Is Our Country Turning Itself Into a Banana Republic?

Friday, May 25, 2012

Throughout the West, countries enjoying the most robust economies thanks to capitalism now demonize that work engine.

As of late, nearly all of Europe, the United States and even Japan have dabbled in socialism. But beyond substantial debt, protest demonstrations over entitlement cuts and increasingly diminished productive capacity, where has it gotten them?

Ironically, capitalism has done more to distribute wealth worldwide than any socialist scheme ever has. Free market critics cry globalization is a capitalist plot to make the rich richer and the poor poorer.

Of course it is. But unlike government organizations such as the World Bank, private-sector globalization has distributed wealth much more evenly around the world, effectively shrinking the gap between developed Western nations and many so-called Third World developing nations.

More than ever, richer nations are experiencing a greater rise in debt levels while many developing countries have the lowest in relation to what they produce annually. Aging populations of the more prosperous countries are becoming less productive but more needy of health care, while the additional burdens related to unemployment, immigration and welfare are spiraling.

No wonder the Office of Management and Budget estimates that the social services bill in the United States alone will climb to $3 trillion by the year 2015.

So married are we to social and entitlement programs that talk of scaling them back frightens nearly every politician in Washington. Why not then do as President Obama urges and increase taxes on the rich and corporations?

The unpopular fact is that the horrid Bush tax cuts resulted in more tax revenue from the rich. Why? Because those tax cuts really did stimulate the economy. In the first two years alone, the number of folks making $1 million annually rose by 60 percent, which added more than $1 billion in tax revenue.

That aside, let's say we do the reverse and increase taxes on the rich and corporations. Before we do, though, consider that the top 1 percent of taxpayers now earn 17 percent of the country's total income but already pay 37 percent of federal taxes.

Moreover, the U.S. sports the highest corporate tax rate, at 39 percent, and has an effective tax rate of 27 percent. Yet while other countries are slashing their corporate tax rates to hang on to businesses, Washington still ponders tax increases.

So how much should we raise taxes? The fact is that if we increased all tax revenue (not just what the rich and corporations pay) by a third, the government would barely cover the projected 2015 bill for social programs.

What would happen then if we did increase taxes on the rich and corporations in our current economic environment? The especially large companies that employ one-fifth of our labor force would flee even faster from this country.

In the past decade, these multinationals have cut nearly 3 million jobs in the U.S. and added well over 2 million abroad. With our high taxes, high employee incomes and high utility and raw materials costs, why would companies expand operations here? Our tax laws already spur them to go elsewhere. Would increased taxes help this situation?

Ask GE. A longtime supporter of President Obama, GE does not pay its "fair share" but instead exploits tax loopholes. For 10 years, GE has averaged an effective tax rate of just 2 percent. How? It expanded overseas. Many corporations have followed its example, and higher taxes would stampede their exodus.

By the same token, consider why foreign investors are shrinking in number. When the U.S. economy was strong and offered a rosy rate of return, investing in this country was attractive. But now we offer only dizzying debt and find loans harder to come by. With other economies doing relatively well, investors in rising Third World countries are stashing their money closer to home. To attract them back, the U.S. would have to raise interest rates - which, unfortunately, would dampen our economy further.

The more the U.S. demonizes capitalism and experiments with socialism, the more we will see this flight of capital. Our tax base will erode, not strengthen, and we will drift further into staggering debt.

Some contend that China, holder of a substantial chunk of that debt, already owns our soul. Given that we lag deplorably behind too many countries in math and science while our children devote themselves to video games and we cater to the entitled, where will we rank on the world stage in five years - or in 10?

Will the next Teflon come from Angola?

Robert A. Taft, of Pinehurst, is president and CEO of USATies Inc., which represents capital equipment suppliers in Third World countries. He was deputy assistant secretary for international affairs under President Clinton. Contact him at tafter@centurylink.net.

More like this story

The_AnonymusProfit 1 year ago

Amazing Article, especially that last bit.

nothingspecial 12 months ago

So we said, Mr. Taft!!

juniorwade1 12 months ago

Thank you Mr. Taft for an exceptionally well written opinion regarding the state of capitalism here and abroad. We see the effects of globalized capitalism improve the lives of people in countries we were supporting through foreign aid only a few short years ago. Capitalism and free markets continue to lead the way not only in distributing wealth but also in creating it. Thank you for making capitalism a "clean" word again!

