Tuesday, February 25, 2014

The Secret History of the Income Tax

The 16th Amendment granted Congress the power to levy an income tax. This amendment continues to rankle tax-averse Americans. According to popular perception, progressives supported the income tax as a means of funding a raft of new, expensive social welfare programs. Some people link the income tax to war debt (the country was still paying off the Civil War). However, according to professor Philip Magness of George Mason University (source), there is a different explanation that is closer to the truth. He does an excellent job of citing the politicians who were involved in pushing the amendment and demonstrating the arguments they used in favor of it.

Joseph Weldon Bailey Senator from Texas, fat-cat
The little-known story of the 16th Amendment may be understood in the context of protective tariffs. In the early 1900s, the federal government acquired revenue by collecting taxes on imported goods. Many people supported the tariffs because they helped protect American farmers and manufacturers from foreign competition. Tariffs certainly did contribute to the great prosperity of the United States; tariffs meant higher wages for American workers.

But the point here is that there was a small number of business-owners who opposed the protective tariff. These business-owners made money by selling imported goods. If the tariff were lowered, they could increase their profits. These business owners made a lot of specious arguments in favor of so-called "free trade." They said that a tax on imports meant that American manufacturers could coerce consumers to choose American goods over foreign goods.

What free-traders neglected to mention was that federal revenue had to come from somewhere. If it didn't come from tariffs, it would have to come from other forms of taxation. One could either tax consumption, through the tariff, or one could tax income. And if the free-traders had their way, wages would go down, because it would place American workers in competition with lower-paid foreign laborers.

The free-traders threw their support behind the idea of an income tax. Amazingly enough, the efforts of these so-called "free traders" were ultimately successful. Tariffs were lowered and the lost revenue was recouped through a new income tax. 

Senator Joseph Bailey of Texas was an influential voice in favor of free trade, even though he had campaigned for office on a pro-tariff platform. Once he was safely in office, he declared, "I would make ... two propositions in one motion. I would provide for the reduction of the duties on articles of common necessity, and then I would supply the deficiency of revenue created by a remission of those duties to the people by the levy of an income tax."

Mr. Bailey helped ensure the passage of the 16th Amendment. Later it was discovered that Mr. Bailey accepted bribes and had a financial interest in Standard Oil. Interestingly enough, when the 16th Amendment passed, Standard Oil was no longer interested in selling oil drilled in America. It made its money in refining oil, and wanted to import oil from overseas (source).

Saturday, February 15, 2014

"Wake Up!"

Mr. Thomas Donohue is the CEO and president of the United States Chamber of Commerce. Recently he wrote an editorial piece and he said something very interesting: “Many studies have concluded that the greatest percentage of job growth in the United States through 2020 is expected in low-and moderate-skilled jobs that cannot be automated or outsourced.” He goes on to give examples of landscapers and home health aides and bellhops. Because of this, Mr. Donohue says, we have to be willing to open the doors to immigration because Americans are too lazy and stupid to perform even low-skilled jobs. 

Having inadvertently spit out my coffee I had to clean up before acting on my plan to remind myself what the U.S. Chamber of Commerce does. It is not an official U.S. agency. It’s a lobbying group. It gets money from Goldman Sachs. It helps business-friendly politicians get elected. It supports politicians who believe in things like “free trade” and “outsourcing.” It supported President Clinton’s NAFTA policy and Mrs. Clinton’s 1993 healthcare plan. It opposed the DISCLOSE Act, which sought to curb the influence of foreign money on U.S. politics. It’s a big supporter of schemes like Keystone XL and the Transpacific Partnership.  

I have to ask, when the immigrants come into this country to change bedpans and trim the hedges, who will be paying their salaries? It’ll probably be members of the Chamber of Commerce. Goldman Sachs executives age like the rest of us and will need home health care. They are accustomed to a certain standard of living and wouldn’t want their topiary gardens to fall into neglect. 

Once upon a time, Americans were told that outsourcing is necessary because there are jobs that are simply too menial and too unpleasant to give to anyone who wants the work week to end at 40 hours or aspires to a living wage. But now, Americans are being told that the only jobs left in the United States – thanks to outsourcing – are too menial and too unpleasant for natural-born Americans, and therefore, we have to import immigrants to do the work.

