This is my third Chapter of my Work, BUDGET CONSIDERATIONS, which will be coming out through iUniverse sometime after 3/18/2002. It basically outline how I believe the Economy has operated since the First World War.
History of the Budget
Americans always exhibited great ambivalence toward Government expenditures. Two of the stated Causes of the American Revolution by the Propagandists of the Period were Taxation and failure to provide for Colony defense. Historical examination indicates Colonists enduring much less real tax than the English themselves; estimates vary as to the exact rate, but common thought suggests the Colonists real rate of Tax was
only about Twelve percent of the real Tax burden on the English citizen. The Colonists were simply opposed to Taxation of any type; indications of this expressed by Tax riots against the Continental Congress in Virginia, New York, and South Carolina between the Declaration of Independence and the ratification of the Constitution.
The protest of lack of protection for the Colonies bears great insight into the Issue as well. The British Government bore the entirety of the burden of garrisoning troops in America, while enjoining the Colonists to provide housing for the Troops, raising and paying like levies of Colonial militia, and sharing a percentage of the Cost of the levies of imported Troops. The Colonies never paid more than one Quarter of the cost of imported
Troops at any time, and most times paid nothing at all. Colonial militias never equaled the number of imported troops, and were most often left unpaid by Colonial legislatures. The British Government actually paid about half the Funds dispersed to Colonial militias.
Americans throughout history imagined they should get something for nothing, and the Political process should be the process to attain the something. A common argument in Republican circles today states the National Debt is actually low, in terms of the GDP. They advance this argument as justification of Tax cuts, and expenditures on programs directly benefitting Business interests. They claim the Dollar is too strong in International markets, and increased National Debt would weaken the Dollar. Democrats are likewise enthused with increasing the National Debt, simply have an alternate agenda. Both still outline the Something for Nothing through Government Expenditure philosophy portrayed in all of American history.
Keynesian theory holds a limited validity in the American experience, the
American economy almost always expanded with increased Government expenditure, stagnated in periods of reduced Government expenditure. This only expresses a limited impact, without a sufficiency of detail. Other tendencies offer far more enlightenment, along with a program of action which could be a Template for Budget discussions.
This Chapter will mainly discuss these tendencies. The Reader should be aware many of the advanced ideas are hotly debated among Economists and the Greater Society. This Work provides only one side of the Argument. The first Concept must be the Placement of real tax impact. This translates into Budget concern, based upon whether Taxes effectively pay for the Budget, or deficit spending is utilized. Historical Economic data indicates Economic growth attained under conditions without deficit Government spending, exhibit greater resiliency and less
chance of Recessive conditions being engendered. The Six to Eight Periods of Economic activity where the above condition existed, all reverted into Recessive conditions after deficit Government spending programs were initiated. The impact was almost immediate; started by the shortage of Money supplies, but continued through an unpaid draft upon economic resources.
Study of the entire history of the United States provide many inferences about the American Economy. Extended periods of deficit spending actually indicate a stagnation of the standard of living among American citizens. There is an actual expressed decrease in the standard of living of Americans, whenever the real tax impact is shifted to lower income levels of Taxpayers. An increased real tax upon the Wealthy actually provides
the fastest increases in the standard of living. The best scenario exhibited by the American Economy is one where Government expenditures are high, paid by Taxes without deficit spending, and the real tax impact is increasing against the upper income levels in American society.
Study of American Recessions highlights a amazing factor; increased Government expenditures do not necessarily spur the Economy. The Periods of the middle 1930s and the 1970s most signify this effect. Government spending in both Periods was high; both generated by deficit spending. A economic spur should exceed success within a Three-
year periodicity; neither Period expressed such a economic spur. Both Periods disprove a simple implementation of Keynesian theory. The growth in Employment remained only that of actual Government expenditure employment, without secondary employment growth. Industrial orders only increased by arithmetic progression, not geometric
progression; so no real economic spur could be noted. Real Economic growth began in 1938, solely because of the restructuring of the military posture of the United States. It increased real employment, both in military placement order fulfillment, and increases in military complement. Lend-lease identicalized an increase in foreign trade, leading to
replacement of military weaponry.
