Friday, September 23, 2011

A little history of the Income Tax

Naturally, LI finds the class warfare cry that has gone up with Obama’s proposal to tax the wealthy at a less onerous rate than they were taxed in the 90s rather comic, as class warfare is precisely what is at the heart of progressive taxation. Progressive taxation can best be seen as one of those complex treaties, like that which officially divided up Yugoslavia, that takes a situation of ongoing hostility and freezes it in place. It allows the wealthy to continue to exploit and flourish, but at a cost.

However, there is one aspect of the right’s class warfare meme that seems to have taken root with a considerable number of middle class citizens, which is that there is something unfair about the wealthy paying 50 percent of the total of the income tax collected by the government. The usual response to this by liberals is to point out that federal taxes also consist of taxes for social security and medicare, so that the figure for income tax alone is distorting. This is true.
However, it also concedes the point, and this is bogus. A little historical research will tell us why.
In W. Elliot Brownlee’s dry as a cracker history of the Income Tax (Federal Taxation in America: a history) there is an account of the roots of the Income Tax and the intentions of its designers that makes it clear that the designers meant the income tax to be paid completely, lock stock and barrel, by the rich.
Back in 1916, as Wilson plotted to get America into WWI, the financing of that war was high on the agenda. Southern Democrats, who back then combined racism and populism, saw this as a good opportunity to create a truly progressive tax system.

In Brownlee’s words:

“The Democratic tax program, which was implemented in the
wartime Revenue Acts, transformed the experimental, rather tentative
income tax into the foremost instrument of federal taxation.
The Revenue Act of 1916 imposed the first significant tax on personal
incomes, doubled (to 2 percent) the tax on corporate incomes,
and introduced an excess profits tax of 12.5 percent on munitions
makers. It rejected a broadly based personal income tax—
one falling most heavily on wages and salaries—and focused on
the taxation of the wealthiest families. Among the provisions of the
1916 legislation was the elimination of the personal exemption for
dividends. Thus, the act deliberately introduced the double taxation
of corporate earnings distributed as dividends. In effect, the
1916 legislation embraced the concept of using the corporate and
personal income taxes as two different means of taxing the rich.
The architects of the Revenue Act of 1916 intended to implement
on one hand, through the personal income tax, an “ability-to-pay”
philosophy and on the other hand, through corporate taxation, a
“benefit” theory of taxation.”

What was the result of this?

“In 1918, only about 15 percent of American families had to
pay personal income taxes, and the tax payments of the wealthiest
1 percent of American families accounted for about 80 percent
of the revenues from the personal income tax. Even without taking
into account the incidence of the corporate income tax on the rich,
this wealthiest 1 percent of taxpayers paid marginal tax rates ranging
from 15 to 77 percent and effective rates averaging 15 percent,
having increased from 3 percent in 1916.”

Say it loud and say it proud: Only the rich should pay income tax! That was the intent, that was the early history, and that was how even the Republican administrations of the 1920s saw things. But the Republican administrations were, after all, business friendly, and one of the things they did was to erase as much as they could indirect taxes – tariffs and corporate taxes – and thereby accidentally increased the importance of the income tax as a funding vehicle for government:

“Mellon’s tax program consolidated the flow of income-tax revenues
into the Treasury. The portion of general revenues provided
to the federal government by indirect taxes (largely the tariff) fell
from almost 75 percent in 1902 to about 25 percent in the 1920s;
meanwhile, income-tax revenues increased, accounting for nearly
50 percent of the federal government’s general revenues. As had
been the case in World War I, income-tax revenues proved to be
more abundant than the Treasury experts had forecast, and the
Republican administrations enjoyed substantial, growing budget
surpluses until the onset of the Great Depression.”

Those income tax revenues, mind, came from the wealthiest income group. In a country where the median income was some 2 thousand dollars per year, the first 3,000 dollars of income was not taxed. As Mellon, the conservative Treasury Secretary put it:

“Mellon went so faras to advocate providing a greater reduction in taxes on “earned”
than on “unearned” income, and the Revenue Act of 1924 included
such a provision. “The fairness of taxing more lightly incomes from
wages, salaries, or from investments is beyond question,” Mellon
asserted. “In the first case, the income is uncertain and limited in
duration; sickness or death destroys it and old age diminishes it;
in the other, the source of income continues; the income may be
disposed of during a man’s life and it descends to his heirs.”

While this was a plea for greater death taxes, it was also a concession to the Edgeworthian logic of the tax, in which the determining factor is the marginal utility of income. As the marginal utility of a dollar to a man making 50,000 dollars is much greater than it is for a man making 1 million dollars, the logical thing is to tax the man making 1 million dollars. It does less harm.

