Tuesday, May 31, 2011

Modern Democracy: The Battle Between the Taxpayers and the Voters

Spent a considerable time this weekend reading about the very serious crisis of the Euro.  Different analysts grade the severity slightly differently, but all seem in agreement that the Euro, as we know it, is doomed. The most dire scenarios see the whole EMU (Economic Monetary Union) blowing apart, while the most optimistic see Greece, Portugal, perhaps one or two other "Southern" economies separated from the Euro (the numbers, and who exactly gets kicked off the island depend on whom you read), and the currency is reserved for the core "Northern" economies.

This reading then led me to a great deal of reading about the almost equally serious crisis affecting our own dollar.  Then, I read about the crisis affecting the British pound. It was an intense amount of very depressing reading:  I really need to get out more.

None of the sophisticated and highly technical analyses I read, however, picked up on the real source of the crises facing the major currencies, and, in fact, our core economic well-being.  It all comes down to a very simple and basic fact.  The western nations have developed societies where those who pay for government services, in general, are not the ones benefitting from the services. In the United States, for example, we have the top one percent of earners paying 38-41% of all Federal income tax.  We have nearly half of Americans who pay no income tax, and another large percentage 15-20% who pay minimal income tax (and lets not even get into "Earned Income Tax Credits".) We essentially have a society where some 25% of the income earners pay close to 90% of all Federal income taxes. That 25% does not consume anywhere near 90% of the services provided by the Feds.

You can argue until you're blue in the face that this imbalance is "fair" because those who make more SHOULD pay more.  Whether, however, you are "right" or "wrong," in socio-political terms this imbalance has set up a clash between those who pay and those who do not. To varying degrees, it is this clash we see played out in the US and Europe. In Spain, for example, huge crowds of "protestors" take to the streets demanding, well, demanding more from the state. This in a country with an unemployment rate of over 21%, and some of the most generous public benefits anywhere on earth, benefits that do not make it worthwhile to work. So who pays in Spain? Not the protestors, that's for sure. The payers are the ever-shrinking number of Spanish tax-paying wealth producers and, of course, the Germans. Greece, too, has been wracked by massive demonstrations, and even violent and lethal riots, by tens-of-thousands of Greeks objecting to any austerity measures. In other words, the demands are don't pay back the Germans, and let us continue to have a standard of living we have not earned, just because that's what we want and have gotten used to having.

I don't mean to pick on Spain or Greece; we have the same situation developing in the US. Americans are now fully into a political battle waged along new class lines. This is not the old battle of "haves" versus "have nots." This is a battle between "payers" and "pay nots," in other words, between taxpayers and voters.

I listened over the weekend to a parade of Democrats coming on the talk shows, one after another, calling for tax increases on the "wealthy." Some of these calls would push our top rate to some 62%. The Democratic formula is simple. You take the money from the 40% of the people who pay income taxes, and you buy the votes of the 60% who do not--and if there's a gap you borrow from the Chinese and the Japanese. This formula for political success and economic disaster was driven home to me when I was visiting a college campus many months ago. Nearly all the students were voting Democrat. They were full of outrage over some proposed cuts to local government services. None of these students pays income or property tax, few were from the community where they were now voting, and after their college years would move on. They, however, voted "Yes" on a proposal to increase local spending on some social programs. The bill would be paid by the local taxpayers; the goods, however, would be consumed by people who were not taxpayers

We can debate the deficit and entitlement programs all we want. The basic problem is this split between taxpayers and voters. We are going to see that played out big time in the 2012 elections. The Republicans will have a hard sell convincing the voters to cut the benefits they receive from the taxpayers. The Democrats will have a much easier time having the voters give themselves more of the taxpayers' money.


  1. Nice of you to observe a 'class struggle'.

    Can you enlighten us about any sort of historical precedent where the same, er, similar things occured? What happened then, hmmm?

    As for the happy march of the tax spender southrons of Europe into the abyss, do you really think it could never have happened any other way? For that matter, what of the happy march of the tax spenders in your country. They are just zombies shuffling with a spoon in their hands, and they are looking at your head. Your reasoning about cause and cure is amusing, but perhaps some more drastic measures are called for, lets even more drastic measures are called for later.

  2. It would seem Dr. Pournelle was right -- in his CoDominium stories, there were Citizens and there were Taxpayers. "Citizen," if it is not obvious, was a term of contempt applied to the permanent underclass in their "welfare islands."

    Depressing, really, that we are moving to that distopian future without the benefits of cheap interstellar travel so I could emigrate to someplace sane.

  3. Fenris, back in the 4th century B.C., Aristotle spoke of how when a monarchy degenerates from one ruler whose rule benefits the public to one in which only the ruler benefits, it becomes tyranny. He said that when a ruling aristocracy ceases to benefit the public but benefits only itself, it becomes an oligarchy. And, in a polity (rule by the many), when the majority uses its political power to rob the minority, it degenerates into the disgusting thing called a "democracy". Our Democratic Party is thus aptly named.