Selfishness and lack of moral conviction in Tennessee State Legislature

Yesterday TN senators voted to not make pseudoephedrine HCl (Sudafed) a prescription drug because it would be inconvenient for consumers. Meanwhile this drug is used to illegally produce methamphetamine in Meth labs, an activity that leaves young children without parents and tears apart poor communities. Yet TN senators are unwilling to accept a minor inconvenience to help these children and their communities. This type of selfish behavior has become widespread, in part due to the influence of philosopher Ayn Rand, who taught that the moral purpose of life was to serve ourselves and make ourselves happy rather than to serve others, literally the antithesis of the teachings of Jesus Christ. These same conservatives glorify soldiers for their self-sacrifice in war, yet they are unwilling to make any sacrifice of their own in the war on drugs. The word hypocrisy comes to mind.

Meth is a drain on our countries' resources. The cost to our police forces and judicial systems is great. The cost to poor communities is immeasurable. Every life lost to meth is the loss of a potentially productive member of society. Government should take every possible step to guard the wellbeing of children, even if those steps are "inconvenient," because children are our future, and they can help keep our country strong.

Does increasing taxes on the wealthy hurt the economy and lead to higher unemployment?

For years Republican politicians have claimed that increasing tax rates on the wealthiest, who are the "job creators," will hurt the economy and lead to higher unemployment rates. I decided to test these claims by collecting evidence.

The claim that higher taxes on the wealthy hurts the economy was recently tested by Thomas L. Hungerford in a 2012 publication of the U.S. Congressional Research Service ("Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945" CRS Report for Congress no. 7-5700 / R42729, http://online.wsj.com/public/resources/documents/r42729_0917.pdf). Here is what he found: "There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced." In other words, the only definite outcome of decreasing taxes on the wealthy is to increase economic inequality, which has been shown to cause a host of societal problems.

The figure below from the 2012 CRS report shows that there is no correlation between the top marginal tax rate and economic growth as measured by real per capita GDP growth rate:

In a New York Times article published September 15, 2012, David Leonhardt (http://www.nytimes.com/2012/09/16/opinion/sunday/do-tax-cuts-lead-to-economic-growth.html?smid=fb-share&_r=0) asked "Do Tax Cuts Lead to Economic Growth?" and answered "no," presenting this chart to support his conclusion:

The chart clearly shows that the Bush tax cuts did not prevent the country from plunging into a deep recession. In fact there are many investments made by the federal government that are more effective than tax cuts at spurring economic growth, including funding of basic research, which leads to the development of new technologies for the market. For example, most of the technologies embedded in Apple's popular IPhone originated in federally-funded research (see http://thebreakthrough.org/archive/american_innovation), as did the Google Search Engine, which was an outgrowth of a National Science Foundation grant to Stanford University. We conclude that there is no evidence that increasing taxes on the wealthy hurts the economy.

Now let's address the second, related question: does raising the highest marginal tax rate lead to higher rates of unemployment? To answer this question I made a plot with highest marginal tax rate on the x-axis (independent variable, data from http://www.taxpolicycenter.org/taxfacts/Content/PDF/toprate_historical.pdf ) and average annual unemployment rate on the y-axis (dependent variable, data from the U.S. Bureau of Labor Statistics, http://data.bls.gov/pdq/SurveyOutputServlet).

The chart shows that increasing income taxes on the wealthy does not increase unemployment; if anything, the unemployment rate goes down when tax rates on the wealthiest increase.

Many people don't realize that tax rates on the wealthiest declined dramatically between 1945 and 1990, and declined further beginning in 1995 to the lowest levels on record in 2005 (see figure below).

Yet recessions have repeatedly come and gone, as reflected in this chart from the U.S. Bureau of Labor Statistics showing unemployment rates since 1948:

(from http://data.bls.gov/pdq/SurveyOutputServlet). The unemployment chart looks nothing like the previous chart of the highest marginal tax rate, indicating there is no correlation between the two.

So why do Republican politicians keep claiming that lowering taxes on the wealthy will create jobs and grow the economy? I don't have data to objectively answer that question. I can only speculate that their motivation is political rather than economic: they receive large campaign contributions from wealthy donors who, in return, expect enactment of favorable tax policies.

