Monday, November 05, 2012

Class Warfare and the Occupy Wall Street Movement

Living in Rhode Island for five years has made me see things in a new way.  The state has a one party political system which has been in place for over 70 years and doesn’t seem to show any signs of changing any time soon.  Democrats holding elected office out-weigh Republicans by a 9-1 margin (with very few Independents holding office).  The demographics of the state are fairly similar.  In short, there is no balance of power, and as such, the mindset of some of the policies set forth by some members of the Democratic party here shed a glimpse on what the United States is poised to become if it continues on its current path.
What does this have to do with the supposed “class warfare” that Republicans are alleging?  Everything.  It is (mostly) a Democratic philosophy that in order to balance a budget, taxes must either be implemented or raised.  Republicans (for the most part) believe that trimming costs will balance a budget.  Both are right – to some extent – but relying solely on increased revenue only increases this “warfare”.  In Rhode Island, the left is proposing a tax on beverages containing sugar to help balance the budget.  Unfortunately, beverages containing sugar happen to also be the least expensive, which is why this tax will hurt the poor more than it will impact the rich.  The Rhode Island left are also trying to increase taxes on the only industry that is (barely) keeping the state afloat – tourism and hospitality.
History shows that to increase demand for various industries, incentives need to be put in place.  Taxes and regulation only hinder economic growth (which is why the European Union, led by Greece, is in the position it’s in, yet we want to emulate that example with the mindset that collapse can’t happen to us).  In Puerto Rico, the housing market was just as bad as the United States.  However, the governor implemented a strategy that paid off – if one were to purchase a house, real estate taxes would be waived for the first two years of home ownership.  The housing market INCREASED 50%, which also impacted other industries and sectors.
Rhode Island is on the opposite end of the spectrum.  Forbes, Money, and the Wall Street Journal have all ranked the state as having the WORST business climate in the country due to ever-tightening regulations.  The state also has some of the highest tax rates for business in the entire country.  Companies had no choice but to shut down or move over the border in Massachusetts, where the tax rate is SIGNIFICANTLY lower.  The high income tax rate has also driven the rich and middle class out of Rhode Island and into Connecticut and Massachusetts, leaving a huge divide between the state’s wealthiest residents and its poorest (Newport is a good example being that it is among the POOREST communities in the entire state, despite the mansions on the breakers).  The state is also attractive to the poorest of people due to various subsidies that have been passed AND to those who are here illegally (and as such do not pay into the system).  Is it any wonder why the city of Central Falls has declared bankruptcy, and Woonsocket (home of CVS) is trying to muster up the money to keep the schools open past April 30th?  Providence is also teetering on the verge of bankruptcy due to the strain that its lower class citizens are putting on it.  Normally, this would not be a problem, but again, the people who pay the most in taxes – the middle and upper class – are exiting the state in droves, leaving what’s left of the middle class and poor to clean up the mess.  This is backed up by 2010 census data, which shows Rhode Island was only one of two states to LOSE population over the past ten years.
It is no question that in Rhode Island higher taxes and more regulation has strangled economic growth, whereas in states and territories that have lowered taxes and regulations have seen economic growth.  New Hampshire, for instance, is home to some of the lowest taxes in the country and some of the most lenient regulations, and its unemployment rate is among the lowest in the country.  Massachusetts has strayed away from its nickname of Taxachusetts and saw a growth in businesses and population.  Rhode Island’s unemployment rate, conversely, went UP in March, making it the second highest rate behind Nevada at nearly 12%, mostly due to the promise by Governor Chafee to increase or implement taxes at the state level (in addition to many municipalities adding supplemental taxes to make up for budget deficits). 
Nationally, just under 50% of U.S. citizens don’t pay any taxes for various reasons such as disabilities, immigration status, etc.  That leaves the rest of us to pay our “fair share”.  What exactly is our “fair share” when (according to a 2008 CBO report) the top 1% of income earners paid a total of 28.1% of taxes?  If it were broken down, it would look like the following:
