Tuesday, September 20, 2011

Class Warfare Class

In the United States, the President proposed a plan to increase taxes on the rich. Republicans then denounced this as “class warfare”.
Anecdotally, it seems to me that most US government programs benefit the poor and disadvantaged in higher proportions to the rich. Food stamps, unemployment insurance, medicare, social security – these are all things that benefit the poor more. Occupational Health and Safety Administration rules and enforcement benefit folks in manufacturing, who are not raking in millions. US Department of Agriculture inspections help consumers who are going to shop in supermarkets and cannot afford premium butchered products. Student assistance for colleges and universities benefits those who cannot afford to go to school.
These are all programs eligible for deficit reduction.
So let’s do some math, and for the sake of simplicity we will just use made up numbers and consider only first order effects. Let’s say the US is spending $10 and bringing in $5, for a deficit of $5.
Scenario 1: Balance budget through cuts only, reduce spending by $5.
Impact on rich = $0.         Impact on poor = -$5.
Scenario 2: Balance budget through tax increase of $2.5 on rich and reduce spending by $2.5.
Impact on rich = -$2.5     Impact on poor = -$2.5.
The cut-spending only scenario is more unbalanced than the alternative. So the “class warfare defense” seems a bit suspect. It appears to be political spin more than fact.
Nobody likes increased taxes. Nobody likes spending cuts. As we have discussed before, however, this is not rocket science. A budget will only get balanced if revenues increase or costs are cut.
I would love to hear your thoughts about class warfare or your stories on this topic if you have them.
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  1. I think the problem with the deficit is that the government is not utilizing efficiencies of scale. There are too many duplicate departments with agencies performing the same tasks which then compete for funds. You wouldn't run a corporation with redundant departments.

    There are cuts that can be made without raising taxes or reducing benefits.

    Great post.

  2. Maddie,

    I agree that there are redundancies.

    They happen in companies too, it is just part of human politics. The business units want to have control over their accounting and finance people, but the CFO wants control as well. Very interesting organizational designs end up as a result, looking a lot like the US federal govenment!

    Thanks for the comments!