Friday, September 14, 2007



Professor Michael Hudson of the University of Missouri in Kansas City and head of the Institute of Macroeconomic Policy Analysis is newly appointed Chief of Economic Policy for the Kucinich presidential campaign.


The status quo politicians and the mainstream press immediately label anyone who examines solutions to the disparity between the rich and the rest of us in the United States as “proposing a class war.” The truth is that this charge masks the real long standing class war maintained against ordinary citizens.

Professor Hudson looks at the tax laws, state, local and federal, and the economic interests that cause them to be enacted. He comes to the insight that the wealthy have in fact long been conducting a class war against all employees, wage and salary earners. Their objective has been to remove or minimize taxes on the rich and on real property and to impose the entire burden of taxation on employees who work for a salary or wages. Using Hudson’s approach, one can see that these interests have been working at least since1913, and have become increasingly successful. Now in 2007, the power of these interests overwhelms the power of voters.

Hudson calls this group of interests the Finance, Insurance, Real Estate Lobby, in other words the FIRE Party that now is able to get whatever it wants from elected representatives and to stop what it does not want. FIRE is able to control our elected representatives because it is the source of 95% of the money that elected officials need to get re-elected. The FIRE Party controls the Federal Government, and each of the elected federal officials. It is almost always able to nullify the political implementation of majority will of voters. Hudson also now includes the pharmaceutical companies as important components of the FIRE party, but for some reason, he does not include the military industrial complex and the armaments manufacturers. Perhaps Hudson sees these latter as being mere appendages of the Finance interests. Hudson says that financial transactions in real estate, stocks, bonds, company buyouts and the like constitute 95% of the spending in the US and spending for goods and services are only a very minor part. The Financial interests thus have the money to become politically dominant.

Hudson begins with Republican Theodore Roosevelt’s progressive reaction to the excesses of the Golden Era, leading to the enactment of the 16th Amendment in 1913 making a progressive tax on incomes possible. (It is noteworthy that the private Wall Street controlled Federal Reserve Bank was also established in 1913.)

At the time of the Republican Progressive era most of the taxes were on land. In 1930 70 % of the state and local tax revenue came from taxes on land while in 2007 only 10% comes from land taxes. There was then a prevailing ethic and belief that the good of all involved having a sustainable healthy productive workforce. Those who worked were entitled to enough income for their own maintenance. This was the assumption of economist Adam Smith, and the moral and spiritual ethic of St. Thomas Aquinas who wrote in the 1200s that Work touches life itself—‘to live well is to work well’…that work means life and life means living with meaning and a sense of contributing to the community.

Another background insight to this former Republican position was that the amount of land on the planet is finite while the number of people is constantly increasing, and that land is the ultimate source of food for all these humans. Civilized humans can not leave land to the law of the jungle, and in the control of rich landowners who have the power to deprive people of food.

Still another background assumption was that human beings as producers, had dignity and value not only to themselves, but to the whole society. Employees had an opportunity for pride in their creativity and workmanship and in their contribution to community well being. At that time, there was the wisdom that human beings as consumers could only have greedy “wants” and that greedy consumption should be disciplined, limited and controlled.

In Republican tax policy at that time, most taxes were on land, and the assumption was that the amount of money a worker needed for his sustainable maintenance was exempt from all tax. Adjusted to today’s levels that would be around $40,000. The assumption was that land owners and wealthy people should pay the taxes because they got the most material benefit. Although all taxes were evil, the least evil tax was one based on land value.

Thus as late as 1980s the income to rate of our progressive income tax authorized by the 16th amendment was 72% at the top levels. States and local governments maintained property taxes sufficient to fund schools, colleges and universities. There was an Estate Tax imposed so that unearned income could not be transferred and compounded in successive generations.

Following World War II, the US thus had sufficient funds to provide 11 million veterans with a college education and home loans. (In ensuing decades these veterans have paid back that government investment many times over, in their own income taxes.)

The FIRE party began its counter-revolutionary class war in 1913 to cut taxes on the rich and impose the burden on wage earners. Hudson emphasizes that the Democratic Party has implemented each step of this class war, despite its false rhetoric about being for “the little guy.”

In 1913, FIRE established the Federal Reserve Bank, a private institution controlled by FIRE. The voters through the US Treasury until that time controlled money and credit, and the worth of the dollar was backed by gold. Control of credit, and the purposes for which credit could be used was thus placed in private hands, FIRE’s hands. FIRE thus had control of the economy and planned the economy to suit itself. FIRE usually wants higher interest rates, “tighter credit” and the people through the US Treasury wanted “easy credit.”

In 1935 FIRE had enough political clout to cause employees to finance their own ultimate retirement security through a regressive flat tax on a portion of their wages. FIRE also caused the income of wealthy employees to be exempt from the SS tax above a certain level. Social Security should have been paid from the general budget and funded by the steeply progressive income tax with no exemption for wealthy earners. FIRE prevented that, protected the wealthy, and increased the burden on ordinary wage earners.

In 1947 FIRE caused the enactment of the Taft Hartley Act which made it much more difficult for employees to organize unions by prohibiting membership to zealous radical union organizers and by making it illegal for a group of employees of one union to help another group of employees to organize, by means of secondary boycotts. The intended effect of Taft Hartley was to weaken unions politically so that they could not impede FIRE’s class war.

Beginning after WWII, FIRE began an immense PR campaign to emphasize the role of human beings, not as producers, but as consumers. Greedy consumption was not only good in itself, but it was necessary to “grow” the economy.

Along the way, FIRE obtained volume after volume of exemptions and benefits for land owners and imposed more and more taxes on wage earners such as:

a. FIRE obtained special “capital gains” taxes at rates less than taxes on earned income for increases in land value.
b. FIRE obtained the right to a phony depreciation deduction for a fictitious lessening of value on a building even though the building in fact increased in value.
c. FIRE obtained the right to an “IRC 1031 exchange” so that a land owner with fully depreciated property could exchange it for other property and repeat the depreciation anew on the exchanged property. Meanwhile the person who initiated the exchange could get his own depreciation deduction for the property he obtained in the exchange.
d. FIRE obtained the right to incorporate its businesses and to keep its business accounts in offshore tax havens like the Cayman Islands.
e. FIRE obtained the right to deduct the interest on money he borrowed in improving his land or in financing other business transactions.
f. FIRE obtained reduction after reduction in the Estate Tax with the ultimate objective of eliminating it entirely.

In 1983, FIRE had enough power world wide to take the dollar off of the gold standard in the Bretton Woods agreement. As a substitute, the US made a treaty with Saudi Arabia that oil would always be valued in dollars and not in any other currency. This deal is backed and enforced by the might of the US military in Israel, Afghanistan, Iraq and the entire Middle East.

In 1980s, using Reagan as its persuasive spokesman, the top federal income tax rate was reduced to 27% from its former 72% level and corporate income taxes were reduced 12% to 34%. FIRE also caused Reagan to fire striking air traffic controllers in the implementation of FIRE’s class war.

In 1983, FIRE set up Greenspan to head a committee to deal with the social security “crisis” allegedly arising because the existing levels of funding would not be sufficient to pay the baby boomers by the year 2030. FIRE’s real fear was that steeply progressive income tax would be imposed to pay for the costs of social security, Medicare, universal health care and other needs everybody had in common. Greenspan’s recommendation was that the existing regressive social security taxes be increased and that the age of retirement be raised from 65 to 67. The earnings of wealthy employees remained exempt. At the same time, Bush set up his campaign to privatize social security by allowing the investment of a portion of their SS contribution in the stock market.

FIRE caused Bill Clinton “to do away with welfare as we know it” and to adopt no substitutes. FIRE caused Clinton to enact the free trade laws that are the basis for the outsourcing of the jobs of Americans to Mexico China and India with their much lower wage rates without any solutions for those who lost jobs in the US. FIRE caused Clinton to deregulate broadcasting and to give away public airwaves free of charge. This was the foundation for FIRE’s monopoly of the media and its pervasive right wing talk shows. FIRE thus controls our main sources of information, and it uses this control to enhance its power.

In the Bush times, FIRE grossly reduced taxes on the wealthy for a period of 10 years, the reduction being subject to a “sunset” termination in 2008. Implementing FIRE’s demands, Bush intentionally increased the federal debt many times over for the stated purpose of making it impossible for the federal government ever again to finance a welfare state, a GI Bill, a New Deal, Universal Health Coverage, or free education through college. FIRE’s agent, Alan Greenspan held interest rates at an artificially low level thereby stimulating the vast boom of real estate and financial transaction loans, all for the purpose of bringing billions of dollars in profits to FIRE. FIRE caused a deregulation of the market and its transactions. FIRE caused the enactment of a draconian Bankruptcy Act.

Now in 2007, fearing that a Republican might not win, FIRE is pouring immense amounts of money into the campaigns of Hillary Clinton and Obama knowing that they can be counted upon to do its bidding, and thus to perpetuate FIRE’s control of our government, and to continue wars and domination abroad.

In the entire Congress, only Democrat Dennis Kucinich and Republican Ron Paul attempt to bring this class war to the attention of voters. Hudson has now joined the Kucinch presidential campaign. He is writing a new proposed tax policy to undo the FIRE class war, and to provide facts and figures so that Kucinich can bring the foregoing to the attention of all voters, and to deal with the looming depression and financial disasters.

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