The October of the stock market crash on Black Tuesday, October 29, 1929, did not have to lead to the Great Depression, but it did. History tells us that Black Tuesday had help in bringing about the global financial collapse.
The facilitating, and essential, causes include loose credit and a housing collapse (especially in Florida), followed by tight credit, protectionism (especially the Smoot-Harley Tariff), and high taxes. Sound familiar?
In the immortal words of Santayana: “Those who don’t learn from the lessons of history are condemned to repeat them.”
As the economy is struggling to right itself, government at all levels is falling over itself in a rush to raise taxes. State and local governments have been in the lead, but President Obama and the large Democratic majorities in Congress are chomping at the bit.
Broad visions have large costs. Not billions, but trillions of dollars! The only three options are taxing, borrowing, or printing.
Have you hard of these taxes?
These are some of the ideas being kicked around by President Obama and the Democrats:
Capping itemized deductions (a stealth increase)
Employer provided health benefits tax
Fat tax (they may not call it that)
Health insurance tax
Income earned abroad
Junk food tax
Limiting charitable deductions
Limiting mortgage deductions
Marginal tax rates
Oil and gas
Repealing the Bush tax cuts
Social security tax
Tobacco tax (done that)
Value added tax
Many of these are not actually intended to raise revenue. When informed that a cut in the capital gains tax resulted in increased tax revenues, Senator Obama responded that “it is a matter of fairness.”
When asked recently what he thought a fair tax rate would be, he responded that the top marginal rate in the Clinton Administration “struck the right balance.” That was 39.6%. When you throw in the tax rates of some states and cities, like New York, and limit deductions, the top marginal tax rate becomes 60%. At that point, the government runs out of millionaires to tax.
The issue with fairness is simply that to make everyone fair and equal you must drive the achievers to the bottom, because only at the economic bottom can everyone be equal. The effect would be, of course, to impoverish everyone, except as in Animal House, a few privileged ones. “All animals are equal, but some are more equal,” such as members of Congress who get to keep their gold-plated plans.
The power to tax is the power to destroy, and the power to tax is the power to equalize.
Some taxes are more destructive of capital formation than other. Capital gains and dividend taxes can crush capital.
All taxes though will suck discretionary spending out of the hands of consumers, and let government decide the winners and losers in society. Bear Stearns was saved, but Lehman Brothers tossed into the gutter. The UAW was bailed out but bondholders, especially at Chrysler, tossed into the gutter.