Mr. Demagogue?

Mr. Demagogue?

“The State Department is infested with communists. I have here in my hand a list of 205—a list of names that were made known to the Secretary of State as being members of the Communist Party and who nevertheless are still working and shaping policy in the State Department.”

-Senator Joseph McCarthy – Wheeling, Virginia speech (2-9-50)

“Until this moment, Senator, I think I never really gauged your cruelty or your recklessness …   Let us not assassinate this lad further, Senator. You’ve done enough. Have you no sense of decency, sir, at long last? Have you left no sense of decency.”
 

 - U.S. Army’s chief legal representative, Joseph Nye Welch – Army\McCarthy Hearings  (June 9, 1954)

By J.M. Hamilton (3-17-12)

They seem to arrive during troubled times, be they economic or political.  A leader arrives on the scene, and offers up a seemingly simplistic reason for a nation’s problems, and often a simpler solution.  They may be charismatic and, ultimately, enjoy a cult of personality following.

Demagogues play upon the public’s fear, and often their ignorance.  The elementary, and often times extreme, positions they take offer solutions for a bewildered and frightened public, all too eager to put a bad situation behind it and looking for an earthly messiah.  Above all, what a demagogue offers is a short cut to thinking.  The fear and misery that propels these individuals into a nation’s spot light can be so great that otherwise sane, rational and intelligent academic, business, political and spiritual leaders offer no rebuttal, for fear of being ostracized, castigated or worse.

It reminds me of Mr. Burke’s famous quote:  ”All that is necessary for the triumph of evil is for good men to do nothing.”

The spell is weaved, the die is cast, and the next thing one knows a nation has an even bigger problem on its hands; the fallacious and specious solution that was offered often delays the inevitable (the more arduous path to resolution), or serves only to aggravate and prolong the crisis.  Examples of U.S. demagogues in the 20th Century would include Huey P. Long of Louisiana.  Visualize Governor Long calling the shots in the Louisiana legislature, from the dais with a bottle of whiskey in his hand.

Or Wisconsin’s Senator Joe McCarthy – who actually did more harm than good to the anti-communist movement.  Across the pond and beyond, Adolph Hitler – another demagogue – offered up a final solution and in the process, nearly killed off a race of men, destroyed a nation, and obliterated a generation’s collective soul.  Mr. Stalin was indiscriminate in the genocide he perpetrated within the USSR, but according to Andre Solzhenitsyn, Stalin’s body count made Hitler look like a piker (that is not to diminish Hitler’s crimes against humanity in any way).   Further east think of Pol Pot and the killing fields in Cambodia.  These men often possessed by messianic and revolutionary vision, lead their nations to destruction.

Fortunately, this country’s demagogues – at least in the last century – have been less harsh in terms of generating body count, but potentially were just as dangerous.  Here and now in the 21st Century, we appear to have a demagogue presently in our midst; and like Senator Joe McCarthy before him, Mr. Norquist – who holds no elected office, and with no binding legal authority whatsoever – has a list.

The list, however, doesn’t name communist but rather, a list of Republican congressmen, who have pledged to Mr. Norquist not to raise taxes.

To which JMH responds:  When did the Republican Party become Mr. Norquist’s sock puppet, or this weeks buzz word – “muppet?”  Ninety-five percent of all Republican congressman and, I believe all Republican Presidential candidates, have suspending rational thought, and have signed Mr. Norquist’s pledge, maintaining that they will not increase taxes.  (I remember another highly respected Republican President, who your humble blogger voted for twice, who lost his re-election bid in ’92 over a similar commitment, in which he stated “read my lips;” his own political party turned on him when he rationally bailed upon his pledge not to raise taxes.)

Now nobody, including Democrats, likes paying taxes but as stated by Justice Oliver Wendell Holmes:  ”Taxes are what we pay to live in a civilized society.”  Besides, the only thing worse than taxes is government debt and deficit spending – and the U.S. has mountains of debt brought upon it by successive Republican administrations.