It is true that many Mexicans may be willing to work for lower wages than many Americans. The reason for this is that many Mexicans have been born and raised in a maquiladora -- a shanty town -- and this is the only standard of living they've ever known. An American will work for as little as a Mexican provided that he or she gets used to the idea of living in a shanty town. Obviously, the folks at the Chamber of Commerce would be glad to see more Americans living in shanty-towns. But it's up to the American worker to defend the dream of enjoying a decent standard of living for his or own family, for his or her fellow Americans, and for Mexicans.

One needn't be "anti-immigrant" to wish for a future in which Mexicans and Ecuadorans are not starved of wages to the point that they are forced to pull up their roots and leave their families to find work overseas. In fact, it is because of deals like NAFTA that millions of Mexicans can no longer find work at home (source).

They have the same problem over in Dubai. When it comes to changing bedpans and seeing to the landscaping and such, they have to import Filipinos. The Filipinos are, by all accounts, treated badly, and there’s not much they can do about that because they’re not in a position to pack up their bags and fly home again. This leads me to think that there is a small cadre of Americans who are disproportionately represented in the Chamber of Commerce who believe that they are living in Dubai. 

Wolves at the door

Evidently, Americans believe what they are told. Once, Americans were told that outsourcing is necessary for those truly unpleasant jobs. Now, Americans are being told that foreign workers need to be “insourced” for those truly unpleasant jobs. And those other jobs – the jobs that a person can take that will feed his or her family and leave the weekends open for a little rest and relaxation? They’re gone, unless you are a financial executive or a captain of industry. 

The old solutions, I fear, will no longer apply. We can’t rely on labor unions to improve the situation. We can’t rely on the to-be-announced Democratic candidate for the 2016 presidential election. We can’t rely on the to-be-announced Republican candidate. Both of them will be taking money from Goldman Sachs and the Chamber of Commerce. Both will be wined and dined by private equity firms like the Carlyle Group. Both will support outsourcing and cheap immigrant labor and “free trade” deals, no matterwhat they may happen to say on the campaign trail. Both of them will try as hard as they can to make the rich richer and the poor poorer.

Being "pro-business" doesn't necessarily mean supporting multinational conglomerates. And it doesn't mean that you are a socialist if you believe that the balance of power in this country has shifted too far in favor of the politically well-connected financiers and CEOs.

I’ve been saying these things again and again in the New Independent Whig, hoping I’ll find the right words to inspire people, hoping that I’ll go viral one day, and hoping that I have not become that “red-faced man” who pontificates endlessly and offers nothing. I’ve tried to educate myself past the point of wearing the blinders of uncritical devotion to a political party. I’ve done my best to refrain from stating an opinion unless it is an informed opinion. But on days like today, caught in the grips of pneumonia and buried under a ton of snow and reading the treasonous words of Mr. Thomas Donohue of the United States Chamber of Commerce, all I want to do is repeat the words, “Wake up! Do something to save yourselves, or you will surely perish.”

Wednesday, February 5, 2014

The Ghost of Politics Yet to Come

“Necessity is the argument of tyrants, it is the creed of slaves”
-          William Pitt, Earl of Chatham

The 2016 presidential election will play out something like this: the news media will convince the American people that the Republican candidate has a strong chance of winning the election. Democrats across the country will weep and gnash their teeth and write checks to support their party. In the end, the Democratic candidate, by the name of Hillary Clinton, will win handily. Just as Americans congratulated themselves for electing a black man, they will congratulate themselves for electing a woman. They will remain oblivious to the fact that there are personal qualities that matter more than race or gender. 
Clinton the Militarist

On Good Morning America, back when Ms. Clinton was attempting to win the democratic nomination for the 2008 election, she articulated her strong support for Israel. If Iran were to “foolishly consider launching an attack on Israel,” she said, “We would be able to totally obliterate them.” 

