Wednesday, January 5, 2011

Being Rich is Fine, Just Pay Your Fair Share Towards Building a Resilient and Sustainable Society

With reports all over the internet about how the richest of the rich have already paid their dues to society through their “tax freedom day” as of Monday, January 3rd, just a little before noon (meaning everything that the rich earn from here on in is pure profit, while the rest of us middle class folk toil to make our contributions to civil society for another 6 or 7 months), it seems to me a very bizarre time for Mike Milke to be defending the rich from having to pay their fair share (“Being rich is fine, just not with taxes”, published in the Sudbury Star, Wednesday January 5/11).

Nobody likes paying taxes. But we all know that they contribute towards building the kind of society which we enjoy, and in fact, demand of our governments. Certainly, there is much debate on how best our hard-earned tax dollars are spent, and there is inevitably waste in government spending, not to mention mis-directed spending which sometimes erupts in scandals such as those under the federal Liberal Party: the sponsorship scandal and the HRDC billion dollar boondoggle.

However, none of this means that we should forego paying our fair share of taxes. The thesis that McQuaig and Brooks offer in their new book, “The Trouble With Billionaires” (attacked by Milke in his article), is that the ultra rich aren’t paying their fair share, and the middle class is in fact subsidizing the lifestyle of the rich. Of that there really is no argument, as the facts speak for themselves.

Milke believes that Canadians should continue with a tax system which penalizes the middle class and rewards the rich. Milke takes a look at the tax policies of U.S. President Roosevelt during the Great Depression, which others have determined to be some of the most progressive tax policies ever implemented by a federal level of government, and which almost single-handedly saved the United States from an even deeper level of economic depression than was actually experienced in the 1930s (and almost certainly staved off civil unrest by giving unemployed people jobs). Milke concludes that it was the government’s post-1929 Wall Street crash policies which brought on the depression, and not the crash itself.

Lessons from the Great Depression?

Let’s examine this Milke’s assertions a little more fully. Initially, a loss of confidence following the crash put closed to many banks and businesses, although there appeared to be growing momentum towards recovery. This notion of “confidence”, however, plays an extremely, and often little-understood role in the economy. With confidence never really recovering following the crash, investors weren’t ready to make the decisions needed to prevent the depression, for fear of losing their investments. Milke conveniently forgets that the rich largely held on to their wealth, which was accumulated through the toil of workers, rather than making decisions to invest in prosperity. The middle class really had little choice but to follow suit in this circumstance, due to this loss of investment confidence. Those workers who created the wealth in the first place increasingly found themselves out of a job, and wealth itself went into decline.

Certainly, the government’s protectionist policies, such as the Smoot-Hawley tariff in the U.S., enacted in the wake of the stock market crash contributed to the economic downturn. However, Smoot-Hawley was enacted under Republican President Herbert Hoover, and not Roosevelt.

Milke further argues that Roosevelt’s policy to subsidize farmers (who then made up a significantly higher percentage of Americans than they do today) in an attempt to raise food prices was also misguided. One shudders to think about what might happened to those farmers had they joined the swelling ranks of the unemployed. And while it’s true that many Americans were “dirt poor”, the depression of the 1930s actually deflated prices at the time; that isn’t something that we risk experiencing today, due to ever-rising energy costs.

No Opportunity With Inequality

Milke’s solution is the old conservative stand-by: rather than taxing the rich to help build our society, let’s lift those in poverty out of their plight by providing the poor with opportunities. Only through the creation of opportunity will we ever lick the poverty cycle. Who can disagree with the notion that jobs are the best bulwark against poverty? Nobody.

But to suggest that creating economic opportunities for the poor means that we don’t have to worry about how much the rich pay in taxes simply doesn’t follow. There remains the inequality in taxation which has grown since Roosevelt left office. Back in the 1930s, the richest Americans (and Canadians) contributed a significantly higher proportion of their income to governments through taxation. Since then, we have largely dismantled the progressive taxation policies which existed at that time in favour of deregulation, based on the premise that wealth is generated for private interests and that the market should be the great dictator and society builder.

What we’ve actually ended up with is a situation where the rich under-contribute to society. While you or I may pay as much as half of our income to the state in taxes, the richest of the rich may pay as little as 5% to 10% (and maybe even less than that, due to the numerous loopholes found in our current taxation system). What we have is a situation where those most capable of paying their fair share don’t, leaving the burden of society building to fall disproportionately to the hard working middle class. And somehow this makes sense to Milke and others who suggest that there is no need for the rich to pay more in taxes.

In a society with such rampant inequality, can we really expect the significant creation of opportunities for the poor to pull themselves out of poverty? Well, this isn’t a theoretical argument, as we now live in a world of increasing inequality, and have for some time. Growing inequality actually leads to fewer opportunities for the poor to help themselves, as wealth is increasingly tied up in private interests which tend to invest in the sorts of activities which don’t primarily lead to a healthier society.