Just how fiscally conservative is the Republican Party, and Mr. Norquist then, when they offer no concrete or realistic recommendations to reduce government spending, but are all for tax cuts for the wealthy, when we are running trillion dollar deficits per annum?

The answer is:  Not very!  Analysis from major news organizations reveals that Mr. Romney’s budget plans for the nation, if elected, would lead to an even greater accumulation of debt than the present administration.  And lets not forget Republican Vice President Cheney’s infamous quip that President Reagan proved deficits don’t matter.  One only has to look to the PIIGS in Europe to see where this fiscal insanity will eventually lead; and but by the grace of the printing press and possession of the world’s fiat currency, the U.S. doesn’t find itself among the PIIGS already.

Of course rarely mentioned, if ever, by Mr. Norquist, or his minions – the Republican Party, is that the wealthy, the rich, and any major corporation worth it’s salt, often don’t pay taxes, or pay taxes at exceptionally low rates versus the middle class.  Now, if your middle class, say within the ninety-nine percentile, you likely cannot afford lobbyist, or pay to hire former U.S. Treasury personnel to run your tax department, or spend exceptional amounts of money electing politicians – who will vote for and protect your favorite tax loophole(s) or dodge.   But for the elite, it’s just another day in a tax paradise.

Mr. Norquist is correct in that marginal tax rates are too high in this country, for the individual and the corporation; but where many part company with Mr. Norquist is in the belief that closing catalogue upon catalogue of tax loopholes, exploited by the powerful economic and political interests, is tantamount to a tax increase, and must be fought at every turn.

The middle class and future generations are being robbed by U.S. tax policy, as it presently stands.

The middle class, what remains of it, cannot escape paying taxes, and pay a higher rate to subsidize those entities, individuals and organizations, which often pay at half the tax rate we do, that is if they pay any taxes at all.

Here’s what Mr. David Brooks of the NY Times had to say on the matter.  Mr. Brooks isn’t exactly known for his liberal views.

The Organization for Economic Cooperation and Development recently calculated how much each affluent country spends on social programs. When you include both direct spending and tax expenditures, the U.S. has one of the biggest welfare states in the world. We rank behind Sweden and ahead of Italy, Austria, the Netherlands, Denmark, Finland and Canada. Social spending in the U.S. is far above the organization’s average.

You might say that a tax break isn’t the same as a spending program. You would be wrong.
David Bradford, a Princeton economist, has the best illustration of how the system works. Suppose the Pentagon wanted to buy a new fighter plane. But instead of writing a $10 billion check to the manufacturer, the government just issued a $10 billion “weapons supply tax credit.” The plane would still get made. The company would get its money through the tax credit. And politicians would get to brag that they had cut taxes and reduced the size of government!

And we are not talking about the usual list of suspects here when it comes to IRS avoidance, but rather, when we talk about those who make a sport of ducking payment into government’s revenue stream (be it America’s or Europe’s), we are talking about a pantheon of venerable corporate entities and institutions, some of the finest America has to offer.

How do they do it?

We know that private equity likes to front load profits by soaking balance sheets in debt, and via the tax deductibility of interest payments on same.  It’s what makes private equity work.  Moreover, private equity dividends paid for with debt are not taxed until the debt is retired.  And a takeover target that is saddled with debt is likely to have diminished earnings, if any, to pay taxes on.  In fact, it might carry forward financial loss (brought on by excessive debt) to offset future earnings for purposes of cutting taxes.  Separately, payment of carried interest to the pirates of private equity is at the capital gains tax rate, presently set at 15%.  So in many instances, not only is private equity doing harm to the U.S. labor force by stripping away CAPEX and human capital (which actually does pay taxes), in order to service an artificially high debt load; but private equity loads take over targets up with debt so as to pay themselves and in turn, coincidentally, lower the effective tax rate paid on debt encumbered earnings.  In short, Americans get robbed both ways, when private equity runs a company, through the loss of jobs and the debt-ladened company’s diminished tax receipts.

