The Conservative Nanny State : A Book Review Part Six : Small Business, Taxation, Public versus Private, and Roots of Mythology

In our concluding article analyzing Dean Baker’s The Conservative Nanny State, we touch on the role of the archetypal small business, taxation, and the persistent, seemingly immortal debate on private versus public infrastructure, all with respect to the pantheon of the mythology.

Small Business Blight

Baker argues that the small business occupies a unique, critical niche within the mythology : nanny state purveyors sell policy decisions often on the basis of how said policies affect small businesses in aggregate, based on the pervasive perspective that small businesses are a highly desirable feature of the economy.  Analysts across the political spectrum laud small business in editorial after editorial, such as left-leaning Huffington Post and right-leaning Forbes.  It’s so deeply embedded in our framework that to even ask whether small businesses are, in fact, better for the economy remains anathema.  Arguments range from job creation, financial independence, patent creation relative to big businesses, and the like.  Of course, we previously discussed whether patents really do represent innovation, to say nothing of encouraging it.

Before answering either way, Baker lists cases in which nanny state enthusiasts leverage the widely accepted propaganda to argue policy.  For example, Congress very nearly repealed the estate tax in the early years of George W. Bush’s administration, offering up the hapless small farmer as a would-be victim of the vicious “death tax.”  Baker argues reasonably well that the example is mostly nonexistent, owing largely to the zero bracket and the fact that most of the so-called small businesses affected are not genuine small businesses, but rather partnerships designated to be tax shelters, defined by the Congressional Joint Committee on Taxation.  The New York Times remarked in 2001 that the American Farm Bureau was unable to locate any families who lost their farms due to the estate tax.  The Center on Budget and Policy Priorities suggests recently with Donald Trump’s mad push for dissolving the tax that the true effect of repeal is shielding most inherited wealth from any taxation, as much accumulated wealth among those touched by the tax is untaxed income.  A similar argument applies to Trump’s insistence that most taxes, incidentally perhaps the only taxes he’s paid recently, should be lower to encourage economic growth.  Another interesting discussion on this topic is Nicholas Johnson’s article analyzing the actual effects of a 2012 tax break in North Carolina, promoted of course disingenuously as small business support.

In any case, Baker moves on to argue that the job creation precept of small businesses is actually misdirection, echoed later by The Fiscal Times : small businesses destroy perhaps as many jobs as they create, promoting uncertainty and churn in employment.  Further, he observes that tenure at larger firms is longer, benefits are better, and stability is greater.  More recently, a refrain from critics of the Affordable Care Act is the would-be damage to small businesses.  And yet the mandated requirements actually nudge employment quality in small businesses closer to that of larger firms.

The ACA debate hints at a larger argument that regulation inherently hurts businesses, reliably trumpeted by the conservative Heritage Foundation.  Of course, their arguments, promoted by debunked supply-siders, mandate we accept that a job is universally good, irrespective of the quality or pay.  Their predictable argument is that regulations

may be treated as "unnecessary"
if (1) the costs they impose
exceed the benefits they produce,
or (2) even though they produce
benefits that may exceed costs,
they do so in an unnecessarily
costly manner because of an
inefficient method or approach[.]

Their optimization strategy places money first, captured nicely by the following : if I successfully lobby the government to revoke that pesky “regulation” preventing me from lawfully confiscating my neighbor’s cache of groceries, I’ll save money.  Further, it is indeed inefficient for me to simply not have access to my neighbor’s food, as I have to obtain my own food otherwise.  How does this differ?  Multiply this argument into “externalities” such as dumping lead and other toxins into the water supply and relaxing safety regulations in manufacturing, and one begins to appreciate that more than the job is at stake.

Baker argues further that small businesses receive powerful nanny state protections, such as adjusted tax framework, reduced interest loans, lax safety protocols, minimum wage exemptions, and laughably ineffective self-disclosure regulation of environmental violations.  It turns out that the tax framework permits small business owners to deduct all manner of goods and services, perhaps required regardless of whether that person is a business owner (such as an automobile or a computer), costing the taxpayers.  Further, government subsidies for loans to failed small businesses can be staggering, described in Forbes and a few more hysterical right wing libertarian blogs.  That is, we the taxpayer foot the bill for unstable, mostly failed businesses who enjoy nanny state protections against labor, wage, and environmental regulation and means of pocketing breaks.  He correctly observes that citizens requiring TANF benefits to feed their children receive near universal excoriation while failed businesses and illegal deductions rarely enter the discussion, let alone suffer bad press.

