Kentucky Blog

Because Kentucky Is Not Called the "REDgrass State"

Thursday, March 03, 2005

Greenspan the Goat

Okay, he's not a goat, but I originally wanted to call this post "I Really Hate Greenspan" or "Greenspan Should Rot in ..." - well you get the picture. In 1982-83 Greenspan was involved in "saving" Social Security under Regan, and the plan was to raise the salary cap subject to SS tax nominally. The limitations put in place are the ones referred to today as the "$90,000 cap" and it increases each year incrementally.

Now of course Greenspan is testifying that Social Security is again in "crisis" (a bit antithetical to his testimony before Congress in '82) and that cuts in benefits are necessary. This gives credence to the incredulous notion that privatizing Social Security is the way to go. Yesterday Greenspan concedes budget deficits are also a problem - yet he was the strongest advocate of the tax cuts so that Congress wouldn't spend the Bill Clinton surplus.

So let's recap:
  • Greenspan agrees taxes should be cut on the richest Americans
  • Greenspan suggests SS benefits should be cut rather than raising the salary level subject to FICA tax (serving two purposes - one is to make the poor even poorer because the rich don't need Social Security, and the other is to avoid having those making over $90,000 contribute to the retirement of those who served them over the years as their caddies, maids, cab drivers, etc.)
  • Greenspan suggest spending cuts are needed to compensate for the deficits created by the tax cuts (spending cuts, as Bush has shown, will only affect those at the bottom of the socioeconomic ladder)

Now Greenspan is promoting a national sales tax (i.e. "consumption tax") where you're taxed on what you consume. If you don't spend money you're not paying taxes. Sounds good in theory, right? Of course it does - but then again, so did the String Theory of particle physics when it first came out. No real economist supports this and with Google you'll find libertarians, conservatives, and liberals all oppose it on a variety of ideological and reality-based grounds. Which makes me wonder if Greenspan is just a dumbass (albeit a lucky one)? Or has his brains been replaced with Jell-O?

The point being that lower income group and much of the middle class spend most, if not all, of their income each month. Rich people don't. Thus the marginal tax rate for the poor (i.e., the percentage of income spent on taxes) is grossly disproportionate to that of the rich. But don't rich people deserve it? Yes and no. If there was a corresponding tax on "wealth" (such as the amassing of money on investments that have been handed down from one generation to another with no work being performed by the beneficiary - does anyone think Paris Hilton should live her life without paying taxes on the money she's going to be given?) a "hybrid" system may be doable (but for the other problems noted below). Does anyone really think Bush is going to tax wealth?

And let's all screw the old people in the process. A retired dude earns $100,000 let's say. After taxes he takes home $75,000, and saves every penny. Now he retires and there's a 25% sales tax. Boom! His $100,000 earnings have now been taxed down to $56,250! Hee hee hee hee. Screw you old people, that's what you get for getting old. Hee hee hee. You should have worked harder and got a better education and thus a higher paying job. Hee hee hee.

Now assume the $75,000 is what the guy that cleaned the urinals in your office building for 25 years was able to save in that time on his $6.00/hour salary. He worked 7 p.m. - 3 a.m. every night so you could crap and pee in a clean bathroom the next morning. A national sales tax has just reduced his retirement nest egg by almost half of its original, pre-tax worth, and he's wondering why he didn't just rob you one night, sell your kids crack, or blackmail you with photos of you doing your secretary. In other words a guy that played by the rules (you know, the kind that politicians like to point to at State of the Union or campaign stop speeches) just got screwed.

Finally, it is a violation of federalism - the notion that the federal government and the governments of the various states are separate. [In other words "states' rights"...the favorite straw man of the Republicans in regards to environmental regulation relaxation, but the boogey man when it comes to gay marriage.] Taxation is a concurrent power between them, but in keeping with the notion originally espoused in the Articles of Confederation, the federal government only taxed income (and even then only with a Constitutional Amendment). Even states that don't charge an income tax - usually on the basis of federalism originally (note they're primarily in the South where federalism was more espoused), but now on the basis of politics - charge a sales tax. A federal sales tax arguably deprives states of a vital revenue source. Simply stated adding 26% to the existing sales tax (the amount necessary to sustain current tax levels - some estimates go as high as 50%) would cause consumers to pay a third or more of a product's price in tax.

Oh, one more thing. The 26% estimate includes taxing new housing purchases. Buy yourself a $100,000 shoebox in the city with no money down and you're starting out with -$26K equity.



  • At 9:56 AM, Anonymous Anonymous said…

  • At 4:21 AM, Blogger John said…

    Super article. Thanks!

    Here's another great article on Greenspan, part of a superb series:


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