by Robert Hunziker / July 7th, 2012
For decades now,
actually since President Reagan’s administration, Republicans, with
encouragement from Neocons, Supply-siders, Neoliberals, Tea Partiers,
or, in short, the Right Wing in toto, have argued big government is
evil, a bureaucratic money-trap that is inefficient without producing
one iota of good for the country. As Ronald Reagan so infamously said,
“Get big government off our backs.” This is a fallacious argument that,
in reality, centers on the Right’s own selfish motives and desires to
capture the country’s wealth for themselves in the shortest period of
time possible, and, in large measure, they have been extraordinarily
successful because their time-worn, primordial argument has become the
nation’s commentary. It is time to change the argument!
Meanwhile, and dovetailing the Right’s extraordinary success in
capturing a disproportionate share of national income, the government’s
biggest problem, quite coincidentally, is a distorted tax code under
which federal tax receipts, as a percentage of Gross Domestic Product,
are at 50-year lows. Thus, starving the government of operating funds
while dramatically enriching those at the very top of society in receipt
of generous tax breaks. Along these lines, the effect of Supply-side
policy on the U.S. government is comparable to IBM abruptly losing a big
chunk of revenue on a contract it is still obligated to fulfill. As
follows, IBM would be forced to borrow money to stay in business.
As things now stand, personal income tax rates in the United States
are among the lowest of major economies of the developed world, e.g.,
lower than Switzerland, Canada, Belgium, Sweden, and Germany, whose top
marginal income tax rate is 45%, but yet Germany is hailed as one of the
most productive economies in the world. Another way to analyze
America’s taxation levels relative to the world is by comparing tax
rates as a share of Gross Domestic product, and on this score the U.S.
is fourth amongst the lowest, ranking along side Turkey, Chile, and
Mexico, of all 33-member countries of the Organization for Economic
Co-operation and Development (OECD). Interestingly, if U.S. tax rates
were comparable to Germany’s, the federal government would likely run a
surplus, or close to it, not an unmanageable deficit.
And, when did the U.S. government last run a budget surplus?
President Clinton, whose policies ran against the grain of Supply-sider
policy, balanced the budget. He raised taxes to accommodate the
government, and he gave the country its best economic performance in
decades. Clinton’s performance is proof positive the Supply-side mantra,
and its policies, need to be dissolved, abolished, and reversed to
efficiently run our democratic capitalist nation-state!
It is amazing how the Right continues to hammer away on tax cuts and
deregulation as the cure-all solution for jobs, and American prosperity,
when the evidence is so crystal clear that their platform (1) hinders
job creation and (2) inexorably increases annual deficits. Indeed, with
the onset of President Reagan’s administration, the United States became
the world’s largest debtor nation, establishing a trend of annual
budget deficits never before experienced since WWII.
The enclosed chart is a comparative review of the taxation policy
effects of Bush I, Clinton, and Bush II, including their impact on job
creation and government budgets. It is worth noting Clinton’s rejection
of Supply-side economics performed very favorably with GDP, growing at
an annualized rate of 3.9% almost double the growth rate of 2.1% for
Bush I and 1.7% for Bush II. As a matter of record, Clinton’s GDP growth
rate also outperformed Reagan’s. He outperformed these Supply-side
policymakers by, in part, adopting anti-Supply-side policies. And, even
more amazingly than Clinton, no modern-day president has outperformed
the ultra big government President Lyndon Johnson (5% GDP growth rate),
who surpassed all, even though the top marginal tax rate under his
administration at 70% was double that of each Bush administration.
The question is: How can Supply-side policymakers continue to claim
their policies of cutting taxes and removing governmental regulations
grow the economy and create jobs? The facts do not support the
storyline, and, as for deregulation, look at what happens when they are
regulated: BP/Gulf of Mexico.
| President |
Top Marginal Tax Rate |
Jobs Created |
Jobs% Increase |
Annualized Deficit at End of Term |
| Bush I |
28%-to-31% |
2,592,000 |
2% |
$300 Billion |
| Clinton |
31% upped to 39.6% |
22,744,000 |
21% |
$ 32 Billion |
| Bush II |
39 cut to 35% |
1,080,000 |
1% |
$641 Billion |
Since anti-Supply-side administrations consistently outperform
Supply-siders, is it fair, and reasonable, to postulate that the
government is a beneficial enterprise comparable to private
corporations? This question is central to the argument supporting the
value-added proposition of big government, the same as General Electric
adds value to the nation’s economy, notwithstanding the fact the
government already fulfills critical operational functions and
infrastructure for the entire nation, benefiting all U.S. corporations
by (1) providing for national defense (2) defining and securing property
rights (3) promotion of fair competitiveness in markets (4)
redistribution of income and reduction of hardship (5) investment in
public transportation and education (6) monitoring/addressing
environmental issues, caretaker of the nation and (7) promotion, and
stabilization, of economic growth via fiscal/monetary policies as well
as international trade agreements.