Admittedly, small businesses contribute some desirable dynamism to the economy, but the usual question is whether they are an optimal instrument within free market or social experiment framework; if they were, they wouldn’t require such strong protections to succeed.

Taxes, Taxes…

Baker argues rather holistically against the ignorant perspective of nanny state promoters, that taxes are a voluntary donation.  I’ve listened for decades to family and friends bemoaning of the prospect of a single red cent of their hard-earned money finding its way to welfare recipients.  I remarked that the rate of welfare fraud, coupled with the infinitesimal fraction of discretionary spending moving into the hands of these people is virtually zero; money of higher orders of magnitude flows freely into the mass murder machine of the military and, as suggested earlier, giant tax deductions by corporations.  Tax evasion is rampant in the U.S., a partial list of which appears in Wikipedia; Baker cites a study by the IRS reported in the New York Times in 2006 demonstrating an escalation in high-dollar evasion.  It shouldn’t be a surprise that most evasion cases never reach prosecution.  What’s worse, as of 2006 thirty percent of federal taxes remained uncollected, meaning that if the evaders paid their fair share,

tax rates could be reduced
for everyone by twenty-five
percent, and the federal
government would have the
same amount money.

By contrast, if all TANF recipients, as the nanny state supporters like to suggest, got jobs and got off the government dole, we could reduce our tax burden by a whopping 1.4%.  The conservative nanny state mythology appears more and more to be a carnival mirror of stupidity.

More recently, Trump has stumped for lowering the corporate tax rates, arguing as expected that the current burden is overwhelming to American companies.  And yet the assertion, like most parroted by Donald, is patently false, as documented in April by the Center on Budget and Policy Priorities.  Corporate profits are growing, and the rich are getting richer.  How would reducing a largely unpaid tax burden help working people?  It’s worth remembering the the top individual income tax rate in 1944 was ninety-four percent for earnings above $200,000, or $2.5 million in 2017 dollars.  Innovation, economic growth, and a vibrant technology sector generated by state spending were humming along nicely.

Baker points out that this nanny state gentlemen’s agreement on evasion doesn’t extend to filers requiring the Earned Income Tax Credit (EITC), discussed by the New York Times; audit rates are readily available by income level from the IRS, documented by USA Today.  The gist is that twenty percent of those filing for the EITC receive requests for additional information, akin to a mini-audit.  By contrast, less that twenty percent of earners with income above $10 million ever receive an audit.

Baker continues with a discussion on internet sales, quite interesting in and of itself; suffice it to say that retail giants such as Amazon had escaped paying sales taxes because of ambiguities in managing purchases across state lines.  The public relations defense against self-disclosure was simply that the administrative burden was too high; this is patently false.  When I worked in Amazon Last Mile Logistics, we routinely handled varying jurisdictions in the company’s deliveries.  The complexity of operating in multiple geographies scales easily, as anyone familiar with the space should know.

Finally, he tackles the curious distinction between stock trading, casino gambling, and ordinary scratch-off and lottery tickets.  The taxation rates are astonishingly regressive, ordinary lottery wins being roughly thirty percent, casino gambling seven percent, and stock trading a brutal 0.003%!

Why is Private Better?

We’ve argued at length in previous posts about state capitalism, the economic system, despite all smoke and mirrors, under which we operate.  A pervasive argument of conservative pundits and nanny state babies is that private corporations can easily outperform public agencies because of waste intrinsic to their structure.  That is to say, without the pressure of profit mandates, shareholder backlash, and market principles, government agencies can profligately expend resources enriching themselves and preserving their positions.  By contrast, private organizations, we’re told, operate more efficiently with minimal largess.