An interesting venue of this activity lay in an increase in the real tax impact upon all citizens, but especially the wealthy. The above statement leads to interesting formulations. Income Tax was extremely low in the later 1930s. A substantial amount had to be earned, before a realistic tax was
imposed. The real tax impact was based upon Excise Taxes, and Income Taxes upon the Wealthy. Citizens has to be purchasing new Products, or earning a substantial income, in order to fund the existent taxes. There was a real increase in total Tax revenues, which indicated a real increase in the real tax impact upon the Wealthy, and the Purchasers of
New Goods. This signified an actual Wealth transference to the Poorer incomes.
The spur to the Economy was almost immediate, and the Economy started to boom by 1940; by 1942, the Economy had reached levels of pre-1929. Much debate exists about the exact largesse of the Four-year Period 1938-1942; but this Author believes almost 34% of all Wage-earners left the Lower Class for the Middle Class. This did not occur from simple Government spending, but actual economic transfer of Wealth from the Upper Class to the poorer Classes brought on an economic spur to the Economy; this spur generating sufficient Industrial growth in four years, to raise one-third of all Labor to the Middle Class.
Government deficit spending occurred throughout the 1970s, then actually increased in the 1980s. The actual Standard of Living stagnated throughout the entire Period. The real GDP actually stagnated throughout the Period as well. There exists no real indication this deficit spending provided any economic spur at all, except for arithmetic progression of productivity engendered by Welfare payments. Evidence exists the spur to the Economy which led to the boom in the 1980s, came solely from Corporate price reductions to inflate Sales of their Products. The lessened Profit per Unit directly translated into an increase in the income of Lower income Classes. This increased income led to increased economic activity on the part of the Poor, bringing substantial
increases to economic activity.
The Boom of the 1980s came to an end with the S&L Bailout. Study of the S&L failures provide great insight to the failure of the Boom. Loans issued by the S&Ls, and by Banks of the same Period, were awarded upon high Profits projections. The Profits projection were founded upon unrealistic economic activity levels, but also upon an enlarged Profits per Unit picture. The Latter amplifies what was occurring in the greater
Economy, which finally killed the Boom. Business was trying to enlarge their Profits per Unit of activity. They were effectively curtailing the income levels of the lower Income classes, by the rise in Product prices. Economic activity started to slow. The Recession was the direct result of Business policy, desirous of an enhanced Profits picture.
Keynesian policy can be seen to be intrinsically in error; simple Government expenditures, whether deficit or funded by Taxes, cannot spur Economic activity in and of itself. There must be a real transfer of Income to the Lower Income Classes, in order for a realistic Economic spur to be introduced. Economic history indicates this transfer is
best handled by fully-funded expenditure, be it Government expenditure or Private action.
Die-hard Republicans need be aware Trickle-down philosophy must be actual Trickle- down transference of Income to the poorer Classes. Wealthy Classes do not provide economic activity, only fund that economic activity. Economic Spurs come from transfer of Wealth from Capital Aggregation activity, to Consumer Consumption activity.
Government Economic policy which does not understand this fundamental function, will be doomed to failure.
Supply-side Economists attribute great importance to the Capital-Aggregation function; an importance which is misplaced. A modern Economy combined with a modern banking system eliminates almost all need for Capital-Aggregation activity. The expansion of the Economy can be increasingly accomplished through the loan against total demand deposits held by Consumers in the Economy. The additional Capital needs can be supplied by the internal finance policies of the modern Corporate setup. Government loans and deficit spending cover any leftover Capital Aggregation needs. The Private investor turns into a dinosaur; relegated to playing with Paper instruments issued by Corporations and Governments, and funding Insurance securities. The position of the Private Investor becomes an increasing fiction, as the maturation of the Economy occurs. This fiction, though, can insert very adverse consequences into the functioning of a modern Economy.
The current Economic Recession is a case in point. There has been a reduction of Production over the past year (2001). The reduction almost equals the loss of Production which occurred in 1930. Does this not terrify the Reader? It should not! The vital difference comes in the fact the current Economy is about Twelve times the magnitude of
the American economy of 1930. Actual Production figures are higher than in 1995a Boom year. The Economy remains in a Inventory sale-mode, and is already showing signs of Recovery. The Reader will ask why the hullabaloo over the Recession?