The central problems with current governmental policies are centered
around tendencies that lean to the Right, not to the Left, increasingly
veering towards a totalitarian nation-state under the influence of
Supply-side principles simply because, even though there is plenty of
wealth to go around in the world, it’s tied up in too few hands for
democratic capitalism to operate efficiently for society at large. Thus,
in order to maintain civil order, totalitarianism increasingly becomes a
byproduct of this conundrum.
Regarding the benefits of big government, this article would not be
available on the Internet had it not been for a U.S. government
initiative, following the Russian Sputnik success story in October 1957,
that created ARPA, the Advanced Research Projects Agency, a department
of the US Department of Defense, which agency’s most famous project was
the creation of the Internet.
And, as the result of innumerable research efforts by the government,
America’s version of capitalism provides citizens the option of
purchasing shares in private enterprise that benefit by government
largess, like Facebook, Inc. or shares of Yahoo! and if the business is
successfully operated, shareholders benefit by a rising value.
Similarly, US taxpayers purchase shares in the US government by paying
taxes, although not on a voluntary basis. Nevertheless, paying taxes
purchases shares, i.e., ownership in America. Otherwise, there would be
no citizens or nation-state. Paying taxes entitles one to citizenship
and ownership of the United States of America, Inc., similar to when a
park ranger informs visitors upon entering the Grand Canyon National
Park; this is “your park.” The question thus becomes, is the government a
good investment?
Contrary to private enterprise, the incalculable benefits of
governmental research and investments are mostly hidden from view, for
example, according to the Federation of American Societies For
Experimental Biology: “Public funds promote the climate of openness and
sharing that accelerate the process of discovery, verification, and
product development. While the private sector is important to research
and development in this country, the federal government is the only
source able to provide the broad, long-term support necessary for basic
research…. If left totally to market forces, basic research would be
under funded since the gains from basic research are shared and the
profits may not be captured by private investors… The Council on
Competitiveness (a nonprofit council of 161 corporate chief executives,
university presidents, and labor leaders) recommends that the federal
government increase its investment in basic research.”
As seen from the viewpoint of private owners of business, the main
indicator of economic efficiency in capitalism is profits. But from the
point of view of national economic development, social costs and social
benefits, which are not reflected in profitability, can be no less
important. As one example, companies that dismiss employees to enhance
their profitability do not necessarily improve the efficiency of the
nation’s economy as a whole. Corporate dismissal, or firing, of workers
often times contributes to profitability, referred to as downsizing,
which is a key corporate expression these past decades. Meanwhile, this
enhanced corporate profitability comes at a social cost to the nation’s
economy, as a whole, via growth in unemployment, casting a burden upon
the nation-state. Indeed, without the nation-state as a backstop to the
effects of corporate layoffs, it is likely the nation-state would fail
as a viable entity by not providing for its citizens and chaos would
result. This phenomenon is what America has been experiencing.
The U.S. federal government is America’s biggest business, it employs
more people, who are subject to higher tax rates than most elected
leaders, buys more products, owns more real estate, constructs more
buildings, insures more investments, and borrows more money than any
organization in the world, and private enterprise is the government’s
biggest customer, benefiting Halliburton, McDonnell Douglas, Lockheed,
IBM, General Foods, Boeing, Ford, and, in fact, all of the companies
listed on the New York Stock Exchange. The federal government is the
largest single customer for America’s industrial products and services,
and the government directly, and indirectly, supports most of the
research done in the country, according to:
The American Private Enterprise System, The University of Kentucky and Kentucky Council of Cooperatives
, ongoing series of studies.
Thus, the value proposition for big government enterprise is a
positive one. The federal government is, in almost all respects, similar
to any U.S. corporation, and it is the country’s biggest corporation
and 100% owned by the its citizens, employing people, paying wages, and
providing the necessary infrastructure for the profitability of the
country as a whole. This is the United States of America, Inc.
However, the burning issue of Supply-side economics, entrenched in
American politics for decades, is the result of a small, but
extraordinarily and overwhelmingly powerful, vocal faction that does not
equitably pay for services rendered by the nation-state. Herein lies
the “where,” and “how” of America retrieving its status as the world’s
most productive economy… by reversing Supply-side policies. Otherwise,
if Mitt Romney, who pays a “carried interest” tax rate of 15%, wins the
highest office in “the land of opportunity,” and follows his principles,
the United States of America, Inc. will undergo drastic downsizing,
abiding by a practice that is deeply imbedded in the corporate mindset.
Bain Capital has him well prepared.
Robert Hunziker, a former hedge fund manager, is a
professional independent negotiator for worldwide commodity actual
transactions and a freelance writer for progressive publications as well
as business journals. Mr. Hunziker earned an MA degree in economic
history at DePaul University/Chicago, and he resides in Los Angeles. He
can be contacted at:
rlhunziker@gmail.com.
Read other articles by Robert.
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