I shouldn’t even have to quote statistics or studies to undermine this absurd notion, as anyone who’s ever worked in corporate America knows this simply isn’t true.  It isn’t to say that customer service, after a fashion, might be better in private agencies, as public agencies are generally quite underfunded, part of a scheme by conservatives to “starve the beast,” a notion to which we’ll return.  But this suggests not that all products and services are more sensibly driven by markets, as the destructive nature of markets is well-understood (and there would be no nanny state if this weren’t the case), rather perhaps customer service itself is better left to private organizations.

Donald Kettl, professor at the University of Maryland, penned an interesting op-ed in Excellence in Government, arguing a dual blame to so-called liberals and conservatives : liberals forgot to work out the details of their big ideas, and conservatives have actively, successfully fought to starve and dismantle the administrative state, an oft-mentioned strategy in connection to the recently fired Steven Bannon.  I’d disagree on some of the terminology, but Kettl correctly argues that the political left in this country ceased to operate among the political elites many decades ago.

Baker’s key arguments are that Social Security and Medicare operate on remarkably low overhead, as marketing and monstrous compensation packages for executives simply don’t exist.  He goes on to sketch an argument we’ve mentioned previously, that health insurance ought to be nationalized for the sake of the population.  As David Swanson so aptly put it, Americans can discover, oddly, that other countries exist, and that they’re leveraging universal health insurance programs, as Physicians for a National Health Program have long advocated.  We need not repeat all the arguments here, but as Noam Chomsky so often describes our current, fragmented joke of a system, it’s

an international scandal.
It’s roughly twice the per
capita costs of comparable
countries, and some of the
worst outcomes, mainly because
it’s privatized, extremely
inefficient, bureaucratized,
lots of bill paying, lots of
officials, tons of money wasted,
healthcare in the hands of
profit-seeking institutions,
which are not health
institutions, of course.

Considering, as we have previously, that virtually all technology which we take for granted originated in the state sector, and that no private agency would underwrite such long term investments, it should be glaringly obvious the role the nanny state plays in generating technology, then handing it off to private interests once it’s become marketable.  The nanny state mythology, astonishingly, convinces even highly educated people that the market somehow spins all of this from whole cloth.

Summary : Why A Nanny State?

In summary, Dean Baker’s book is an awesome read, filled with powerful arguments of which we can only scratch the surface.  He has many more recent works with additional facts and figures worth perusing, but The Conservative Nanny State is a primer for many a discussion on the proper role of government in the economy.

So why does the mythology tickle so many ears?  I grew up hearing so much of the rhetoric, and I’ll admit it seemed reasonable at the time.  With much research, I must confess the answers are quite disturbing.  As Chomsky mentions quite frequently, the rise of the public relations industry under Edward Bernays was a product of the remarkable success of the Department of Information (later the Ministry of Information) in convincing not particularly violent citizenry into warring against their white brethren in World War One.  Walter Lippmann and other premiere intellectuals of the day discovered that the power to “manufacture consent” was the only tool remaining in the toolbox, as violence eventually won’t work in an increasingly democratic setting.  Relegating the rabble, the “meddlesome outsiders” to passive spectatorship in policy and active villainy in war is a monumental achievement, and crucial to this effort is a series of scares, beginning with Wilson’s Red Scare, the propaganda around Cuba’s communist roots of the 1920s mentioned earlier, McCarthyism, and the like.  I can remember my uncle reminiscing about listening to records of Ronald Reagan during elementary and middle school, in which Ronnie explained that universal healthcare is a thing of the communists.  Of course, he neglected to mention that his government positions ensured glorious medical care well into his sad last days of Alzheimer’s dementia; unfortunately, he neglected to offer an appropriate avenue for poor white brethren to secure similar, reasonable old age accommodations, to say nothing of the black and brown.

The gist is that the conservative nanny state mythology is a remarkable feat of propaganda and avarice, designed effectively to persuade poor spectators into stumping for obscenely wealthy men with whom they’ll never associate.  Rush Limbaugh, one of the principal advocates for said state, has argued that income mobility ensures egalitarianism in our system.  Would that his variant of egalitarianism cure his stupidity.

The simplest explanation, as William of Ockham once suggested, might be correct.  Power and money has enabled an overclass to systematically hijack the debate, reframing policy discussions in their own image, just as is suggested in the Powell Memorandum.  As for the book, read it.

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