There is a common adage today, which says Everyone is invested in the Stock Market in one way or another; screaming about 401k plans, Mutual Funds, Stock Portfolios. Investors roar about the horrid loss of Wealth. We must go back to the use of a Reality Check. Total investment in Stocks make up about 7.8% of the total Wealth of this Nation. Investors will retain at least Four percent of the total Wealth of this nation, not matter how far South, the Stock Markets will eventually go. Approximately 70% of the Investors involved will lose at most the Stock dividends for a year or two, due to the price they originally paid for the Stock in question. The loss of Wealth stated by Most, is nothing more than the loss of Paper Profits acquired from a Balloon market.
The Author laughs at the Investors, a huge number, who claim the loss of Millions; when they initially invested Thirty thousand dollars a decade ago. He also has little sympathy for 401k holders, who claim they lost all but a half-Million dollars; about double what they ever put into the investment program. The fact stands no one can claim a loss, if they
have maintained an Eight percent per year average increase in their holdings; less than Three percent of total Investors can claim losses greater.
Supply-side Economists err in their belief of the power of the Capital-Aggregation function. The current reaction to the current Recession, simply clarifies the fraud of claiming importance for Paper financial instruments. They do not possess the power, once held in 1929. This is because of the loss of power for the Capital-Aggregation function. A modern Economy funds itself, through its modern banking system. The
independence of Corporate Management from Stockholders portrays this loss of power.
The Government finds an increasing need to supervise the activities of Corporate Management, as Board of Directors and Stockholders fail in tests of power. Government economic policies become vital in the vacuum. Return to Budget consideration states real Economic spur must include real transfer of Wealth from Capital Aggregation to Consumer Consumption. This entails a transfer of Wealth from the Upper Classes, to the Lower Incomes. The real tax impact, therefore, becomes a vital issue to any discussion of Government economic policy.
Tax Policy has historically been the most effective economic instrument for Government to affect the Economy as a whole. Tarriffs originally allowed development of native industry; then moved on to provide real censure to the Slave Trade and King Cotton. War Profits taxation brought real increases in the Standard of Living of Labor engaged in the
War industries, though they did little to stop war profiteering. Social Security funding brought the great advances of Medicine, though Medical company and Doctor like to claim they are injured by treating Medicare patients; the venue where all derive over Forty percent of their Income.
Total paid Capital Gains, little more than Twenty percent of the stipulated rates, provided more Revenue to Government; than all the proceeds of
Taxation prior to 1940. Proceeds from the Corporate Income Taxes, real tax impact running at 18% of stipulated rate revenues, constitute in total sums; a greater amount than was invested in this Country, prior to 1920both in real and adjusted rates for Inflation. Total Individual Income Tax revenues per year exceed the total GDP of this Country before 1900 in real terms; individual complaints should recognize these Taxes have raised the Standard of Living by an estimated 780%, since that time.
Intensive study of real tax impacts is the most important arena of any Government economic policy. Tax structures remain the most controversial area of Government political debate. The humor of the Debate resides in the lack of interest for most Taxpayers. They
estimate correctly, the Taxes must be paid; and is unlikely to diminish significantly under any proposal. The array of Government services establishes the level of Taxation; and Employees, the backbone of the Tax system expect no windfalls. Their real concern remains ease of reportage and payment.
Their major concern should be the limitation of the tax breaks for their Employers. The percentage of overall taxes paid by Corporations has been falling since WWII. The percentage of overall Federal taxation Corporations paid in the 1950s, was about One-third of the Total Taxes. The percentage dropped slowly throughout the 1950s, increased its drop through the 1960s and 1970s, and plunged downward after the
Reagan administration. It has reached such a state Today, the current Bush stimulus package has provision to pay Corporations rebates; when they have not paid Taxes in years. The stimulus package is actually Corporate welfare.
