American…socialism? Dubious.

I’ve been perplexed this week as to which of the multiple issues I wanted to address and, rather than writing several entries, I had all but given up entirely. As I’ve said in previous entries, the need to further investigate macroeconomic principles founded on either a Keynesian or Hayekian basis becomes increasingly clearer with each passing day of GOP debates (and their conservative followers’ Facebook posts) and EU budgetary talks.

Fiscal conservatism, e.g. cutting back spending to reduce debt, seems like sound advice. However, in times of economic downturn, think about what austerity measures really do for the economy. By reducing government spending, be it in the form of direct stimulus plans or indirect benefits, people are wont to save. You cannot grow an economy if no one is willing to purchase. While I admit that certain packages may not inspire the degree of confidence needed to jumpstart consumer habits to pre-recession levels, they do more than reducing government spending would do. After all, folks, it’s called a stimulus package, not a climax package. So let’s curb our seething criticism for a moment (which consequently is doing nothing to encourage consumer faith and as such is contributing to a self-fulfilling prophecy) and re-evaluate some claims that have been made recently.

Why, oh why, can my fellow Americans not understand that the Obama administration’s approach to taxes is not socialist? The quips made on everything from Fox “News” to social media platforms such as Facebook continue to liken Obama to European style socialist democracy. I have a few complaints with this: his proposed tax scheme is nowhere near what I would qualify as socialist (especially when compared to European counterparts) and, frankly, with moral questions of fairness aside, in global recessions it’s in the long-term interest of those wealthier citizens for short-term tax increases.

“Comrade Obama” proposed in his State of the Union Address that millionaires should pay no less than 30%. Let’s take a look at tax structures on the other side of the pond. The UK, which in many respects is the ideal EU counterpart to the US, structures its taxes as such:

Income Tax band Income Tax rate on non savings income Income Tax rate on savings Income Tax rate on dividends
£0 to £2,560Starting rate for savings Not available 10% Not applicable – see basic rate band
£0 to £35,000Basic rate 20% 20% 10%
£35,001 to £150,000Higher rate 40% 40% 32.5%
Over £150,000Additional rate 50% 50% 42.5%


Aside from glaring differences in the percentages themselves, the groups are shockingly smaller ranges than Obama’s millionaire bracket. Please stop haphazardly praying on an anemic American educational system that associates Socialism with nothing but negative connotations unless you’re prepared to defend how “no less than 30%” for millionaires is at all close to 50% for earners of roughly $237,000 (unless of course, in addition to social sciences, history and philosophy, you want to further contribute to an already inarticulate and often imprecise teaching by adding, if you can, mathematics to the list). This is not to say that the UK doesn’t have its skeptics, but perhaps that’s the only thing the UK and US share in terms of socialism: a disapproval from the conservative side.

Moreover, it’s corporate tax structures that need to be evaluated. If we follow trickle-down theories for personal taxation, the money all but dries up the minute wealthy citizens buy foreign-made goods. And in a globally competitive market, it’s the companies that are liable to move operations abroad, rather than the individuals themselves. Think of it as a basic causation. In other words, companies are taxed out of competition within borders and move elsewhere, and as unemployment rises, the individual tax pool becomes smaller. If the wealthy wanted to reduce the burden they ought to pay over the longer-term, they should be funding ventures that bring job growth, and thus, potential taxable income. In the short-term, then, having to offset government spending that instills confidence in the consumer and gets the economy growing again is a small price (especially when compared to our European counterparts) to pay. For those who knock stimulus spending, I need only point to Ford’s recent success in Detroit, reported a few weeks ago in The Financial Times. In this case, not only did it prevent the collapse of an industry, but actually caused a rebirth of sorts.

Of course it cannot be stated clearly enough that government expenditure is a dangerous game. When the question of socialist tax structures is raised, the debate ought to be focused around spending programs rather than mere percentages. It is not enough to assume on good faith that programs created and funded will have the impact intended, and I would strongly disagree with the assertion that Obama’s intention is merely a redistribution of wealth–mainly because those who talk of redistribution use it in the sense of equalisation, and that is obviously not happening. Either way, corruption is always a worry in the public as well as private sector. But perhaps, with Congress approval ratings hitting all-time lows, they’ve never had more motivation to insure these steps, from taxation to smart government programs, succeed for posterity as much as this current suffering generation.