Bentpan 12 months ago

An impressive letter written by someone who obviously understands real world economics, appreciate the letter Mr. Taft

Nezumi 12 months ago

Reggie - actually China defies easy categorization. The basic tenets of socialism are gone - free housing, health care, education, although government control of large sectors of the economy and "guidance" and subsidization of strategic industries like automotive, high tech, green energy, etc. does remain. Parts of the Chinese market have a version of capitalism more raw than in Milton Friedman's wildest dreams - no supervision, standards, oversight or enforcement of the few consumer protection laws that do exist. So caveat emptor is often the most important guiding philosophy doing business there, whether shopping for clothes or doing million dollar deals.

JD 12 months ago

In China the new boss is the same as the old boss. The communist Mandarin's just went from being communist to capitalist, but it was still the same oligarchs that own everything and the rest work for $1 a day.

Nezumi 12 months ago

JD, yes, the governmental structure remains Leninist, and many of the same politicians who 35 years ago were condemning capitalism are now quietly embracing it, and enriching themselves and their families (Bo Xilai is a perfect example). That enrichment also comes from corruption, which is rampant both at the central gov't level and at the local gov't level - which is a major source of instability. Wages vary per region; coastal areas demand much higher salaries than the inland provinces. Foxconn for example pays "workers" about $400/month, which is probably on the higher end of the scale, due to their high visibility.

Pappy 12 months ago

Well said...

TGrant 12 months ago

Banana Republics have nothing to do with socialism. They are, however, systems in which the wealthy exploit and impoverish the middle class (whereby the profits derived are private gains, yet the debts incurred are public responsibility). The national economy becomes a politico-economic oligarchy.

The Bush Tax cuts did NOT have the impact on economic growth that you claim. Former Reagan economic advisor Bruce Bartlett said, "the Bush plan was a hodge-podge of tax gimmicks designed more to win the support of various voting blocs than stimulate growth." According to the Census median household income in 2007, adjusted for inflation, was lower than it was in 2000. The non-partisan Center on Budget and Policy Priorities reports, based upon data from the Bureau of Labor Statistics, employment growth was particularly weak, "with employment and wage and salary growth ... lower than in any previous post-World War II expansion. Employment grew at an average annual rate of only 0.9 percent from November 2001 to September 2007, as compared with an average of 2.5 percent for the comparable periods of other post-World War II expansions. In addition, real wages and salaries grew at a 1.8 percent average annual rate in the 2001-2007 expansion, as compared with a 3.8 percent average annual rate for the comparable periods of other post-World War II expansions."

Data from the White House Office of Management and Budget shows that tax revenues did not consistently increase after the Bush tax cuts went into effect. In FY 2001, tax revenue in dollars was $1,991.1 billion. For FY 2002 - the first budget of the Bush administration, which went into effect after President George W. Bush signed tax cuts into law in June 2001 - revenue dropped to $1,853.1 billion. Bush signed two more tax cuts into law over the next two years. In FY 2003, revenue dropped further, to $1,782.3 billion - about a 10-percent reduction from two years earlier. Revenue did increase as the housing bubble ballooned, however. Unfortunately, this was to be short lived.

As a percentage of gross domestic product, the amount of tax revenues as a part of the economy has also varied widely, though it still less today than in FY2001, when it represented 19.5% of GDP. It has dipped from as low as 16.1% in FY2004, to as high as 18.5% in FY2007, before finishing out FY 2009 at 14.9% - its lowest level since 1950 (14.4%).

In FY2001 Government spending was $1,862.8 billion; by FY2009 spending was at $3,517.7 billion - more than $1.4 billion more than what was collected in taxes. Fiscal Year 2001 was the last year the government spent less than it took in.

For a look at the “jobs” that were created abroad, you might watch this trailer: http://www.youtube.com/watch?v=STPJiR...

The US might become a “banana republic” –if we continue to make more capitulations and cede more of our power to the wealthy.

