The economy, free trade and tax policy

At some point our country has to come face-to-face with the realization that we cannot spend more than we earn.

Giving unconditional tax breaks does not help our economy. The assumption that the wealthy will reinvest their capital gains in our American economy if there is no condition or penalty for taking the profits is a faulty assumption. To assume this level of patriotism from participants in our economy is flawed.  Just as we found out that, given the freedom to do so, corporations will not be good citizens in terms of labor health and safety, consumer protection and environmental protection unless forced to do so. We constantly hear the moans and rants from lobbyists and industrial advocacy groups about how our government regulations are killing their business. The alternative, however, is lack of governmental regulation destroying our environment, harming our labor force and even lowering the health and safety standards and protections for consumers.

Supply-side economics does not work except in the most perfect circumstance of complete market fairness. Unregulated, the markets controlled by the supers will not be fair and open without fraudulent manipulation by definition.

Using tax incentives to shape socioeconomic behavior is a tried and true tactic that has been used in our tax policy for decades. Clinton’s approach to the economy in the ’90s emphasized job creation and opening markets with NAFTA and other free-trade agreements.  The reputation and wisdom of these agreements have suffered from the public’s misunderstanding of the real cause of the perceived deleterious effects of free trade.

The problem is that even free-trade cannot really be free. This is where we have suffered the effects of so-called “free trade” as managed by the Bush administration. These agreements did have conditions and enforcement mechanisms to protect labor, the environment and the consumer.  The problem is that the Bush administration has failed to enforce these conditions properly or consistently.  There must be conditions, remedies and enforcement mechanisms to any agreement that guarantee reciprocity when we open our markets to others. Also, enforceable health and safety labor standards, consumer protection standards and environmental protection standards must be the part of any trade agreement.

Originally, the sociopolitical goal of opening our markets to our political adversaries and competitors, such as Red China, the Soviet bloc and the third world was based on the assumption that we could use our economic relationships to impact their sociopolitical attitudes and governmental policies by taking advantage of their increased addiction to the fruits of capitalism — profit and greed — against their Communist economic and political system. The concept of income redistribution would give way to priorities guided by personal profit and greed.

It worked, sort of. However, just as with the robber barons of the turn of the 19th to 20th century, in the absence of governmental regulations and watchdog groups to control quality, fair labor practices, health and safety issues, consumer protection and environmental protection within these countries and a vigorous CPSC in our own country, we now have lead in the toys shipped to Wal-Mart from China, and contaminated pet foods and even contamination in food and products for human consumption.  Not to mention regional and global environmental impact from China and India alone — poisoned rivers that flow from China to the Indian and Pacific ocean, toxic air and contaminants carried by the jet stream across continents and oceans and an exponential demand for carbon-based energy, impacting the health and safety of entire populations and significantly global warming throughout the world.

With every freedom comes responsibility. And it is important to remind ourselves that access to our markets is not an intrinsic right, it is a privilege that we must protect carefully. Reciprocity and enforcement tools must be the vanguard of any trade agreement we strike. To do otherwise is to end up with the situation we have now under the management of the Bush administration — a disaster for labor, consumers, our country and, ultimately, for our planet.

Likewise with our tax policy. Investors tend to view their access to public trading as an intrinsic right of a capitalist society rather than an earned privilege. Sure, the risks are greater, but so is the reward. This is where the balance of good tax policy between Darwinian capitalism and economic redistribution must find equilibrium. As citizens of this country, we have rights, privileges and responsibilities as such to do what we can for the greater good of society. Finding that balance without excessively punishing the haves or the have-nots is the art of good tax policy.

To dismiss a tax system based on graduated taxes correlative to increased income out-of-hand is rather short-sighted given the fact that any taxes we pay should be considered investments in our society. A society that has no safety net for the poor and the disabled will breed crime and disease exponentially with each generation. The haves will find themselves and their property increasingly under peril of attack and revolt from the have-nots.  If you need an example, look at Brazil or most third-world countries.  The wealthy live in gated communities with guards armed with automatic weapons.  They have to have a team of bodyguards to protect them when traveling outside their gated communities.  This is not the kind of society we want for America.  But it is the society will we get if we keep going in the current direction.

Social programs for public education, job training or re-education and welfare are worthwhile investments from a socioeconomic standpoint, because it increases employability and, by doing so, increases the tax base, assimilating the once unemployed have-nots into the middle class, which decreases the tax burden for all taxpayers and, particularly, individuals at the top of the financial heap.

Herein lies the truth that the ounce of prevention required is far better than the pound of very expensive cure.