Why Blame Capitalism?

Ooooooh! Please Raise My Taxes!

For anyone who knows me or has read any of my articles, posts, etc. I am very much Center-Right on the political spectrum. While I do I lean toward the left on a handful of issues, I am most assuredly a solid Conservative when it comes to our economy and yes I am asking for a healthy tax increase!

To me, being a Fiscal Conservative doesn’t simply mean, cut-taxes/cut-government spending. Without a doubt, I would like to see both of the things happen, however, I am also very much a believer in paying for our obligations and not continually putting everything on the credit card. That holds true when my wife and I discuss our monthly budget. It should also hold true for a National Budget.

In order to move forward with this discussion, I believe it would be beneficial to understand, at least at a high level, our Federal Budget. Below is a high-level breakdown of that budget for 2019 with an approximate target $4 TRILLION dollars:

Based on the above, Mandatory Spending, items that cannot be reduced or suspended, represents nearly TWO-THIRDS of the budget. The below graph provides a breakdown of the Mandatory Spending bucket:

While the biggest ticket items in this bucket are Social Security, Medicare and Medicaid, there are other items like Veterans’ Benefits that are definitely top of mind for many people.

The below table provides a break down of the Discretionary Spending bucket:

We could spend a great deal of time diving into each of these macro and micro buckets, but rather than doing so, I simply wanted to bring these macro figures to everyone’s attention as I believe we can’t have a rational discussion about budget or taxes without understanding where the money goes or where from where the government gets its revenue. As for revenue, the following graph provides a breakdown of the revenue sources:

The above graph shows a few nuggets for us to consdier moving forward:

  • Individuals are providing roughly 68% of Federal Revenue through Income Taxes and their “portion” of the Payroll Tax.
  • Corporations are providing roughly 25% of Federal Revenue through Income Taxes and their “portion” of the Payroll Tax.
  • Payroll Taxes, which fund Social Security and Medicare, equate to roughly $1,247 BILLION dollars which is far less than the projected $1,550 BILLION dollar budget projection. Some of this covered by the Social Security Trust Fund, but we are still budgeting more than what we are projecting to bring in.

While there are many more points we could dive into, the third bullet is the issue I would like to focus on and ask the following question. Why are we even putting forth a deficit budget or r at least a deficit budget on the Mandatory Expenditures? While I would never expect the budgeting to come out perfect after a year of running our Federal Government, I would expect us to at least plan for relative balance. But we don’t and the answer to why is very clear. Our Government doesn’t have to. They can simply pass whatever budget they choose, print money at will, and by and large, most people won’t hold them accountable at the ballot box for their spending or their inability to reign spending in. Secondarily, most people don’t read about or understand what year over year of this disastrous policy making will do for the long-term future of our country.

So back to my request for higher taxes. I would propose creating three separate taxes to fund each of the Macro Budget Buckets:

  1. Mandatory Spending
    • Change the Payroll Tax to cover ALL Mandatory Spending plus 10% and adjust the limits/rates to allow for this to happen
    • Convert the Social Security Trust Fund to as a Mandatory Spending Trust Fund
    • In the event there are surpluses, all dollars should go into a trust fund and should NEVER be co-mingled with the Discretionary Fund
    • This will ensure that Individuals and Corporations are sharing more equally in funding the government as they both are served by the government
  2. Discretionary Spending
    • Change the Income Tax to cover ALL Discretionary spending plus 10% and adjust limits to allow for this to happen
    • In the event there are surpluses, all dollars should go into a trust fund and should NEVER be co-mingled with the Discretionary Fund
    • Corporate “rates” could be kept low as their overall taxation would increase under the Payroll Tax changes
  3. Interest and Debt
    • The “Death” tax should be used to cover outstanding interest AND debt reduction
    • Debt and Interest are expenditures that were incurred by people in the past, therefore IMO, built wealth should be used to pay for those items
    • People who have lived on the largesse of the Government should be the ones primarily responsible for the costs
    • IMO, that “Wealth” was also built in some part based on the Government incurring that debt so a portion of that wealth should be used to retire it

These proposals are not painless. Taxes will go up. I philosophically hate the “Death” tax but difficult times call for difficult decisions and I see this as the least impactful way to pay interest and retire the debt.

I know many Conservatives will read this and call BLASPHEMY but I challenge them to tell me how it is a bad thing to cover our expenditures and put money away for the future while paying down the debt with minimal impact to the current generation that did little to compile it.