·         Federal income taxes: 39.5 percent share
·         Federal payroll taxes: 4.1 percent share
·         Federal corporate taxes: 57.0 percent share
·         Federal excise taxes: 4.7 percent share
Additionally, the top 20% of income earners top 20 percent paid 86% of the income tax and 42.9% of the payroll tax.
One can argue that companies SHOULD pay their “fair share” (and I would agree), but it goes against tried and true economic principles of ENCOURAGING growth, especially during a recession.  For instance, the trucking industry drives our economy, but how would raising taxes or taking away incentives for the big oil companies help the broader picture?  The added costs would be passed on to consumers who already feel they’re paying too much at the grocery store (consumer goods prices have outpaced inflation) and the pump.  Many truckers are already losing money, and gas prices are expected to go up another dollar per gallon by the summer.  Increasing our domestic oil supply will help keep prices down and decrease demand for foreign oil.  Forcing companies and consumers to switch to renewable energy sources has proven extremely expensive, and energy production is actually more expensive than conventional energy production.  Therefore, it should not be a short-term goal to make the switch, rather a long term one to ensure all infractures are in place before the switchover.  Tax breaks must also be in place to entice people and companies to make the switch.  And being that the nation’s poor can’t necessarily afford gas-sipping cars, organic foods at Whole Foods or new appliances (energy efficient ones no less), they will suffer the most because of renewable energy regulations and gas prices.  The poor can’t even rely on public transit systems as a cheap way to get to and from work due to rising energy prices due to taxes and regulation (hybrid buses are not cheap, and someone has to pay for them).  Again, a long-term goal should be to make the transition to more environmentally-friendly energy and systems of transportation, but the overnight switch the government wants comes with a price.
Increased costs of living across the board has created a climate where the “have-nots” have become envious of the “haves”, yet the government only wants to increase taxes and regulations, burdening us all.  Is it any wonder movements like Occupy Wall Street have spread like wildfire?  The average person does not know what drives the economy.  And why would we?  It has become a faux pas to teach about our nation’s economy and what makes it tick (or even financial success principles for that matter), as it somehow turns into a political discussion.  And what person in their right mind would be able to understand Adam Smith’s “Wealth of Nations”, much less have the time to read it?  And it’s not politically correct to read Robert Kyosaki’s “Rich Dad, Poor Dad” in school or even for a summer reading assignment.  As such, it’s much easier to believe the notion that if you go to school and get good grades, you’ll get into a good college and get a good job with good pay.  Only problem is the cost of education is skyrocketing out of control, and salaries are not keeping up with inflation.  Regulation and taxes are keeping companies from increasing salaries.  And those who are beating the odds of a down economy and able to make money are considered evil.  The Cold War is but a distant memory, and it’s much easier and politically correct to believe we should all be financially equal, even though a person making $300,000/year can actually be struggling just as much as one making $29,000/year, due to location, student loans, lifestyle, etc.
Hell, White House Press Secretary Jay Carney even told reporters on April 13th that the president doesn’t even want to pay his “fair share”.  He made over $700,000, yet is only being taxed at 20%.  “The President believes we must reform our tax system which is why he has proposed policies like the Buffett Rule that would ask the wealthiest Americans to pay their fair share,” Carney wrote on the White House blog.  “Under the President’s own tax proposals . .  he would pay more in taxes while ensuring we cut taxes for the middle class and those trying to get in it.”  Why not lead by example, especially since he has the choice of paying his “fair share”?
This is only a political ploy to deflect from the president’s record (or lack thereof).  It does not pay down the debt or create jobs, both of which are what we need in bills to stimulate the economy.  In fact, it only pays down one day’s worth of debt and has many loopholes in its current form.  Even Senator Pell, from Rhode Island, who the Pell Grants are named after, said that lower tax rates on investments encourages economic growth.


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