If you don’t believe me, just look around at our current circumstance. If you believe that we’re not in trouble, well, perhaps you would conclude that we shouldn’t be concerned about taxing the rich. But if you believe that we haven’t built the sort of society with the necessary resilience needed to tackle a changing climate and the end of inexpensive energy, well I think that you might share my view that there is something terribly wrong with the way in which we increasingly rely on market forces to dictate where wealth is spent.

Paying Our Fair Share and Spending Smarter

It didn’t have to be this way. But we, including the middle class, got greedy, and told our governments that we were upset with our tax burden. Our greed was fuelled by the fact that our governments took our money and spent it wantonly, often in a very public manner, which led to our increasing calls to reign in spending. This has been going on for decades, and has recently culminated with the anti-tax Tea Party movement in the United States.

But is decreasing our level of taxation really in the interests of the middle class? Given that it’s the middle class which is largely financing the enterprise of society building (and maintaining what we have already built), if we contribute fewer dollars to our governments, what can we expect the outcome to be but fewer services leading to more disparity and inequality? And greater disparity will certainly kibosh those “opportunities” for the poor to pull themselves out of their economic circumstance.

If you look behind the Tea Party movement to who is actually providing the funding for advancing the anti-tax agenda, you’ll discover quite quickly that the Tea Party is nothing but an astro-turf campaign of the ultra-rich. The rich have an interest in convincing the middle class that we’d all be better off paying a much smaller level of tax to governments, because governments would then be in less of a position to build societies which require public investment, and thus leave the rich alone to increasingly use their wealth as they see fit. Nevermind that the greater collective interests of our society continue to suffer, while the interests of the ultra-rich remain paramount; the middle class is being fooled into believing that lower taxes for everyone is somehow beneficial for society, even at a time when the inequality between rich and poor continues to grow, and the middle class continues to shrink.

I understand the angst of the middle class regarding taxes. In fact, I share it to a considerable degree. But the answer is not to lower my own taxes (at least not in isolation of any other answer). A better answer would be for all to pay their fair share, and that includes the ultra-rich, who are best positioned to do so, and who have increasingly been let off the hook by our governments. Certainly, we also need our governments to spend smarter, which means not only reducing waste (and ending the boondoggles), but targeting spending in such a way so that it leads to the greatest benefits for our society. For example, investing upwards of $9 billion in fighter jets just doesn’t make any sense for Canada at this time, given that we do not have enemy states which threaten us, and given the massive spending deficit we’ve accumulated these past couple of years through misguided stimulus spending and tax cuts. That’s just stupid spending, and it’s no wonder that the middle class is angry when their governments make these kinds of spending decisions with their hard-earned tax dollars.

A more progressive taxation system is the solution, one in which we all pay our fair share, and one which leads to better outcomes for our society. I agree with the Tea Partiers who say that we should be allowed to keep more of our income and spend it as we see fit. I also agree with those who recognize that our society continues to subsidize activities which are ultimately destructive. I believe that we need to take a very close look at these perverse subsidies and start making changes where full cost recovery is considered, so instead of my tax dollars going towards finding solutions to problems created by these activities, those benefiting from these activities are instead paying the full and real price.

Ending Perverse Subsidies

An example of the above situation involves the subsidy that our society provides to smokers, whose use of our health care dollars is disproportionate to their contribution to health care paid through taxes on cigarettes. Sure, taxes on a pack of smokes are considerable, but health care costs for smoking-related health issues are considerably more considerable! Add the fact that many smokers are opting not to pay taxes by engaging in black-market activities, and it’s clear that we have an activity where a certain segment of our society is benefiting from a destructive activity through a perverse subsidy.

Another example is how our society continues to subsidize personal vehicle transportation over sustainable transportation (cars vs. transit/cycling/walking), despite the established health-care and environmental effects of personal vehicle use. We subsidize our car culture in many ways, including offering personal vehicles public storage benefits on private and public property (free parking, or low parking rates). Here in Greater Sudbury, as in most Canadian municipalities, an incredible percentage of our property tax dollars goes towards road maintenance, which is also funded by higher levels of government through transfers. This money ultimately also comes from us through income taxes. As many of us are not vehicle owners and do not use roads for personal transportation (one third of Greater Sudburians do not own cars), many Canadians are paying for an environmentally detrimental activity which they do not use. And I’ve not even begun to discuss how our governments subsidize the price of gasoline at the expense of our atmosphere.

(As an aside, just think of how things might be if car owners had to pay for privilege of parking every time they used their cars, while transit users ride for free).