The Author should state Corporations have already received several Billions of dollars in Rebates, for Taxes which they never initially paid. This largesse occurs as Republicans rant at the spendthrift nature of Welfare for the Poor. A study of the current Rebate measure brings interesting properties to the discussion. The average Recipient of Welfare assistance among the Poor gain about $6300 per year, not counting Medicaid or other Health services.
The Rebates to the Corporations could be viewed in two ways: per Employee or per Stockholder. The Rebates split among Employees mean an average benefit in excess of $30,000 apiece. Split the Rebates among Stockholders brings a great variance, depending upon the setup
of the Corporate structure; Publicized Corporations get a Stockholder benefit of only $3700 per Stockholder, under publicized Corporations gain Stockholders a $40,000 benefit apiece. Recognize there are more under publicized Corporations gaining Rebates, than highly publicized Corporations. It stands as a remarkable Stimulus package.
Rancor belittles Everyone, and further comment upon the current Federal Budget and Stimulus Packages will be abandoned. The Discussion revolves around the history of Federal spending. This history has many lessons to teach; real reason most refuse to revert to it. The most remarkable element derived from it, stands as Economic
Performance actually improves with increased real Tax impact. A supposition by the Author decides its rationale comes from the actual Taxes paid, and spent as a Consumer in the Private Market. The majority of Taxpayers cannot effectively support an increased real Tax impact; such an increase would lead to a decline in their Consumption, disaster
for Government and Business both.
A real Tax impact increase thereby means forcing a Tax increase upon the wealthier elements of Society. Such an Increase upon the Wealthy
possess a number of economic connotations. An increase in the real Tax impact to the Wealthier elements of Society means their assumption of payment of a greater share of Government consumption of goods and
services in the Private Sector. This can mean a reduced tax impact for Poorer classes, or simply a deferment of Public debt. It entails, in either case, a rise in the purchase of Private Sector goods and services by the Wealthier elements of Society; traditionally known for restriction of such purchase, in favor of Investment.
This brings a higher purchase of Private Sector goods and services; higher because of defraying the assumption of debt in that Purchase. Future Labor assets will not have to be employed, in payment of Debt. This is reduced future commitment of Labor resources, and therefore,
an increase in future Income for the Poorer classes. All Taxpayers are better off, even with the increased Tax impact.
The economic ramifications of this reduction of Debt works out as greater Labor asset devotion to the production of Goods and Services in the Private Sector. Inflationary pressure is decreased, and deflationary pressure applied; the greater commitment of Labor to production insures greater production at less cost. This applies even if the real Tax
impact has increased on all Income levels. Reduction of Investment levels by the Wealthy classes do not restrict Capital Aggregation through the action of modern banking practice; based primarily on Demand Deposit account levels. The increase in Production will lower Prices, as mentioned before; but also decrease the pressure on Government for the provision of Welfare.
The Wealthier elements of Society face an increased real Tax impact, and will apply greater pressure to reduce the provision of Government goods and services; in hopes of reducing the real taxes paid. The end-result will be a lessened real Tax impact upon All, due to a reduction
of Government expenditure. This results in an enhanced Consumption pattern among the less Wealthy classes.
The above analysis may seem like Economic Theory alone, but the history of Government expenditures provides evidence. Government expenditures were not high prior to the First World War, though a review of the American Civil War also present similar evidence. Government expenditures increased dramatically during the First World War. A vast Debt was accumulated because of this expenditure. A real difference
occurred with this assumption of Debt. Restrictions were introduced to reduced War- Profiteering; these restrictions in effect, actually increased the real Tax impact upon all classes, especially the Wealthy. The working classes for the first time assumed a great percentage of the National Debt, through the sale of War bonds of small denominations.
There occurred a vast increase in the Gross Domestic Product, with resultant increase in the Standard of Living even in the War atmosphere.
The Recession following the First World War was softened by the redemption of the War Bonds issued in the War. The real Tax impact on all Classes was maintained during this Redemption Process, which was effectively completed by 1925. The elimination of the National Debt occasioned real pressure by the Wealthier elements, for reduction of the real Tax impact upon themselves. This was accomplished by 1927.