So far, so good. But the worm in this apple lies in the notion of ‘investments”. Income, after all, must provide for current expenses and savings in a household. Up until the seventies, the savings of a middle class household were presumed to be in some private pension in combination with social security. Then, of course, the neo-liberal ideology began putting its sharp little teeth in the hide of the developed economies. Why not use tax deductions to get the mass of that savings flowing into the markets? Oh, what a win win proposition. In fact, the winners were naturally in the financial sector – they were the very malefactors of great wealth Roosevelt talked about 70 years before. And so the assets of middle income households were gradually tied to the private financial services sector - stocks and bonds – as their taxes went up to provide for government services and their incomes stagnated. The latter fact was not separate from their investments in the market – in effect, middle class households began betting on their own lack of income growth. This was all very well as long as there were bubbles to make those stock investments grow. Bubbles aren’t bad or good things – they are just the way that technology, population growth and capital converge. However, they let you down in a pinch. Thus, the empire of pensions built up by white collar workers since the Depression, and union workers too, was dissipated in the fine frenzy of the financial markets, and after the first wave, the 401(k) ripoff replaced the traditional pension.

It is this which has introduced an interesting variant into our class war. Their assets of households have made them the allies of the wealthy (this was the intended political dimension of neo-liberal policies) even though the wealthy are really not their allies at all, as any business cycle will show you.

If there were a progressive community in America, this story would be on their radar and they would be fighting against it. One way is to divorce Main Street and Wall Street. This is why LI is a big fan of the government providing a means of investing money with a guaranteed safe rate of return outside of the stock market. Theresa Ghilarducci made a suggestion in 2008 that we stop giving a tax credit to 401(k)s and introduce Guaranteed Retirement Accounts, in which the average person can simply open a government account and park money in it, earning non-taxed interest, with the aim of creating a retirement fund worth 70 percent of a person’s pre-retirement income.

This would be the single biggest blow against the neo-lib agenda since the seventies. A truly liberal president would have Ghilarducci as his advisor. One day we will have such a president, although I imagine Ghilarducci will be retired at that point. At present, we have a president named Obama who is a bit to the right of Andrew Mellon on economic issues. A pity, that.

Wednesday, September 21, 2011

The geneology of unintended consequences

In the note he devoted to the Regency in his Precis of the Reign of Louis XV, Voltaire marveled at the consequences of the rise and fall of Law’s system in France: “Finally, that famous system of Law or Lass, which seemed it must ruin the regency and the state, in fact sustained one and the other by some consequences that nobody could have foreseen.”

The idea of unforeseen consequences will have a long history in economic thought. Voltaire introduces it hear in a marveling tone – and yet, what he shows is not a marvel, but the development of a trend that developed because of the ‘side effects’ of Law’s system. This is one of Voltaire’s signal contributions to that product of the Enlightenment, the conjectural history, of which the most famous example is Adam Smith’s Wealth of Nations. Even as Montesquieu adheres to the classic rise and fall model of the economy, one in which Nemesis is still visible, the watermark beneath the elegant system, Voltaire dispenses with Nemesis and introduces the complexities of a feedback system that defies, to an extent, any easy moral analysis.

“The cupidity that it awakened in all conditions, from the lowest people up to the magistrates, to the bishops and the princes, diverted the attention of all minds from the public good and all political and ambitious views in filling them with the fear of losing and the avidity of gain. It was a new and prodigious game, when all citizens bet one against the other. Avid gamblers do not quit their cards in order to trouble the government. It happened, by a prestige of which the mechanism was not visible except to the strongest and finest eyes, that a completely chimeric system gave birth to real commerce, and the rebirth of the India Company, established in the past by the famous Colbert and ruined in the wars. At last, if many private fortunes were destroyed, the nation soon became more commercial and rich. This system lit up intellects in the same way the civil wars sharpened courage.”

Voltaire’s is a brief account of the rise and fall of the System, putting into a few paragraphs a broad description of the ‘complexity and rapidity of the machine”. Voltaire does not moralize upon the upsurge of greed, for he saw pretty clearly that greed was not the vice that France was suffering from, but famine and disease. The sudden fortunes acquired by upstarts was, in comparison, a comedy, and one with the strange effect of securing the state. Surely in being able to see these things calmly, Voltaire was influenced by Mandeville, as well as an proto-economist named Melon. And yet Voltaire was enough of a moraliste to understand the symbolism of what he testifies that he saw: Law, an ‘unknown’ and an adventurer, ‘arrive at the halls of the Palais Royale followed by Dukes and Pairs, Marshals of France and Bishops.” The world was only briefly turned upside down, but in that moment a glimpse was given of another possible world.