Taxes can promote sustainability

The majority of U.S. citizens favor low taxes because they want to decide how to spend their money rather than letting the U.S. government decide. However, most Americans don't realize that taxes are useful not just for raising revenue but also for discouraging undesirable choices.  For example, gas taxes discourage gas consumption, which reduces our payments to countries that sponsor terrorism, reduces pollution and emission of GHG, and increases national security by preparing America for future gas shortages. If the proceeds from these taxes are used to remedy other chronic societal problems, and in doing so increase the quality of life of all Americans, we get a win-win situation. For example, the three E's of sustainability are environment, economy, and equity. Raising gas taxes is an investment in the environment, and it improves the economic situation of the federal government, making it more sustainable. If the revenue is used to provide health insurance and education to poor children, we've made a wise investment in human capital and increased equity, making our society more sustainable. Many people would rather not have to pay the gas tax, and use the money they save to buy stuff like HDTV's.  But that use of money is not in the best interests of society, or even of those individuals.  I believe that the benefits of having a healthy, educated citizenry far outweigh the benefits of having more unnecessary stuff. Would you give up the chance to upgrade to an HDTV if it meant you might live longer (due to reduced pollution)? That you would pay less for your healthcare because hospitals would not have to charge the insured to cover the uninsured? That as an employer you could more easily find well-educated workers, which would improve your bottom line? That all Americans would benefit because a better educated citizenry would make our country more competitive in the global marketplace and our workers more valuable in the global workforce? And since we are now competing globally, a better educated, healthier workforce would make all U.S. companies more competitive and richer, which would make their employees richer, which would increase the amount of tax revenues flowing to the government, which might result in future tax reductions.  Thus our choice to raise gax taxes and invest the money in people rather than stuff improves environment, economy, and equity, making the whole country more sustainable.  Yes, not all taxes reap so many benefits, but we have to acknowledge that they have the potential to, and therefore be willing to pay them, recognizing that they are simply another form of investment.  Wouldn't you rather invest in people rather than stuff?

The Failure of the U.S. Government to Address Sustainability

The U.S. Government will fail to adequately address sustainability issues, and American citizens will have to abandon the top-down approach and rely on a bottom-up approach to solving these problems that affect our national security. I say this because Congress and the public have become so polarized along ideological lines that compromise and political progress have become impossible. As a result, moderate members of Congress are choosing to leave rather than run for reelection. On February 16, 2010 when moderate Evan Bayh (D-Ind.) announced that he would not seek reelection after two terms, he stated that "there is too much narrow ideology and not enough practical problem-solving" on Capitol Hill (Kellman and Jackson, AP, 2/17/2010). Nowhere was this more apparent than when the Senate in January rejected a bipartisan deficit commission that could have forced Congress to make painful budget decisions. Members of Congress are unable to agree to reduce capital outflows, but they refuse to increase capital inflows by raising taxes because that is politically unpopular. Most telling was the fact that some Republicans who originally supported the commission changed their votes after President Obama endorsed it. Clearly these members of Congress were acting in the interests of their political party rather than of the country they serve.

By rejecting the establishment of a commission that could have taken the heat for such unpopular decisions, Congress essentially sealed the economic fate of the federal government. This plot shows the federal deficit over time. The total area under the annual deficit bars is a measure of the total deficit, i.e., the economic overshoot = outflows - inflows, which is also shown by the cumulative deficit line that is now approaching $6 trillion. The federal budget is seriously out of balance, but even worse, in most cases these deficits were planned. Unbalanced proposed budgets are passed every year now.

In this plot I've shaded Republican administration years red and Democratic administration years blue. Notice that until Barack Obama took office in 2009 the red area was much greater than the blue area, meaning that until 2009 Republican administrations contributed more to the deficit than Democratic administrations. Of all of the Presidents since 1970 only Bill Clinton managed to balance the budget, ringing up surpluses in his last three years of office. In contrast, President George W. Bush changed the budget surplus of his first year in office, which was budgeted by Clinton, and turned it into record deficits within two years.

As a result of the economic recession in President Obama's first year in office in 2009 the annual federal budget deficit rose to the highest level ever. It remains to be seen if the benefits of the money spent on the economic stimulus package to stave off the recession outweigh the harms resulting from the increase of the deficit, but if the trend continues, the federal government will soon be unable to meet its financial obligations, and this will likely result in an economic collapse. Most economists predict that interest payments on the budget deficit will consume 80% of all federal revenues by 2020 (Tom Raum, AP, 2/15/2010).

And it will only get worse. In January the U.S. Supreme Court, dominated by political ideologues, voted to eliminate any limits to political contributions by corporations or lobbies. Most American citizens believe that members of Congress are already in the pockets of corporations. Now these corporations will have unlimited influence. The fate of bills will be decided by who has the deepest pockets. And when it comes to the three ABCs of unsustainability, who do you think will win when Congress tries to regulate Automobile, Beef, and Coal producers? Will members of the Senate ever vote to limit CO2 emissions when wealthy oil companies are paying them not to?  Congress is losing its integrity and its independence. Soon it will lose its economic power and therefore its influence. We can't rely on Congress to fix our problems.