There was an immediate start to a reduction of Consumption levels among the Working classes and Poor, while Inflationary pressure with Price rises became apparent by the middle of 1927. Consumption declined in the intervening level to the degree, by the spring of 1929, Warehouses were overstocked. The wealthier classes had resumed the practice of utilizing Investment, rather than increased Consumption. This consisted solely in Paper Instrument investment; as is normal practice for established Wealth households. The Stock Market continued to rise,
though Plants were already involved in Capacity reduction because of lack of orders.
Merchandise was not moving through Retail outlets, because of Working class reduction in Consumption. Three Quarters of poor performance and low Stock dividends, coupled with advance warnings of a disastrous predicted Four Quarter Business performance; brought on the Crash of 1929. Normal Business management had been investing heavily
in the Stock Market with their Operating funds, because of the lack of opportunity exhibited for real Capital investment, on account of the poor Consumption records. The Crash of 1929 brought an immense shortage of Operating funds; leading to horrid Plant closings and Layoffs.
The huge losses to Investment Capital for the wealthier elements, with their demand for real Tax impact reduction, led the Government to restrict expenditures, as well as provide Tax relief for the wealthier classes. The Country enters the 1930s in terrible position; Business performance was not to increase, until Warehouse inventories
were significantly reduced; the Working Classes did not have the Cash to Consume, and the Wealthier constrained their Consumption practice to rebuild lost reserves.
Noted Economists believe it was the adoption of Keynesian practice of Government spending by both Hoover and Roosevelt, which brought about the Recovery. This Author disagrees,he asserts it was the gradual purchase of excess Inventories through the sheer aging of previously-purchased Product which brought the Recovery. It is his estimation the
Recovery would have been far advanced, if the Government had simply paid Business to sell their excess Inventories at half-price.
The Government bungled through the 1930s, not initiating real programs to start Private enterprise. The Economy was not going to recover effectively, until private industry was back on its feet. Continuous effort produced were attempts to save private wealth, and provide Employment insufficient to increase Consumptionjust able to provide the Necessities. The Government fell into the right mix, by the need to increase and arm the Armed Services. Thousands were taken into the Military, providing
Government supply of goods and services for them and their families. Business was awarded effective Production contracts; guaranteed to provide real Profits, with thousands of real Consumption-producing jobs in these Manufactures
Real Consumption began to pick up, and Business normalized; though re-introduction of a real Tax impact on the Wealthy classes would have to await World War II. The War, itself, produced a vast expansion of the Standard of Living, though unrecognized until after its end. The restriction on Purchases during the Conflict, enjoined a high Savings ratio among the Working classes; higher than ever before in history. Most family households held 300% of the financial reserves ever held previously in history. The Country entered the War with only One in Four households belonging to the Middle Class; by 1950, Seven out of Ten households belonged to the Middle Class.
This reversal of fortune came directly from the enjoined Savings demanded by the War. The huge Consumer demand for Goods after 1945, plus the huge needs of Europe; easily absorbed the returning Veterans into the Labor force, bringing a vast increase of Middle-
income wealth. The Boom was continued throughout the 1950s, due to the vast dislocation by the War to most of the other industrialized nations. America ended the 1950s with an average Household wealth some Seven times as large as in 1940, even adjusted for the
Inflation rate. The Individual Plant laborer was still saving approximately Three Weeks of his Income per year, while Households were still saving almost Two months income per year; though the Consumption of Each was higher than ever. Real Tax impact on all remained fairly stable since the onset of World War II, with each Income level paying approximately their fair share; based on the total levels of Income for the Class, and
percentage of tax paid on this total Income. Circumstances were about to change for the worse.
The United States, especially its Government, had been profligate in the previous score of years. Military Procurement continued to increase due to the Cold War, though the level was at approximately 230% of need; solely generated by the Military/Industrial Complex. Infrastructure was expanded at a tremendous rate, with development of Interstate, National Parks and Dams, widespread Construction contracts for Military bases
and missile silos, and development of modern airports. Much of this Infrastructure construction was financed by deficit spending or Bond issuance. Draft on Resources reached incredible levels, with an Inflationary spiral starting in Resource pricing.