Generally, it’s not the rich who are choosing to walk instead of driving their SUV. While it may seem that personal vehicle ownership is necessary for the middle class, this has only come about because we have chosen not to invest in alternative transportation, such as transit, or to physically build our communities so that cycling and walking to destinations are sustainable choices. Low density suburban living remains desirable to many, but it has historically been subsidized at the expense of our health and our environment. It is a negative activity in which many of us continue to engage in.

If you want to choose to continue with negative lifestyle choices, fine, do so, but pay for the complete cost of your choices. Your choices will assist in financing the building a more resilient society for the greater good of all of us. Let the rest of us make a choice regarding how best to spend our money. And let’s make sure that our governments are positioned to intervene in situations where the most vulnerable can not choose for themselves, because they have been shut out of those opportunities for economic betterment. We can not leave the poor behind, nor those living on fixed incomes. Let’s instead guarantee that they will be active participants in building a society and communities where their own needs are met.

Tipping Points for Change

All of the above are reasons for making necessary changes to our taxation system. However, these changes will not be made as long as we continue to subsidize the rich and their negative lifestyle choices. Since many of the ultra rich seem to have a vested interest in not paying their fair share, and accumulating wealth at any cost (except to the rest of us), we can be assured that they will continue to mount campaigns against progressive tax reform, and lobby our governments with their vast resources so that ultimately our governments continue to make decisions in the interest of the few at the expense of the many.

We have one tool at our disposal which can be a very useful instrument of change, should we choose to use it. That tool is democracy, and we use it through our vote at ballot boxes. However, an increasing number of Canadians, mostly those who are not rich, have become disengaged with the democratic process for many reasons. Chief amongst these reasons, though, is the notion that we can not change the system. I admit, our current system appears to be monolithic, and monopolized by the interests of the wealthy at the expense of the middle class and the poor. However, there are tipping points which, once reached, will lead to fundamental shifts in the system. We just need to nudge things forward to those tipping points.

The most important tipping point which exists now just over the horizon is getting rid of our regressive “First Past the Post” electoral system. Jurisdictions throughout the world have realized that this form of electoral system achieves results which are not representative of the will of voters. Here in Canada, discussions regarding alternative electoral systems have been in the mainstream now for over a decade, and as more understanding of the benefits and values of scrapping First Past the Post become apparent, we can expect that some jurisdiction in Canada will move forward with progressive electoral reform before too long. That’s going to prove to be a tipping point, and it’s going to begin to change everything.

Another tipping point looms on the horizon as well, albeit a much more negative one. We can expect to experience increased levels of poverty over the coming decade, along with rising unemployment, due to the twin crises in the environment (climate change) and the economy (the end of inexpensive energy resources). With higher unemployment and higher prices, our social circumstance will lead to increasing levels of unrest. The powers that be understand this, and will continue pushing their “law and order” agenda, along with their war on civil liberties. When things begin to go downhill, they will be politically and legally ready to safeguard their interests. Will the rest of us be? Probably not. But clearly our economic circumstances in the years ahead are going to lead to a tipping point, and there will be change, and possibly significant change. Harnessed in a positive way, with organization and optimism, we can start making smarter spending choices which benefit the majority of our society. However, if we continue to let the interests of the wealthy trump the interests of the majority, we risk creating a society with increased police powers in the name of public security.

Building a Resilient and Sustainable Canada for the 21st Century

I’m not suggesting that the rich are the enemy, only that they be held to the same level that the rest of us are, and that they contribute their fair share of taxation revenues and pay the full price of activities in which they choose to engage in. The contributions of our society’s wealthiest are considerable and should not be forgotten. They help create the jobs at which we work through their investments. They contribute to philanthropic and charitable organizations. Some act as leaders and role models.

But disproportionately they’re not contributing to building the Canada that all of us need for a prosperous future. And their efforts to maintain the status quo are the holding the rest of us back, and making us poorer as a result. If you don’t believe that, put aside economic theory for a moment and just look around at the world we inhabit in 2011, and ask yourself: are we better off now than we were 10 or 15 years ago? And if this trend continues, where might we be in 10 or 15 years time? What kind of world will our children inherit if we continue to let market forces make our investment decisions for us?

Is pursuit of the almighty dollar for personal gain more important than everything else? If we continue to believe that the answer to this last question is “yes”, than the society that our children inherit will be one in which, generally speaking, the majority will be worse off than we and our parents were. Are we prepared to allow this to happen, when we have the ability to foment real and positive changes if we just make the effort?

Those who favour maintaining the status quo are relying on our complacency, which will allow them to build a future which favours the wealthy minority over the rest of us. It doesn’t have to be that way, but the rest of us need to start taking action. Action starts with the understanding that inequality is not ok, and does not have to be a fact of life.

No comments: