September 25th, 2009 :: Permalink

Aloha ~
While David has provided an excellent analysis, the title, "The kids take the biggest hit," doesn't complete the picture, as these cuts affect the entire Middle Class. Students will suffer; parents will suffer; and teachers who currently do not make a great deal of money will suffer as well. In addition when nearly 13,000 employees receive an approximate 8% pay cut, their families must reduce spending and this affects other local business. The drop in consumption will likely lead to further layoffs in the private sector (or less hiring), further decreases in tax revenues, and calls to continue cutting social services and programs.

Wealthier families can easily dodge these troubles by hiring a tutor and providing day care if their children are affected by furlough days. More likely they shelter their children in private schools anyway. These fortunate keiki will continue to advance in scholastic aptitude while poor and middle class children fall further behind.

Missing from this analysis is the nui ka 'elepane in the room: where are the calls to increase taxes? WHOOPS, I had the audacity to utter the T word!

Speaking to congressional leaders two weeks ago, Warren Buffett, renowned investor and world’s second richest man, reported that changes to the tax laws over the past 8 years allow him to pay a lower percentage of income in taxes than do most of his employees. Buffet told lawmakers he paid a 16.5% tax rate on all his income while a single employee at his firm, Berkshire Hathaway, who earns between $33,000 and $83,000 must pay a 25% federal income tax rate.

For decades "neo-conservative" activists have pursued an agenda to deconstruct the New Deal and related social programs - programs designed to bolster and grow the Middle Class. They looked to involve America in costly wars, thus driving up military spending. They advocated supply-side economics, which cut taxes on the most wealthy. The increase in "necessary" military spending combined with lower tax revenues would theoretically crimp government's ability to fund broad social nets.

Much of the success of this approach resulted from its marketing strategy - that putting more money in the hands of wealthy investors would stimulate the economic engine for all Americans. Reagan's venture in this area simply increased the national debt leading G. H. Bush to label this policy "voodoo economics." Younger Bush revived Reagan's efforts and we're currently suffering the results of his disastrous policy.

Let me give you a condensed summary of recent American history. Beginning with the post-WWII era, America moved into a "sweet spot in time." Our factories and farms provided goods to the world; American labor was king; salaries were high relative to the world; and Middle Class prosperity was growing.

Along the line families began to feel the strain as competition around the world began to catch up. Slowly, almost one-by-one, families looked to cut their costs. They began to shop at corporate discount suppliers who were more competitive than local "mom and pop" operations because they were using less expensive, foreign labor.

Our seemingly harmless foray into foreign production soon added to the loss of manufacturing jobs in America. Each year more products were produced by non-American labor and more American labor was shifted into the service economy at relatively lower salaries. American consumer purchasing power was dropping.

As purchasing power diminished, calls for tax relief became increasingly popular. Neo-con elements scapegoated the government to cover the industrial leap into foreign markets. Government was emasculated, reducing its regulatory effectiveness; "free market" advocates succeeded in reducing barriers to trade, thus flooding consumers with cheap, foreign alternatives to U.S. made products.

Dollars began flowing out of the U.S. faster than they returned; good jobs were leaving as well. Tax reform put more money in the hands of the MOST wealthy, purportedly to increase our economic engine, yet investors do not make decisions based on national interest - they are singularly focused on increasing their bottom line and profit margins. Capital was fleeing the U.S. as quickly as jobs. Our mature market was of little interest to hungry investors.

The U.S. received a brief pause in this economic collapse beginning in the mid-1990s. With the explosion of the Internet, we witnessed a new market for venture capital here at home. Yet the increased concentration of wealth in the hands of too few created a bubble economy. In 2000 the revival came crashing down. Most of us know the history since 2000. We are still trying to figure out how to escape the recent financial collapse. Government now is a tool of the most wealthy as it accepts the risk and failure of ill-advised strategies while allowing groups "too big to fail" to devour profits where they can.

Today many corporations operating in America pay no taxes; the most wealthy frequently pay a lower percentage of their income than do hard working laborers; and Middle Class families continue to feel increasingly pinched.

The cycle continues as we spiral down ... down ... down. Hawai'i's teachers have simply been asked to be the next group to take one more step down the ladder to impoverishment.

A*L*O*H*A