America’s middle class is disappearing rapidly. Increased taxation coupled with higher living costs are wiping out savings and making standards of living no longer tenable. Rather than respond to this problem those affected live in a depressed political apathy, throwing their support behind polar radicals like Bernie Sanders and Donald Trump whose impressive rhetoric offers vague hopes of a better life. Wake up America! If you don’t take charge of your own political system how can you expect to see any real change?
Many economists and financial experts had been waiting to see how badly The Affordable Healthcare Act might affect consumer spending as 2015 was the first year it went into full implementation. The amount of capital that was taken out of the private sector to pay for health care, largely due to Obamacare last year, was startling. How does $1.9 trillion grab you? That was the amount of money that could have been spent on anything else but instead was absorbed by Obamacare in one year.
Obamacare is crippling the middle class
If it wasn’t for the government-mandated spending surge resulting from Obamacare we would be experiencing negative growth. In other words, we would be in recession. For the middle class, the Great Recession hasn’t really ended. So now Americans not only have the burden of paying their income taxes but also feeding the black hole of Obamacare. There’s nothing like the boot of government to knock the middle class back down the pit of debt they’ve been trying to climb out of for the last eight years. Can we be honest and finally strike the word “affordable” from the cursed thing? After all, it’s really becoming an insult to the English language.
The same middle class is the largest demographic for the two populist candidates for President, Donald Trump and Bernie Sanders. How does Trump or Sanders plan to rescue middle America? Both candidates plan on revising past foreign trade agreements by adding an import tariff on goods from Asia, mainly China, upwards of 45%. This, in turn, is intended to compel US companies to return manufacturing to American shores.
Import tariffs are designed to protect domestic industries from foreign competition. The outcome is higher prices for those foreign goods which are sold domestically – think Walmart. A high protectionist tariff only hurts consumers while granting government privileges to crony corporations. How are higher prices supposed to help the middle class? Another problem with their plan is that America doesn’t produce those goods domestically anymore. In order to provide cheaper prices for consumers, domestic manufacturers moved offshore to avoid the ever-burdensome government mandates, regulations, taxation and punitive lawsuits by disgruntled employees. It’s much easier to manufacture goods domestically, but America has become a hostile environment for manufacturers to conduct business.
As China’s middle class grows so does the automation workforce
In a round about way both candidates are already getting their wish. Manufacturing is starting to return to the US as China’s growing middle class is causing export prices to rise. Unfortunately for the middle class, most of those goods are being produced through automation. Entrepreneurs are finding newer, cheaper and more efficient ways to deliver low priced goods to consumers by employing advanced robotics instead of more expensive people, regardless of nationality. If an entrepreneur cannot sell his or her product at a lower price, then their competition most certainly will. Consumers vote with their dollars and the most votes go to those entrepreneurs that can deliver better and cheaper products. It’s just part of the market’s discipline that weeds out the less efficient entrepreneurs, keeping them from wasting scarce resources.
In principle, all of these lower prices are supposed to help the average consumer. But again, there’s more taxation that Americans have to pay albeit hidden. More specifically, the hidden tax of inflation. Policies of the Federal Reserve like Quantitative Easing (QE) and a targeted inflation rate of at least 2% are robbing consumers of their purchasing power. Even a 2% increase in the creation of new money dilutes the value of those dollars already in circulation. Putting it another way, Fed Chairwoman Janet Yellen is saying, “Give me a dollar this year and I’ll give you back 98 cents next year.” Compound this year after year and it’s no wonder the US dollar has lost upwards of 96% of its value since the inception of the Federal Reserve System in 1913. Because this is a hidden tax and hard to calculate at the individual level, consumers are left confused as to why they are finding it harder and harder to make ends meet.
Rising taxes fuel surge in America’s poor
Consider also the not-so-hidden but always present sales taxes, property taxes, excise taxes and sin taxes on such things as gasoline, diesel, airline tickets, entertainment, hotel rooms, beer and wine and on and on. This form of regressive taxation burdens lower income earners much more than wealthier earners. Americans would be shocked if they ever took the time to figure out just how egregiously governments at all levels have been pilfering their paychecks.
There have been several ideas as how to provide some relief to the taxpayer. Two of the most popular ideas have been a flat tax, where a flat percentage of one’s income would be owed to the federal government. The other is a consumption tax or the “Fair Tax”. By taxing all consumption at the point of sale on new goods, consumers are led to believe they can choose how much taxation they wish to pay. Included in the Fair Tax plan is a “pre-bate” where the poor would receive money upfront on a monthly basis for those necessities like food, housing, and utilities. As a caveat, the Fair Tax calls for the repeal of the 16th Amendment and the closure of the IRS.
There are issues with both ideas that are too numerous to go into any depth right now. More importantly, both plans fail to address the real problem middle America faces. That is, the level of taxation and not how they get paid. The level of taxation is in direct proportion to the amount of funds the federal government borrows which are also in direct proportion to the size of government. Until the public determines what role they want the government to perform in their lives, there will be no relief for taxpayers. Secondly, there are no candidates for any office in Washington DC that is advocating any serious spending cuts.
If average Americans had to sit down and write that tax check to the IRS on a weekly, monthly or even quarterly basis they would actually “feel the burn” of government’s cost. That would require a repeal of the income tax withholding, which is extremely unlikely in this current political environment. Even something as simple as a cap on the debt ceiling would help to illustrate to the average person how big their government really is and how expensive it is to maintain. It isn’t until taxpayers actually pay for the government that they have nothing will change.
Apathy towards government will not change anything
Future generations will look back on this and previous generations as nothing more than a gang of thieves. Saddling our children and their children with our debts is simply rapacious. Until America has that moment of honesty and determines to do something responsible about it, there will be no relief for the middle class. Government costs will increase, taxpayers will demand its fair share and our children will get the bill.
It’s time America heeds the words of Thomas Jefferson who wrote,
“Loading up the nation with debt and leaving it for the following generations to pay is morally irresponsible. Excessive debt is a means by which governments oppress the people and waste their substance. No nation has a right to contract debt for periods longer than the majority contracting it can expect to live.”
Article 38 from Politics & Government
Image credit: [European reform.org]