The Weiner Component V.2 #44 – Patterns of History: Part 4: The Trump Tax Reform

speaking at CPAC in Washington D.C. on Februar...

The western front of the United States Capitol...

It was the expenditure of money directly after the Second World War that brought about the prosperity that came about in the United States, Europe, and Asia.  In the earlier period of 1918 to 1919 at the end of the First World War there was an instant recession as the many veterans in the U.S. attempted to come back to civilian life directly after the war.  At that time no economic adjustments were made.  In 1945 to 1946 the Federal Government created and applied large amounts of money to the issue and there was no economic problem.

 

In addition the Federal Government added massive funds through the Marshall Plan and otherwise from 1948 to 1952 which also solved the reconstruction problems of Europe and Asia.

 

During and after 1945 the various economic problems were solved on many levels by the Federal Government using the free application of money.  The money was not an object of value but a source of exchange.  It allowed for a free exchange of goods and services for other needed or wanted goods and services.  By the United States freely giving money to nations in Europe and Asia in the Marshall Plan and the Asia Recovery Act they allowed these nations to rebuild and created jobs not only in those nations but also in the United States which supplied the materials and equipment needed for the reconstructions.  The actual wealth created at that time was the new cities in these countries and the multitude of jobs created in Europe and Asia and in the United States.

 

This wealth which the United States created by the simple act of increasing the money supply and distributing it to all these countries brought about a higher level of prosperity than had existed in any of the nations involved before the Second World War.  And this included the United States.  The money had been the tool that allowed each war-torn nation to harness its work forces and rapidly rebuild.

**********************************

Prior to 1933 money had been an object of wealth.  It was mainly gold and silver in the form of coins.  After that year, in the United States, the gold was collected, withdrawn from circulation, and replaced by printed paper currency.  Thereafter money became a means of exchange having no real value except what was assigned to it by the government that printed it.  It became a means of exchange allowing labor for different labor.  The new currency could be immediately used or kept for any period of time and then used.

 

From 1933 on the entire concept of money was changed, first within the United States and then throughout the entire world.  The use of money thereafter became the use of a tool to enhance productivity which then became the new form of wealth.

 

In 2009, after the Real Estate Bubble Burst and the United States was facing a possible depression greater than the Great Depression of 1929 President Barack Obama used money to turn that disaster into the Great Recession which he resolved during his turn in the Presidency.  Money was the tool that ended the Great Recession.

************************************

Is there a difference between money as gold being the object of wealth and a paper means of exchange?  The answer is, of course, yes.

 

If money is the object of wealth which is required for any and all types of business to occur then the amount of gold in existence determines the amount of business that can be done.  The question that continually arises is: Is there enough gold in the form of money available to conduct all the necessary business?

 

The answer to that question is, No.  There has never been enough gold coinage (with the exception of the 16th Century, when Spain looted the New World) available to conduct the necessary amount of business in Europe or elsewhere.  In fact the mining and minting of gold is a totally different subject from the growth of business in the world.  The two have nothing to do with one another.  But up until 1933 the existence of the two were tied together.

 

If business is tied to the amount of gold coins available then it is extremely limited.  For business practices to be able to grow unfettered it has to have the potential to have an unlimited amount of money potential.  This is what exists when the amount of paper money in circulation is based upon legislative printing decisions within each country.

************************************

Currently in the United States the seated President, Donald J. Trump, is attempting to bring about, what he calls, Tax Reform.  This is actually a massive tax cut for the wealthy like himself and for the large corporations within the country.  He is touting it as a tax cut for everyone but that is nonsense.  Trump is attempting to give himself and his group, the economically upper 1%, massive increased tax advantages which will be paid in part by those earning $10,000 to $75,000 a year and by deficit spending.

 

He and most of the Congressional Republicans are willing to say and promise anything to get enough support to get this bill through Congress and onto Trump’s desk where he will sign it into law.  Once it is accomplished Trump and his cohorts in Congress will continue to state how everyone is benefiting from this new law but the truth will be the opposite.

*************************************

There are two different categories of taxes: most are regressive, that means the lower your income the greater a percentage is paid in taxes.  These would include sales tax, excise tax, gasoline taxes, all licenses, etc.  Everyone pays, at least, some of these taxes.  Some of them are use taxes like automobile, liquor, or cigarette taxes.  These could be federal, state, county, and city taxes.

