higher tax-rates and supplied less tax revenue when marginal rates were higher. Irrespective of marginal rates (which have ranged between 92-28 percent since 1952) government revenues historically hovered around 18 percent of GDP. Additionally, when rates were lower, GDP growth was higher.
Therefore, America's goal should be to generate economic growth to create more jobs, meaning more taxpayers and more government revenues to pay off our debt. This requires fiscal discipline and comprehensive tax-reform including the elimination of tax loopholes and subsidies for the politically favored, and globally competitive tax-rates. Australia, Canada and Sweden just instituted similar measures resulting in material economic improvements. Why can't America?
Without such measures, the dirty little secret is that the money to pay for our bloated government (and $14.3 trillion in debt) must also come from the middle-class and future generations. That's not only an economic problem, it's a moral one when those without a voice are deprived of economic opportunity.
Abraham Lincoln encapsulated America's notion of fairness saying, “That some should be rich shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another; but ... build one for himself.”
Those who practice class warfare (and Ivan) should Think Again.
Like a snuff video, footage of Moammar Gadhafi's final moments saturated our screens last week. Despite revulsion for Libya's depraved and ruthless despot, I cringed at the ingloriousness of a once-powerful man holed up in a filthy drainage pipe begging for mercy. The cowardly dictator screamed “don't shoot” and ironically asked the rebels if they knew right from wrong, before a bullet to the temple ended his 42-year reign.
As thousands filed past his corpse wearing masks to avoid the stench of death, I wondered why Gadhafi hadn't fled with his $200 billion stash. Then again, “absolute power corrupts absolutely,” which is why tyrants like Hitler, Hussein and Gadhafi cling to authority — because they can. Never mind the devastation they leave in their wake.
In democracies, power is no less an aphrodisiac, though acquiring it requires winning votes, not gun battles. Too often, a politician's success depends on what he can get voters to believe, whether or not it bears any resemblance to reality. By engaging in negativity and demagoguery, either through false narratives or by denigrating opponents, politicians cause destructive wakes, including a misinformed and demoralized electorate.
Governing elites who exploit the politics of division to pick winners and losers and to determine our destinies are “governing-class warriors.” When such unscrupulous tactics are deployed, Americans must Think Again — something politicians hope we never do.
Simply follow the trend lines in Michele Bachman and Rick Perry's poll numbers after employing shameless demagoguery. When Bachman raised previously discredited fears about vaccinations while attacking Perry for mandating that girls get HPV inoculations, she undermined her credibility. Similarly, Perry damaged his standing when counter-punching Mitt Romney on illegal immigration, resurrecting the already scrutinized 2006 story about Romney's lawn service employing illegals.
Most unseemly is demagoguery that transcends mere political one-upmanship, transforming opponents into the moral equivalent of wife-beaters and worse. Consider former presidential contender Howard Dean's character assassination: “In contradistinction to Republicans, Democrats don't want children to go to bed hungry at night.” Or Congressman Andre Carson's smear that “some of them in Congress right now of this tea party movement would love to see you and me ... hanging on a tree.”
It packs a punch, especially considering the ease with which smears take root and propagate, as when Piers Morgan blithely asked Herman Cain, “You know there are elements in the tea party who are racist; I don't think it's a trade secret. How do you deal with that as a black man?”
Cain's response was clarifying, and disinfecting: “My experience has been, there is no more a racist element in the tea party than there is in the general population. I have spoken at hundreds of them and they're not racist. To think so, you must never have been.” No wonder Cain is topping the polls. Though the least likely to emerge, Cain's solutions-orientation and optimism appeal to voters who want to be persuaded by can-do leaders, not alienated by negativity.
Americans crave competent leadership as new polls show a sweeping lack of faith in what we've got: CBS/NYT finds 89 percent don't trust the government to do what is right, while The Hill shows 69 percent of voters believe America is in decline.
Americans' pessimism is understandable. Having suffered a historic U.S. credit downgrade with more possible, the powerful Supercommittee is reportedly struggling to agree on $1.2 trillion (only 3 percent) of deficit cuts over a 10-year period. Americans will recoil at their failure's fall-out, especially if leaders resort to the politics of division to evade responsibility and to advance narrow political interests.
Business leaders are already recoiling as entrepreneurs like Steve Wynn, Bernie Marcus, Mort Zuckerman and Steve Jobs have articulated concerns that Washington is a massive wet blanket to the economy and job creation. We believe them because we know they are living it.
When Wynn conveyed his concerns to good friend Harry Reid, Reid hung up on him. Reid disagrees with Wynn saying this week, “It's very clear that private-sector jobs are doing just fine. It's public-sector jobs where we've lost huge numbers.” Wynn no longer speaks to Congresswoman Shelly Berkley, now a Senate candidate. He recounts her shameful admission: “Steve, I know Obamacare is terrible. My husband is a doctor and he hates it too. But if I don't vote for it, Pelosi will punish me.”
Wynn, whose candor and moral clarity defies his Las Vegas roots, pleads “if any businessman or working person doesn't understand that this is a tipping point in American history, then I'm afraid we're going to get what we deserve.”
Unlike Libya, America's exceptional values and culture of opportunity position us well. We just need governing-class warriors to Think Again — Americans want to be persuaded to affirm our leaders, not so alienated that we reject them all.