Democrats & Liberals Archives

HR25 Will Destroy the Middle Class

HR25, the bill that will present us with a new federal sales tax system to replace our current income tax system, is not “fair” in any sense of the word. It’s overall purpose is to advance capital growth. This would be a boon to capital and a disaster for labor. So, to improve the tax system that was made a monstrosity by loopholes favoring Big Business, it is proposed that we substitute a tax system that is even more favorable to Big Business. Although the bill takes care of the poor (somewhat), it shifts the major tax burden to the Middle Class. HR25 will eventually destroy the Middle Class.

You can see the bias towards capital up front in Section 2, Congressional Findings, where it lists reasons for the new bill. In addition to the usual fairness, raising standard of living and other innocuous reasons, it lists:

  • will promote savings and investment
  • will promote economic growth
  • will increase investment
  • will enhance productivity and international competitiveness
Nowhere does it say anything about workers. You'll notice, however, that "investment" is mentioned twice. This means capital. Economic growth, productivity and competitiveness are all related to capital, as well.

So the purpose of the legislation is to enhance "capital formation," which corporate lobbyists have been promoting for years. They say that capital formation will lead to wage increases. Not necessarily. The more capital you have, the more automation you may buy to replace workers. The more capital you have, the more plants you may establish and downgrade employee benefits. The more capital you have, the more deals you may make with foreign countries to outsource your labor.

The bill itself calls for a sales tax on all consumption. One tax for all who buy stuff. This means the tax system is no longer graduated. If it's not graduated it is not fair. The government supplies a great deal more services to business than it does to workers. The government supplies financial, legal, social, political, diplomatic and even military aid to business. The guy working in a factory may get some help from OSHA, Social Security (which will be destroyed by this legislation) and other agencies, but much less than any businessman.

Now for the consumption tax itself. One tax rate is used for buying all articles and services. Those on bottom of the income pile will pay more than they do now, while those living on capital will pay less. In addition, as I said before, the poor will spend more of their income than will the rich, thus increasing their total tax expenditures more.

It's true that HR25 takes care of the poor. So we should compare results for the rich as against those who are in the Middle Class. Since most in the Middle Class work for a living, the division is between people who depend on work and people who depend on capital.

First capital. No investment is taxed. Social Security is no longer a cost. Consumption is taxed at a low rate. Buying wholesale is not taxed; a businessman can acquire plenty of goodies this way. Anything bought for a business purpose is not taxed; the definition of "business purpose" may include a lot. What a beautiful life! Tiny taxes!

Now Middle Class. No more Social Security. Pay tax on everything. Pay higher tax than the rich guy. Tough to build a nest egg by investing. Devastating tax burden!

One thing I'd like to know: When a fatcat buys a service, such as political influence, will he pay a sales tax? Probably not. But even if he pays the sales tax, he is still in an excellent position to buy this service. He is loaded, and in order to become more loaded, he may rely, even more than he does today, on political influence. The result will be that capital will drown out workers in the Middle Class.

Capital is not an American thing. Capital flies around the world. Free capital from all taxes and you free yourself from all influences on it. Capital will go where labor is cheap. Why should it stay in America when labor is cheaper in so many other countries?

Labor, supplied by the Middle Class, will have less and less influence. It will be paid less and less and therefore be able to buy less and less. Its standard of living will go down. HR25 will strangle the Middle Class.

Posted by Paul Siegel at August 16, 2005 7:06 PM