It is possible that “obliteration” is the standing contingency plan should Iran attack Israel, concocted by unelected geopolitical strategists who lurk in the bowels of Washington, D.C. who see Israel as a forward base defending American oil interests in the Middle East. By this calculus, Israel’s unhelpful animosity toward Iran is a reasonable price to pay in exchange for Israel’s support. If so, it doesn’t matter a whit who is sitting in the Oval Office. Nonetheless, a reasonable argument could be made that it is bad form to talk openly about obliterating a country while extending diplomatic overtures to the same country.
Her rival, then-Senator Barack Obama, persuasively pointed out that Mrs. Clinton’s bluster was too much like that of George W. Bush. Her words reminded me of the Republican nominee, John McCain, who once sang “bomb Iran” to the tune of “Barbara Ann.” 

Defense Secretary Robert Gates felt that it was a reckless thing to say. “Another war in the Middle East is the last thing we need and, in fact, I believe it would be disastrous on a number of levels (source).” He had a point. At the time, the U.S. was fighting wars in Iraq and Afghanistan. Soldiers were being sent back again and again, deployment after deployment, to die or be maimed in those reckless and costly military adventures. A serious and honest political candidate would recognize that the United States was not, at the time, in the position to invade Iran. Reducing Iran to a smoldering radioactive pile would have unwanted repercussions in the rest of the Middle East and would place U.S. soldiers at risk. 

The point, then, is that Ms. Clinton is apparently as hawkish as John McCain or George W. Bush. If her views have mellowed since 2008, it is up to her to point this out. I am particularly anxious for her to dial back her militaristic talk regarding Syria. And although I don’t blame her for Benghazi, I know that she was vocal in supporting military intervention in that country. The only factor that appeared to soften her bellicose position on Libyan intervention was that she wanted the humanitarian pretext for intervention to be cultivated beforehand, so it wouldn’t be obvious to everyone that the real reason for intervention was Libya’s oil wealth.

To place the following discussion in context, I was in the thrall of two false beliefs in 2008. First, I believed that the Democratic Party was the lesser of two evils when compared to the Republican Party. Secondly, I believed choosing the lesser of two evils is morally defensible. Given these beliefs, and alarmed by Ms. Clinton’s hawkishness, I voted for Obama. Or rather, I voted for Faux-bama, the man who offered a strong anti-war position, who promised to close Guantanamo Bay, pare back so-called “free trade” agreements, and offer a health care reform package that contained a public option. And best of all, he was not dividing his time between campaigning and fathering Rielle Hunter’s love child.

In hindsight, the notion that the Democratic Party is the lesser of two evils strikes me as simplistic. It is fair to say that members of the Democratic Party are in general less likely than members of the Republican Party to make cringe-worthy pronouncements that betray primitive attitudes toward women (source, source), racial/ethnic minorities (source, source), members of religious minorities (source), gays (source), the poor (source), and the international community as a whole (source, source). But what does this mean, really? I suggest that the Republican brand is evidently very effective at attracting supporters, if one looks at all the red states on the map of the United States. Those red states are predominantly rural, white, and Christian. Voters in those states haven’t been to the big city much, haven’t enjoyed an improved quality of life despite receiving larger federal “hand-outs” than voters in blue states receive, and most of them haven’t left the country. Their attitudes reflect their upbringing and life experience. The Republican brand isn’t intended to appeal to me. I’m the kind of guy who thinks that the Prius is an appealing choice of vehicles and am willing to fork over big bucks for a cup of coffee. 

She was crunchy, once

If the two major political parties are understood to be two brands that are competing for voters, then one may recognize that the differences between red states and blue states are predominantly cultural and demographic. Blue-staters ought to be a little less smug about the fact that they have more enlightened views toward women and minorities, and a lot more concerned about the fact that the virtues of a (classically) liberal education have failed to penetrate a vast swath of red in the middle of our country. Nothing good can come of this failure.

Clinton the Corporatist

Now, let’s consider what Ms. Clinton, as a representative of the Democratic Party, and Mitt Romney, as a representative of the Republican Party, have in common. The table below sums it up nicely. 

Hillary Clinton
Mitt Romney


Goldman Sachs
JP Morgan Chase
campaign contributions, care of opensecrets.org

There may be genuine and meaningful differences between the positions advocated by the two major parties, but when it comes to the Wall Street financiers, the differences evaporate. This is particularly true if one looks at the branch of the Democratic Party represented by the Clintons.