On a side note, private equity likes to say they only rehabilitate sick and dying businesses, but they also like to take up healthy organizations, or fully recovered entities, and load them up with debt, repeatedly.   Take HCA for example or private equity’s greatest failure to date, TXU.  And to think of all those union and state employee retirement plans, which dump retirement money into private equity, which operates directly at cross-purposes with these same employees economic and political interests…?  One wonders if these unions and state employees, and their leadership, will ever wise up?

But wait it gets better, because the crème de la crème of Silicon Valley also has a deep disdain for paying taxes, take Apple and Google as yet another example.  Both companies exploit a tax scheme called a “double irish” or “dutch sandwich,” whereby overseas earnings are sent to Ireland, then the Netherlands, and onto Bermuda.  As reported by Bloomberg in 2010, the result is from 2007 to the date the article was written, Google paid less than a three percent tax rate, per annum, on offshore earnings.  Tax arbitrage defined!  Google’s actual payroll and revenue generated from Ireland, the Netherlands, and Bermuda maybe negligible or non-existent, but international revenues and earnings are repatriated around the horn.  All perfectly legal, and we wonder why the U.S., and assorted Western democracies – like Ireland, is running catastrophic and unsustainable fiscal deficits, and their respective citizens suffer fiscal austerity.  Last I read, Facebook, America’s favorite on line toy, was about to join the ranks of Apple and Google, by deploying the double irish tax dodge.

Meanwhile, Apple, America’s – indeed the world’s – largest market cap, or stock valuation, has more cash on hand than the U.S. Treasury – most of it safe and secure offshore.

And there is where it will lie until such time as the Republican Party breaks the spell of Mr. Norquist, and decides to stop mortgaging America’s future with debt and deficit spending.  Of course this blog has written extensively as to why the Republican Party favors deficit financing… all the better to allow the Wall Street Cartel to dictate fiscal and government policy.   And to think this is the party, or used to be, of rugged individualism and the “maverick” mentality.  Today’s Republican Party looks more like a flock of woolly mammals than proud and iconic mustangs I once knew it to be.  It’s only a matter of time before Republicans wake up and see Mr. Norquist for who he is.

Could you imagine if the middle class rose up and demanded to be paid by their employers, through stock manipulation and debt turned to dividends, at the capital gains rate?  We’d all be a little richer, since our tax rate – like Candidate Romney’s – would effectively be fifteen percent; but the government would come crashing down.  The elimination of government, ultimately, maybe the goal of certain elements within the Republican Party, like Mr. Norquist and the billionaire Koch Brothers!

Starve the beast of funds, and it will eventually parish, and along with it the social contract.  Alas, greed makes the world go around.

PS:

And speaking of unmitigated greed… the present administration knows that rising fuel prices at the pump are not due to any short fall in supply (America in fact has stockpiles of oil in Cushing Oklahoma and more natural gas coming on line than this country knows what to do with); but rather excessive speculation in oil – brought about by central banks flooding the world with paper currency – is driving fuel costs ever higher.  When zombie-banking institutions aren’t hoarding the tsunami of central bank currency, they are speculating with it.

And hence, Americans are being bent over the hoods of their cars at the pump, which is a direct threat to Mr. Obama’s second term.  To mitigate this greed and it’s threat to the nascent economic recovery, either the state or federal government should purchase, or support the purchase of the Sunoco refinery in Philadelphia, presently up for sale, and operate it at maximum capacity.  All the better to keep both Cartels worst tendencies in check, the American consumer protected, and help insure President Obama’s second term. Heh, if you’re going to operate a Cartel – the public and the Cartel should expect government intervention to protect the consumer and the economy from monopoly’s worst tendencies.

Unleashing a flood of oil from the Strategic Reserve would also send a message to the speculators that it is no longer open season on the American consumer.

 Copyright JM Hamilton Publishing 2013