The 1960s brought Kennedy to the White House, and a proposed Tax Cut to stimulate the Economy. Most Economists say this Tax Cut fueled the new Boom. This Author asserts it only fueled Inflation of a major venue. Individual Taxpayers remember this Keynesian Tax Cut not at all; it being only a two-shot spread of a few bucks in Rebate. The Corporations rejoice in this Tax Cut to this Day, which cut the real Tax
impact they faced, by approximately One-third. The Wealthier classes also benefitted hugely, never again faced with as high a real Tax impact.
The Tax Cut was supposed to offset the loss to the American Economy, of the re-establishment of the industries of the other Industrialized NationsEurope and Japan. The Fallacy was soon apparent, as first
Foreign Trade did not diminish; ever in Dollar terms, or adjusted for Inflation. The second element lay in the fact American Gross Domestic Product never altered in significant degree, from its previous decades rate of growth; when adjusted for Inflation.
The result of the Tax Cut brought a shift in real Tax impact to the lower income classes, a vast expansion of investment in paper financial instruments rather than real Capital investment, and a huge increase in Corporate profits. The expansion of the Economy brought a distorted increase in Resource prices, and rise in American purchase of foreign resources, especially Oil. The purchasing power of the American Worker started to erode, with the double whammy of a increased real Tax impact plus higher Consumer prices.
The Government added to the problem by hiding the real reduced Tax
base by Deficit Spending. The involvement in NATO and SEATO initially brought an effective American Occupation Army in Europe, which consumed any Foreign Trade surplus; and an Asian war financed by deficit spending, with a huge consumption of resources. The sum total of Government mis-allocations reduced the position of the average American household to its position in 1940, by the year of 1970. This reality was hidden only by the entrance of American Women, read Wives, back into the American Labor force; from their leave-taking in the late 1940s.
The gain of Ten years was it took Two laborers to generate the same standard of living; all due to erroneous Government Budget and Tax policy. The Federal Government chose not to readjust real Tax impacts with the coming of the Vietnam War. The huge deficit spending thereby brought huge Corporate profits, which Management moved to maintain after the War. The movement towards Sector division of Corporations began, each division dictated to produce its own Profit. The
pressure to provide immunity from the IRS for these Profits also began.
The Oil Embargo of 1973 made clear American dependence on Foreign resources. Oil Companies found greater Profits from the higher Prices, and forestalled Government efforts to reestablish American independence on Oil; a tendency which spread to other industries, interested in the higher Profits of higher Foreign resources pricing on the American domestic market. Native American industries, especially Coal and Steel,
started their decline; while foreign consumer products began to seriously replace American products on the domestic market. The Cotton Mills closed, as foreign manufacturers could produce cheaper than provision of a subsistence wage to American labor.
Corporate Profits and Paper Financial Instrument Profits continued to soar untaxed, while American industry floundered. The spread distortion of American Wealth began, with more and more of the American labor force dropping out of the Middle Class, and the Upper Classes gaining
Equity, at least in Paper Profits. Government first attempted a Welfare program, hugely increasing the National Debt; later moving to purported Business incentive, without any attempt to change the real Tax impact.
The Welfare programs added little economic incentive, as they did not provide a real improvement in Consumption patterns; though they did create the Era of Entitlements, the pattern where Government is forestalled from reducing most major expenditures. The debacle of Medicare and Medicaid is a real case in point; Today, almost
Everyone is guaranteed the same relative medical care as the highest Income earners. Workers cannot afford medical care with medical insurance beyond reach; and Medicare Supplement policies as high as total medical insurance premiums in 1965, the year Medicare was introduced. The cost of Medical care has increased by 14% per year since 1965; while the quality of Medical care increased by Three percent per year for the first Twenty years, then decreased by about a percentage point per year.
The Business Incentive programs introduced with the Reagan administration signified nothing more than a furtherance of removal of real Tax impact from Corporations and the Wealthy Classes. The National Debt continued to balloon, and Profits increased in their Paper
nature; without real increase in Economic productivity. The first indication of real Economic failure came with the failure of the Banking system in the mid-1980s. Everyone conversant with the Period, knows about the Savings and Loans Bailout. Few recognize the Crisis was almost as bad for the Banks, but hidden by the swift action of the Federal Reserve System.