That possible world is masked by the image of the Age of Reason, which, although an excellent pamphleteering title was not, pace Tom Paine, a very informative description of what the Enlightenment wrought. From Voltaire to Adam Smith, the unintended consequences of action – particularly political action – was the theme constantly sounded against the schemes of sovereign reason, until finally, in the Critique of Pure Reason, reason itself becomes a sort of impotent god, like one of those deified people selected in certain tribes described in the Golden Bough, whose divine life was spent incommunicado, walled up, and generally tabooed. Although it is also true that reason plays a more multitudinous role in the writings of all these writers – if the unintended consequences of political reason, or of the passion for gain, operates as a positive force in the cultivation of progressive society, its negative dimension can be countered by the citizen’s virtue, or practical reason. Paine could just as easily have spoken of the Age of Virtue, for it was virtue that was evoked in the Assembly as the basis of the revolution.

Behind Voltaire and Mandeville’s tonally different but thematically similar analysis of the unexpected social virtues of private vices there lies, in fact, a Plutarchian theme: that of the dispute between virtue and fortune. The contest is staged in two of Plutarch’s speeches – on the fortune of the Romans and on the Fortune of Alexander, as well as in his biographies.

In the speech on the Romans, the contest between Fortune – which is amoral – and virtue – which is moral – is identified with another contest, between fortune and forethought.

“Wherefore our present discourse
does, in a measure, bestow a fair and enviable dignity
upon Rome, if we raise the question over her, even
as we do over earth and sea, heaven and stars, whether
she has come to her present state by Fortune or by
Fortune, it should be said, is not merely chance. In another essay on Fate, Plutarch distinguishes between the contingencies that can befall anything, living or non-living, and the fortune that impinges upon the course of human life:
‘that which is fortuitous allows also chance, and belongs to things practical; but what is by chance cannot be also by fortune, for it belongs to things without action: Fortune, moreover, pertains to rational beings, but chance to rational and irrational beings alike, and even to inanimate things.” Although Plutarch attributes this doctrine to Aristotle, he fundamentally agrees with it, and uses it to give an illustration of unintended effects, or the effects of fortune: ‘Now the cause by accident, when it is found in a thing which not only is done for some end but has in it free will and election, is then called Fortune; as is the finding a treasure while one is digging a hole to plant a tree…” (Volume 3, Essays and Miscellenies)

The example is, as any good Derridean would expect, mysteriously influential on the concept exemplified. Fortune (for Plutarch, tyche) and treasure are bound together through a deal of etymological weather, which is why the beginning of political economic discourse begins by replaying the Plutarchian dramatis personae…

Monday, September 19, 2011

DSK and his fantasies

Freud wrote that the system of the unconscious doesn’t contain a ‘no’. It uses, instead, contradiction to mark a negation – which is why, in dreams, seemingly inconsistent narratives will merrily unfold themselves, making it hard for the dreamer to tell the dream in waking language.

I thought about this watching DSK trying to explain the events of the morning of May 14, 2011 on TF1, where he was interviewed last night by his wife’s friend, newscaster Claire Chazel. The entire interview revolved around a negation: when asked to give his side of what transpired in the thirty some minutes he spent with Nafissa Diallo, DSK came up with no account whatsoever. Instead, he declared that what happened was a ‘moral error’ and that – bizarrely – he was not ‘proud’ of it.

That he was not ‘proud’ of what happened – a phrase he used at least twice – seems to be Strauss Kahn’s attempt to say that he was ashamed of it. But not being proud and being ashamed are, of course, two different things. The idea that something happened for which he had to disclaim ‘pride’ tells us much more about Strauss Kahn’s view of himself as a sexual ‘seducer’ than, perhaps, he might suppose.

Having chosen the famous politician’s strategy of the non-apology apology, Strauss-Kahn went on to heighten the contradictions by claiming that he used no violence and he used no money. In essence, then, what Strauss Kahn is not ‘proud’ of is the story that seems like a very common erotic fantasy. A maid comes to the hotel room, she glimpses Strauss Kahn in his mighty nudity, she swoons with sexual desire, and she offers to suck him off, which he graciously allows until he comes in her mouth, when she spits his semen out.

