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Monday, January 06, 2003

Class Warfare

According to the NY Times, President Bush is going to propose the complete elimination of taxes on corporate dividends in his economic plan. Pardon my fisking of certain points in the article:

Supporters of the idea say it will correct a major distortion in the tax system, which is that dividends are taxed twice once at the corporate level as profits and a second time as dividend income to shareholders.
I used to buy this argument, and I guess it would still have some validity if either corporations or shareholders were actually paying substantial taxes. But most of the biggest corporations and wealthiest shareholders have found numerous ways to avoid paying most taxes. Also, the argument might also be applied to the wages of corporate employees--why should they be taxed when the corporate profits they produce have already been taxed?

But even before Mr. Bush describes his proposal in a speech in Chicago on Tuesday, Democrats stepped up their accusations today that his plan would benefit the very wealthiest and ignore the needs of middle-income families. "When they direct their tax programs to benefit the very, very, very few and eliminate the majority from any benefit of these tax cuts, it is class war," said Senator Harry Reid of Nevada, the Senate's assistant Democratic leader, on the NBC News program "Meet the Press."
I think W may have made a big mistake when he mentioned "class warfare" in his talk with the press on Friday. Because that is exactly what is going on, and the more it is discussed, the more obvious it will become. The Bushies are "reverse Robinhoods" of the sort described in Ayn Rand's Atlas Shrugged; they steal from the poor and give to the rich. I had seen the "class warfare" topic discussed in progressive articles, but W has now introduced it into evidence in the court of public opinion, and Democrats like Reid should pound him on cross-examination.

Eliminating dividend taxes, administration officials contend, would greatly increase the value of corporate profits and should lead to an increase in stock market valuations.
Wonderful: the rich not only will get richer by not having their dividends taxed, they'll also get richer because their stocks go up.

I still have a lot to learn about economics (doesn't everybody?), so bear with me if I'm naive on certain issues, and feel free to correct me if I get something wrong in what follows. Like I said, I used to believe the "double-taxation" argument, and I still believe there is some merit in it. The merit lies in the fact that our tax code is ridiculously complex, siphoning money out in many different places while providing many protected channels for those who know how to use it (or, more accurately, can afford accountants and lawyers who know how to abuse it). I guess at heart I'm a "single taxer," with wealth being the single thing to tax (not income, sales, profits, dividends, etc.). But the facts are that it takes money to make money (did you ever rent an apartment or get a loan from a poor person?), and that money is power (how many welfare mothers do you see at Republican fundraisers? or Democratic fundraisers, even?), so the only way to maintain some semblance of democracy in a capitalist-free market economy is through very progressive taxation. And income taxes are the major source of federal revenues, while dividends and capital gains are the major sources of income for the very rich, so reducing or eliminating taxes on dividends or capital gains while retaining the rest of our screwed-up tax code will be extremely regressive, and therefore undemocratic. It is giving more power to the already too powerful. This is class warfare declared by a no-class president.