The failure of the Banking system simply reflected the Paper nature of the Investment under the Reagan Tax Cut, which further distorted the real Tax impact upon the Wealthy, throwing the Tax burden on the
Lower Classes. There were no real Profits in the Boom produced by Reagans Tax Cut; and the Banking system failure expressed no real earnings from this Boom. The Consumption patterns of Workers, first eroded by the Kennedy Tax Cut, continued to erode at a substantive Two percent per year in real Product purchase; the Consumption
pattern of Workers eroded at approximately Four percent per year after the Reagan Tax Cut. The American Economy deteriorated for a decade after the Reagan Tax Cut.
President Bush increased Taxes during his administration, but only against all Classes; his Tax program did not significantly alter the real Tax impact. The Economy received no real shot in the Arm, and the Standard of Living continued to decline; as Unemployment rose, and Factory Orders receded. The Balance of Trade had been developing a vast Deficit since the 1973 Oil Embargo. Poor Economic performance along with rapidly rising domestic purchase of foreign products because of their cheaper
quality, brought huge erosion to the Dollar under the Bush administration.
The United States found it hard to finance its need of foreign resources, and its higher-cost production with inferior quality lost a great share of Foreign Trade. Agricultural Sales alone saved the American Balance of Trade. The American Turnaround came with the Clinton Tax Increase. The real element of this Tax Increase was the nature of the change of real Tax impact. The Working Classes were already overburdened with Taxes by 1993, and could not pay an effective higher percentage of their Income as Tax; though the Dollar value of their Taxes did go
up. Corporations and Wealthy had Taxes reimposed by the Tax Increase. This increase of their real Tax impact was not a major alteration; basically only reinstating the taxes imposed before the Reagan Tax Cut.
This forced assumption of an added share of Government expenditures did apply a real Economic stimulus. Working Class Consumption patterns immediately started to rise, as they were freed of a significant
support of Government expenditures. A Boom was began, which eventually reversed the Deficit Spending of the Federal Government.
The National Debt started to decrease, and increasing burdens on the American Labor force were removed. The Economy started to rapidly expand, fueled by Consumer Demand; an item on which all Economists are agreed. Housing construction started to skyrocket.
Consumers found their disposable income increasing faster than the Inflation rate; something unknown since the Kennedy Tax Cut. Aggregate American Household Wealth increased by approximately Two percent per year, between 1995 and 2000. The Unemployment rate dropped to a Low, no seen since World War II. The quality and durability of American products rose by an average of Three percent per year, after 1991; leading to a significant regain of Foreign trade for the American economy. More American Labor was entering the Middle Class, than falling to Lower Classes, after 1997; more Middle Class was entering the Upper Classes after 1995, than were entering the
Middle Class from below.
The total of American society resembled the mix of American society of the 1950s, by the year 1999. This was almost entirely due to removal of burden for Government expenditures from the Working Classes, to the Corporations and the Wealthy. The largesse of this burden removal was little more than $70 Billion in 1993. It had grown to $340 Billion by 1999.
Clouds started to form on the Horizon. Stock Options have been with Us, as long as the modern-style Corporation; their wide-scale use came only with the Reagan Tax Cut. Corporate Managements watched
the vast reduction of Corporate taxes, and thought of methodology to personally share in the benefice. They chose the mechanism of Stock Options. Huge awards began to be bestowed on Corporate Executives, with the goal of absorbing the Tax savings as personal gain. The practice continued with the Years, and fortunes were made through
the Stock Options venue by Corporate Management.
The Clinton Tax Increase brought threat to this fortune-building endeavor. Corporate Management searched for methods to
maintain the practice, which Corporate Stockholders would not notice, as loss of dividends. Corporate Management focused on two avenues for the maintenance of Profits in the face of increased Taxation. They first examined the practice of Sector Accounting. The division of separate areas of Corporate production in Sectors, with separate Accounting and budgets, had begun in the 1960s; and the practice of forcing each Sector
to present its own Profits, had really begun with the 1970s.