How plausible is this story? It is about as plausible as a dream. Strauss Kahn himself recognizes this – after telling us that no payment was made, he also tells us that Diallo made the accusations and created the entire storm on account of the fact that she wanted money. Now, of course, in this part of the narrative, we are to believe that as the memory of Strauss Kahn’s irresistible member faded, she decided to charge him with rape to make some money.

What is plausible and what is implausible was one of the great problems around which Aristotle’s Rhetoric turns. The plausible is from the beginning a class instrument – in Aristotle’s terms, it is what seems well to an educated male citizen. That is, to one of the ruling class in the city. And these stories of willing maids and hung males certainly circulate among this class. But outside of that context, the whole story, it seems to me, could be made so wildly implausible by a halfway decent prosecutor that DSK would choke on it in court. I was talking to a friend this morning who thought, after the first five minutes, that DSK did rape Diallo – something he hadn’t thought before – simply because he was the sort of man who got away with jumping women. Perhaps this is true. TF1, however, has done little to cast any light on the subject, and – with a format of questions that never followed up on DSK’s evasions – seems to conspire with his ‘rehabilitation’.
I think that project is fucked from the beginning. I hope so.

Sunday, September 18, 2011

on the emotional frontier

Robert I. Levy, in an essay entitled Emotions, Knowing and Culture [1984], proposed two axes for analyzing emotions on the sense making level – that is, not as private experiences, but as experiences that enter into the public domain. On the one hand, he speaks of hyercognition – “Hypercognition involves a kind of shaping, simplifying, selecting, and standardizing, a familiar function of cultural symbols and forms. It involves a kind of making “ordinary” of private understandings.” In contrast to that stands hypocognition – “Hypocognition forces the (first order) understanding into some private mode.” Citing his own work on “sadness” among Tahitians (Levy claims that, while there are words for severe grief and lamentation, there are “no unambiguous terms that represent the concepts of sadness, longing, or loneliness… People would name their condition, where I supposed that [the body signs and] the context called for “sadness” or “depression”, as “feeling troubled” pe’ape’a, the generic term for disturbances, either internal or external;…”) Levy writes that these are some “underschematized emotional domains”, and that these are hypocognized. “One of the consequences of hypocognition is that the felt disturbance, the “troubled feelings,” can be interpreted both by the one who experiences them and by others around him as something other than ‘emotion’. Thus, the troubled feelings that persist too long after the death of a loved one or those that occur after some loss that Tahitian ideology holds to be trivial and easily replaceable are in the village often interpreted as illness or as the harmful effects of a spirit.”

Levy’s idea has not, unfortunately, been taken up by intellectual historians. Perhaps this is because one thinks, still, of emotion as being a very intimate and incommunicable state of feeling, which, though perhaps aroused by an external incident, is wholly enveloped within the individual self, much as a tooth ache is felt by the possessor of the tooth and not by the dentist who pulls it. But the affections are not spontaneously invented within us, even if they are, of course, neurologically guided. In fact, one would expect that the kind of epistemic and social ruptures that are thought to constitute the great transformation within the Occident – defined as capitalism, or the industrial or scientific revolution, or the emergence of new encompassing institutions – should present situations that evoke feelings that are ‘underschematized’.

It is an oddity of the work of Foucault, and of his followers, that though Foucault was very clear about the kind of epistemic rupture that he dates, approximately, to the late 18th and early 19th century, the rupture is not witnessed. On his account, it happens in a sense without any contemporary realizing it. I call this odd in that Foucault thought that he, on the contrary, could very well recognize the ‘end of man’ and the shifts that signaled another epistemic rupture. If we suppose that such things could be witnessed, perhaps the witnesses would struggle with hypo-cognition – perhaps they would not be able to interpret their feelings about what they witnessed, about the new thoughts they thought. Suppose, suppose. We are not, I think, looking for total witnesses, but instead searching for partial testimonies. Testimonies of those who were something like affective pioneers. Among whom I would put Rousseau.

Perhaps the enormous influence of Rousseau in the French revolution and in the late Enlightenment owes something to the obscure sense that Rousseau was not only a 'thinker', but he was a sort of witness to what had grown up within the old order as it began to fail affectually - he articulated a certain collective problematic of articulation, in which a connected system of new ways of living sought a schema in which to feel. The feeling about things is not a given: nor are the people of Europe or the "West" magically equipped with an all embracing set of affective categories that they can wrap around the world. The total social fact of collective feeling is not an unchanging universal, although the form in which it works is to make it feel like a universal. 

Elia meets Karl Marx at the South Sea House

    When Charles Lamb, a scholarship boy at Christ’s Hospital, was fifteen, one of his patrons, Thomas Coventry, had a discussion with a...