Thatcher 12 months ago

TGrant-- "The US might become a 'banana republic'-- if we continue to make more capitulations and cede more of our power to the wealthy." Well. Because of the Bush Tax Cuts, no less. Uh, did you know that these tax cuts reduced the marginal income tax rate for all taxpayers? Not just the "rich?" But please tell us: how does allowing anyone to keep more of what they earn "cede more of our power to the wealthy?" What "power" do you "cede?" Answer these questions honestly, and then re-read your post.

Toda 12 months ago

"...What would happen then if we did increase taxes on the rich and corporations in our current economic environment?"

Perhaps that question should be posed to J. P. Morgan/chase and Mr. Dimon. 2 billion is what is suspected loss of whose money? The working class who invested in 401K retirement accounts as well as other trusting wage earners.

Tax loopholes are political leveraging for America's 1%; except those who change their citizenship to avoid paying taxes. What is wrong with a FairTax? Everyone pays based on economies of scale and purchase power. Then socio-economic status becomes a level tax field for anyone who spends a dollar.

fugitiveguy 12 months ago

"What is wrong with a FairTax? Everyone pays based on economies of scale and purchase power. Then socio-economic status becomes a level tax field for anyone who spends a dollar."

I agree with and support the Fair Tax. Of course it will likely never happen for the simple reason that it takes power from the politicians.

TGrant 12 months ago

Thatcher-the key term in your question is the word "earn." The problem (as I understand it anyway : D) is that we are moving farther away from a meritocracy (the best are rewarded with success) --to a rigged plutocracy (laws and systems are created that maintain the power of the wealthy few). This includes organized criminals who have simply moved their operations into multinational corporations (creating financial instruments such as swaps and derivatives that turn our financial systems into gambling casinos, and pressuring politicians to design back door options such as the Enron Loophole- so they can bet on oil futures and raise the price of gasoline 500%- bursting the housing bubble- and tanking the world economy in the process). They also own and operate multimedia conglomerates to influence opinion (engineering consent and creating divisions between groups of people who might otherwise be powerful if they were to work together). How does this affect my freedom? An analogy might be found in the movie "It’s a Wonderful Life." We live in the towns and houses, receive the wages, and pay the prices that Mr. Potter decides. . I am from the South, so the idea of Carpet Baggers (people who come to your area promising development, but end up taking all the profits for themselves, leaving the mess for you to clean up -then moving on to the next town) has always been a part of our history lessons. There are people who only wish to exploit the system. (The global market for child sex trafficking is a 12 billion dollar annual industry, for example.) Of course they don't want regulation or law enforcement to check what they are doing. (Check the FBI website to see about price fixing and other corporate crimes. Our wallets were pilfered before we finished eating breakfast.) . Too many government officials and corporations are in collusion. There are financiers who personally make $900,000 an hour ($36 million per week) while our returning veterans who risked life and limb for our country can often barely afford to feed their families! Weren’t the riches possible because of the American highway system (allowing them to move goods and services), our schools (because they didn’t have to train employees how to read and write), the stability of country and so on? (There are major cities in India that go without power or running water for several hours each day, and the Chinese cannot even reach many of their own rural provinces.) If people became wealthy by using the system, shouldn’t they be expected to replenish and maintain it for the next generation of entrepreneurs? Threatening to take their wealth somewhere else if we dare to interfere is similar to blackmail (and we should not negotiate away the wealth of our nation- which is the middle class). Some criminals will not be satisfied until the entire planet looks like the pollution and labor conditions found in China. At what point will we stand up to corruption in both business and government?

Thatcher 12 months ago

TGrant-- Good Lord man! Are you writing a screenplay? You have cut and pasted every liberal talking point to make the world's longest paragraph. Seriously, you are smart enough, so nix the nonsense and just write what you feel. I don't care if it is liberal or conservative. Just say what you mean. If it is what you believe, then God bless you! We may argue from time to time, but I will never call you names. And no other real conservative here will either.

Comments No Longer Accepted

S	M	T	W	T	F	S
28	29	30	1	2	3	4
5	6	7	8	9	10	11
12	13	14	15	16	17	18
19	20	21	22	23	24	25
26	27	28	29	30	31	1