As a person who considers himself to be a moderate but a fiscal conservative, I am generally against tax increases. My observations over the years have shown that politicians use higher taxes to cover themselves when they just want to waste more taxpayer money rather than pay for meaningful programs. Nearly every day, you can read about new examples of governments at the federal, state, and local levels spending loads of money on projects that benefit only a handful of people. My industry of mortgage note buyers is too small to ever merit such largesse.
As with nearly every country, U.S. politicians want to reward those who elected them last time and who are likely to vote for them again. It is an ugly form of corruption that is nevertheless tolerated by the populace because it is so common.
So who, other than the far left, would favor tax increases now? Well, I would, but only in advocating for higher taxes to the very rich. My reasoning for raising taxes only on them has nothing to do with my own tax bracket (admittedly, much lower than the rich), but more with maintaining stability. My sense is that the country is on the verge of civil unrest and probably riots.
As more and more people become unemployed for long periods of time and their frustration grows, especially among the youth, they will look for someone to blame for their troubles. When they see the income inequality between the rich and the poor, their perception will be that the rich are getting off easy and need to be brought down. It is better for the rich and for society to have the very wealthy pay higher taxes now to avoid sowing the seeds of rebellion and more severe economic problems in the near or medium year.
The International Monetary Fund (IMF) published an interesting article last December about how income inequality may have played a role in this country’s two major economic crises over the past century – the Great Depression of 1929 and the Great Recession of 2007. Prior to both crises, there was a sharp increase in both income inequality and household debt-to-income ratios. For instance, “In 1983, the debt-to-income ratio of the top 5 percent of households was 80 percent; for the bottom 95 percent the ratio was 60 percent. Twenty-five years later, in a striking reversal, the ratio was 65 percent for the top 5 percent and 140 percent for the bottom 95 percent.” (full article can be found at http://www.imf.org/external/pubs/ft/fandd/2010/12/Kumhof.htm).
There have been numerous writings over the years of how wealth in this country is becoming more concentrated. In other words, a small percentage of people own a larger share of the country’s overall wealth. Many people in all income classes believe that recent government bailouts have helped those on Wall Street while doing nothing for Main Street. My assumption is that mortgage note buyers can be found in all of the different tax brackets and demographic groups.
We can see from the recent four days of rioting in London how one seemingly small event can trigger a huge angry reaction. Although the police claimed that it was just hooligans causing trouble, the participants certainly seemed to have come from a more diverse set of the population. In the U.S., we have seen flash mobs hit in major cities like Philadelphia and Chicago. Those were more likely caused by greed than anger, but still showed how quickly a group can come together to wreak havoc.
The U.S. economy shows no sign of recovery and unemployment looks to stay high for years to come. In addition, the government doesn’t have the money or political will to fire up new programs and pray that they will stick. The longer that economic problems last, the more frustrated people will get. Unemployed or frustrated people without good options can do crazy things, and hitting back at those perceived as having unduly benefited is a natural way to go. This is not a re-distribution of wealth by any means, but simply a way to head off big problems before they happen.