 

Then there are progressive taxes.  These are generally income taxes which some states and the Federal Government have.  These taxes are largely based upon ability to pay; that is, the more one earns the greater the percentage of their income is taxed.  The Federal Income Tax is progressive up to 39.6% or $470,700 for a married couple filing together.  For a single tax payer it would be half as much.

 

After this amount of earning the tax becomes regressive.  39.6% is paid no matter how much above the $470,701 amount is earned.  The percentage is frozen If the couple earns ½ million dollars or one million or ten million or more.  It remains at 39.6%.  Actually the more the couple earns the lower a percentage of their income is taxed.  In 2012, when Mitt Romney ran as the Republican candidate for the Presidency, he paid 12% of his earning in taxes while the average middle class family, who earned a lot less than he did, paid at least 20% of their income in taxes.  We don’t know how much Donald Trump pays since he has refused to release his tax form.

 

President Trump, in his new Tax Plan would lower the maximum category of these taxes.  The upper two percent would reach the maximum level at a lower point than the 39.6% level.

 

Today most members of the lower class pay no income tax because their incomes are too low, but in all other taxes they pay a larger percentage of their incomes than the middle class.

 

Trump’s assorted Cabinet, from Secretary of State on, are all millionaires or billionaires.  They would all directly benefit from Trump’s tax plan.

 

No one is arguing that the income and other taxes in this country don’t need reforming.  The laws are 7,000 pages long.  But the Trump tax plan is not reform, it is a reduction in taxes for the rich.  In the opinion of the experts it will be harmful for the country.  While the bill is still being worked upon by the House of Representatives and the Senate the Republicans are touting in TV adds that the bill will save the average citizen $2,100.  Where is reality?  And for how long?  The upper echelon’s taxes presumably go on forever but everyone else’s tax benefits expire in about five years.

 

The Republicans originally wanted to gut Obamacare by dumping it upon the states and using the money they saved to pay for the tax cut.  That didn’t work.  The plan is now to reduce their taxes by increasing the National Debt.  After all what is a trillion and a half more or less added to the National Debt!

*******************************************

There is another extremely negative consequence that would come about if this bill became law.  It would help tremendously in the demise of the middle class.  Over the last twenty years or so incomes in the United States have followed a strange pattern.  For the executive class across the country compensation packages have risen significantly, generally in the millions.  But for members of the middle class wages have gone up very slowly, if at all.

 

With the exception of the Real Estate Bubble bursting in 2008 there has been little wage growth.  In 2008 there was a wage collapse.  Inflation during this period was very low, about 1 ½% a year.  But if you take 1 ½% for a period of two decades it equals a 30% increase in the price of living.  This means that the value of the wages and their purchasing power has shrunk considerably.

 

What has happened in the United States is that standards of living have dropped quite a bit and with it the number of people within the middle class.  The country is moving, once again, in the direction of a growing lower class.  Historically we seem to be going back to the 1880s or 1890s with all the corruption which existed at that time.

 

Trump’s Tax Plan would exacerbate the shrinking of the middle class.  It would bring about a massive worsening of conditions in the United States.  The country needs reform.  But this is not reform.  Instead it is an extension of the negative conditions of over a hundred years ago.  Hopefully Trump’s Tax Reform will die just like “Repeal and Replace” did several times over a nine month period.

 

If it does pass the probability is that in the 2018 Midterm Election the Democrats will become the majority in the Senate and even possibly in the House of Representatives.  If this happens there will be some fancy negotiating with Trump over the following two years and a strong possibility of a Democrat becoming President in 2020.  This could bring about a new era of tax reform.

*************************************

The difference between money as a means of exchange or goods and services and an object of wealth is subtle but of extreme importance to the welfare of the society.  As an object of wealth money tends to be dormant within the society.  It is essentially stored in dormant forms of wealth like stocks or other kinds of older investments by the well to do who possess most of it.  This limits the amount of currency available for spending, investment and growth within the society.  While money as a means of exchange continues to be present and is in constant circulation within the country allowing for maximum economic growth among the entire population.  Trump’s basic tax reform plan will make it an object of wealth within the society and actually limit economic growth and expansion.  It could eventually cause an economic recession or depression by bringing about a strong economic contraction.

 

In point of fact today, December 17, 2017, the eleven hundred page Tax Bill is still being worked upon.  Presumably on Monday, December 18 the bill will be finalized and probably voted upon.  We only know generally some of its features.

 

Leave a Reply

Your email address will not be published. Required fields are marked *