I will not mince words: the phenomenon of corporatism (aka. oligarchy, plutocracy), which is to say the exchange of wealth and power among those who possess vast amounts of both, is fatal to democracy. We know that Citigroup, Goldman Sachs, and JP Morgan Chase were among the chief architects of the economic disaster that befell our country in 2008 (source), and that many years before 2008 the heads of these corrupt organizations were making steady inroads, altering the political environment to make it more favorable to the interests of the 1% at the expense of nearly every American. 

We know that President Bill Clinton oversaw the repeal of Glass Steagall. The repeal of this New Deal era safeguard helped bring on the crisis of 2008. Recently, President Clinton grumbled about the fact that Senator Elizabeth Warren is agitating in favor of restoring Glass Steagall. He said, in his own defense, that the repeal of Glass Steagall hadn’t caused a single financial institution to fail (source), which epically misses the point. We know that President Clinton ushered in the age of NAFTA, which is to say, the accelerated extinction of manufacturing in America. At the time he had his wife’s support, but she reversed her position on NAFTA in time for the 2008 campaign (source).
Ms. Clinton with Lloyd Blankfein, head of Goldman Sachs and traitor

To expand on the argument that it is unseemly for a politician to accept money from the aforementioned donors, it is worth reflecting on the story of Robert Rubin. In 1993, he left Goldman Sachs for a lower-paying position as Treasury Secretary during both of President Clinton’s terms in office (source). During his tenure at Treasury, he fought to preserve China’s Most Favored Nation status, defended NAFTA, and championed health care reform provided that it is sufficiently “business friendly.”  

He became chairman of Citigroup in 2007, just as Ms. Clinton was gearing up for her campaign. Rubin was a vocal supporter of her candidacy. He stepped down in 2009. Rubin received over $17,000,000 in compensation from Citigroup and a further $33,000,000 in stock options in 2008; over the course of his relationship with Citigroup, he received, in total, $126,000,000 (source). 

Clinton with Rubin

Of Rubin it has been said, “Nobody on this planet represents more vividly the scam of the banking industry … He made [over] $120 million from Citibank, which was technically insolvent [at the time]. And now we, the taxpayers, are paying for it (source).” It has also been noted that Citigroup, “the first too-big-to-fail bank made legal by the [deregulation] law Clinton signed, became the … employer of Robert Rubin … who led the fight for the law that legalized the creation of Citigroup (source).”


As the 2016 presidential campaign takes shape, we will likely see the Republicans choosing a candidate who will be unpalatable to most liberal-leaning Americans. Some are predicting that Mike Huckabee, the Arkansan misogynist, will become the favorite, despite the fact that he is unelectable. Other names that have been mentioned are those of Ted Cruz, Mitt Romney (!), and Rand Paul. The notion of fronting any of these characters is incredible, but it is consistent with conservatives’ powerful inclination to choose politicians who symbolize their cultural values even if it means guaranteeing their own irrelevance as a political force in this country. 

The only one of the lot with anything constructive to say is Mr. Paul, who despite his many highly objectionable views, is to be lauded for defending the 4th Amendment. Ms. Clinton, for her part, voted in favor of the misnamed “USA PATRIOT Act” in 2001 and again in 2006 (source). The PATRIOT Act has been rightly described as one of the gravest dangers to American liberties in U.S. history (source).

The point I wish to make is this: Ms. Clinton will almost certainly be the Democratic nominee in 2016, and many Americans will compare her to the Republican nominee and decide that she is the lesser of two evils. Having made that determination, voters will feel it necessary to vote for Ms. Clinton. I wish to reiterate the point that I have made in this blog before, and state it more forcefully: it is wrong and assuredly contrary to the interests of the American people to actively choose the lesser of two evils. The argument from necessity, as William Pitt pointed out, is an argument made by tyrants and believed by slaves. 

I will urge the reader to consider that certain acts by politicians ought to render them unfit for office in the eyes of the voters. Among these unacceptable acts I would include (1) even so much as the appearance of a conflict of interest when it comes to financial relationships with Citibank, Goldman Sachs, or JP Morgan Chase, (2) support for unjust and reckless military interventions overseas, and (3) support for the PATRIOT Act.