The Reagan administration allowed for the fiction these Profits were representative repayment for Capitalization by the overall Corporate organization; and non-taxable. Corporate Management, with the
advent of the Clinton Tax Increase, thought to double, or triple, the profit ratios of these Sectors. They were helped in this by technological advance; with cheapened Product unit cost; which they only had to refuse to pass on to the Consumer as reduced Retail prices. This allowed for continued issuance of Stock Options, though not of the same magnitude
as prior to the Clinton Tax Increase.
The second avenue adopted by multi-national Corporations was the hiding of Corporate payments in foreign accounts. Such payments could be claimed as not subject of American Corporate tax law. This venue became so exercised, many of the largest Corporations pay nothing in Corporate Income Taxmost notable Enron, Coca-Cola, etc.
Even Corporations with almost no foreign Sales vastly reduce their Corporate tax, by having Retailers pay foreign subsidiaries. Real Corporate percentage tax having been dropping since the first impact of the Clinton Tax Increase.
The thirst for higher Profits to initiate Stock Options for Management has led to such In-line Production Profits-taking, it was starting to erode Consumer Demand by 1999; an effective reduction of real Tax impact on Corporations and the Wealthy Classes, again forcing the Working Classes to assume more of the tax burden. Stock Options increased the total number of Paper instruments existent; all demanding a high rate of
return, for Corporate Management to exercise their Stock Option with good Price. In-line Production Profits-taking continues to increase; now to produce the necessary dividends, as well as the Funds for further Stock Options.
Consumers face higher Retail prices when lower Prices are dictated by cheaper means of Production. They also have to endure a greater share of the real Tax burden of Government expenditure. The Two above-
mentioned avenues used by Corporate Management, means an evasion of Corporate Income Tax estimated at $400 Billion per year Today.
The Wealthy Classes in America have watched the American Economic Boom since 1993, and felt gladdened by the huge increase in their fortunes. They also witnessed the total rise in the Dollar value of their Capital Gains taxation, and groaned. The Wealthy applied pressure to their Congressional Representatives, to reduce the total Dollar value of their tax contributions.
Congress has amended Capital Gains reportage every year since 1996, to reduce the total percentage actually paid as tax; this through spread over future years because of reinvestment. The effect is a real Tax impact
reduction on the Wealthy Classes; an effective erosion of the Clinton Tax Increase. The George W. Bush administration came into office, claiming it would undo the inequities of heavy taxation.
The tax burden on Americans, prior to the Bush Tax Cut, was only approximately Eighty percent of the Clinton Tax Increase; a real tax reduction of Twenty percent, during the Clinton Presidency. The real element of the Bush Tax Cut results in the reduction of the real Tax impact on Corporations and the Wealthier Classes, to a point lower than the real Tax impacts upon them after the Reagan Tax Cut.
The Bush administration already proposes a Government Spending Deficit equivalent to the level of Deficits during his Fathers administration. Republicans claim this is on account of the Terrorist attacks. The Economic fact will be seen with at least a doubling of the Deficit level claimed, due to a loss of Tax revenues under the Tax Cut.
There are already signs of a loss of Consumer Demand, destroying current favorable Economic Indicators. A continued softening of Consumer Demand will present even greater losses of Tax Revenue.
George W. Bush may remind his Father of John Quincy Adams; he resembles Herbert Hoover to this Author. It is clear from this Chapters outline that Government Tax Policy remains the major propellent, or deterrent, of the American Economy. Monetarist Economic Policy
stands as a minor influence with the presence of a modern Banking system; solely concerned with the effective management of the Banking system itself. Equally clear stands the fact Congress and President follow a format specifically outlined to benefit their own Class of Wealth
Working Classes face an increased real Tax impact under the
new Tax Cut, whether this is represented through higher taxes; or through the practice of Deficit spending. The Author can say with confidence rigid reintroduction of the Clinton Tax Increase with its real increase of real Tax impact upon Corporation and the Wealthy Classes, would avoid Deficit spending. Reversion to the Tax Code existent (real Tax
impact rates, not necessarily nominal rates) before the Kennedy Tax Cut would guarantee a Boom equivalent to the late 1990s for another decade.