Going Down With the U.S.A.

As we enter the off-year election season, Californians and Americans both have a lot to be angry about. The incompetence of incumbent politicians and their mostly capitalist masters has reached epic proportions.

Nothing is being done about overpopulation. Only token measures are being taken as greenish nods towards long-term environmental sustainability. Yet despite ignoring these very real problems, the economy is in shambles.

I believe that in general Californians are over-taxed. I am not saying that there are not people who don't pay their share, because of one loophole or another. I am saying that between local, state, and federal taxes and between income, real estate, sales taxes and various fees, the problem is not that the tax rate as a whole is too low.

Why, when we pay so much in taxes, is there so little to show for it? One reason is bureaucratic creep, which is the tendency over time for bureacracies to expand, and for pay for especially the highest level of bureaucrats to increase out of proportion to productivity. This is true within business corporations even more so that in government agencies.

The other is misallocation of taxes. This happens in all areas, on all scales. But the biggest problem for California is the biggest problem for the United States of America: defense spending.

The reality is that the U.S. runs a global empire. We spend more on our military than pretty much any conceivable combination of enemy states put together.

This has undermined America's economy since the Vietnam War, and now the sink holes are appearing. The biggest, undeniable sink holes are the federal deficit and federal debt.

While I believe that we are in an economic upturn this year, I don't see the Democratic Party or the Republican Party dealing with our fundamental economic problems. As a tag-team they are able to crush third-parties and independent candidates, but they also amplify economic mismanagement. In California the Republican politicians won't cut prison funding, or admit that the War on Drugs is a failure. The Democrats don't seem to recognize that the rest of us can only pay so much for welfare programs before we have to start begging ourselves. On the national level both parties fall over themselves to serve and protect the budget of the Department of Defense.

The most recent round of blame has to be laid squarely on the Bush tax cuts for the rich. Recall that many Democrats in Congress voted for those tax cuts, including Mike Thompson of California's 1st Congressional District. The cuts were supposed to stimilate the economy, eventually leading to higher tax collections on a larger economy. But then we had an amplification of the Islamic rebellion, and President Bush with Republican and Democratic Party support decided to invade both Iraq and Afghanistan. Domestic programs were not cut, nor were taxes raised.

The federal deficit was bad enough when the economy was in its latest up cycle, fueled by too-low interest rates from the Federal Reserve and the fee-based mortgage origination system that led to the housing bubble. When the bubble popped, the Democrats blamed George Bush and the Republicans, conveniently forgetting their own support for those low taxes on the rich and high defense spending.

Think of it this way: if the state of California were to pull out of the Union, and we wanted to pay off our share of the national debt on a per capita basis, how much would we each pay? You don't even want to know the answer. It is too depressing to print here.

On a funnier note, the rich really kicked themselves in their collective ass with part of the Bush (+Democrats+Republicans) tax cuts. The rich don't pay the same taxes as you and me. Most Americans are employees, so their biggest tax bite is federal income tax on wages plus social security taxes. The rich mainly get richer from capital gains and dividends (of course they may pay real estate taxes, and sales tax). So President Bush lowered taxes on capital gains. But surprise, the economy was so mismanaged that between the time of the Bush tax cut and today, on the whole, in the stock market (the biggest liquid source of capital gains), no one made any capital gains!

In other words, in retrospect, as a class, the rich would have been better off not wrecking the economy with tax cuts and military spending. Then they would have at least actually had some capital gains to spend, after they paid the old tax rate.

When will they ever learn. [Where have all the flowers gone ...]