Why Blame Capitalism?

At my previous job, my immediate supervisor, his immediate supervisor, as well as several other individuals were active outdoors men, hunters, and general gun enthusiasts. We (actually they as I typically remained a quiet participant) would routinely discuss their most firearms purchases, favorite places to hunt or shoot, and the various accouterments associated with their hobby that included clothing, safes and the like. On one occasion, I actually rode with my supervisor as he transported several weapons that had been loaded into the back of his truck to a friend’s house for storage. Not during that ride, nor during any other time I have come in contact with a firearm, nor during any of the hundreds of stories I have heard did one of those guns suddenly come to life and cause harm to someone. Why? Because a gun is an inanimate object. To inflict damage, it requires a human to either use it incorrectly or with malice. Invariably, because these individuals with whom I worked (and countless others) were experienced, trained, and careful no harm came from what may appear to many a very dangerous situation.

The same can be said for many other inanimate objects like a knife, a car, or a baseball bat.

The same can be said for our economic system, Capitalism.

I have read countless articles over the past few months denigrating the economic system under which the United States has thrived for over 200 years, and what is the primary issue that so many of these writers call out? Greed. But can a non-human entity exhibit greed any more so than a gun can load, aim, target, and fire without human intervention? Of course not. As logical as that sounds, detractors of Capitalism will simply point out that the system is driven by and shamelessly encourages greed. I think those people have seen too many clips of Gordon Gekko castigating the executives of Teldar Paper.

Greed is not unique to Capitalism. Greed crops up anywhere humans exist. Whether it was the biggest and strongest caveman, the pernicious monarch, or a predatory lender, there will always be some subset of people that seek to exploit the system for their own personal gain, regardless of the system or institution. Capitalism, however, is not the problem. In fact, Capitalism provides the most inherent obstacles to these insidious forces, especially when the Government provides a fertile basis for doing business and does not exert excessive authority over the markets.

For a perfect example of the positive impact Capitalism can have on a civilization, just look at the growth of the Untied States between 1875 and 1900. So many of us have been taught about the “Robber Barons”, Rockefeller, Carnegie, Vanderbilt, ruthlessly acquiring wealth at the expense of the general populace. Yes. these men, and many others, acquired great fortunes. Yes, in the case of Rockefeller and Carnegie, they became the wealthiest non-monarchs in the world. And yes, these men, and the companies they built, provided goods and services that advanced this country as well as the world, in a way that would not have been possible without Capitalism and the profit motive.

Prior to Rockefeller, how did people light their homes? Sunlight. Wax candles. Oil lamps powered by hunted whales. Due to production costs (it isn’t cheap to hunt and process a whale) and scarcity of raw materials, the latter two were nearly out of reach for anyone but the wealthiest of households, so most people lived in the dark once the sun went down. Rockefeller changed all of that. His ability to refine crude oil provided a new option for powering a lamp and completely changed the energy market. Once established, he then set out to drive efficiency to increase production and reduce costs. He used byproducts of the kerosene refining process to power his plant rather than coal. He developed the oil pipeline to provide raw material to his production facility rather than pay expensive train freights for delivery. These in addition to other improvements simultaneously increased production, lowered overall production costs, which allowed for more kerosene to be purchased by more people. Today, people would say he “disrupted” the market. Traditionally, this would be called “creative destruction.”

So while an entire industry was eventually destroyed (whale hunting) or greatly reduced (wax candles, train freight), new businesses were either created or enhanced (oil drilling, oil refining, pipe making and fitting) which provided a net increase to our civilization through both wealth creation and a higher standard of living.

Just one generation later, in another act of “creative destruction”, the creation of electric light destroyed the need for kerosene fueled lamps. However, through that destruction, Rockefeller shifted his company and created the means to produce fuel for the gasoline engine. This “creative destructive” cycle, while scary to some, drives human progress. Creativity leads to competition of old and new, possibly even two new ideas. Eventually, one will win out as it better meets the needs and or desires of the people at that given time.

Thank you to Capitalism for allowing, promoting, even encouraging, both this creativity and destruction that drove scientific progress and lifted the overall standard of living for all people throughout this great civilization. Yes, it can appear to be ruthless. Yes, it will have adverse consequences on some. But over the course of time, and without too much outside interference, this process brings incredible and unparalleled advancement to civilization and it acts as the rising tide that lifts all boats.