RUSH: (If Obama can say it, I can say it.) Sometimes, I think there is divine intervention in my life where it concerns this program, because yesterday I took a break. The Steelers were creaming the Seahawks, just creaming ’em. You know the Seahawks, their time of possession in the second half? How’s this for diversity, folks. You know what their time of possession was in the second half? Five minutes and seven seconds. That’s all they held the ball for against the Steelers. So I said, ‘Okay, I’m going to go to the kitchen, and I’m going to scrounge around in there, and see what the chef left over the weekend.’ The Sunday New York Times was there. I never read the New York Times, and while the microwave is heating up whatever it was I put in there, I decided to open the New York Times.
For some reason, the business section was the second thing I found, so I looked at it. I went and grabbed some glasses out of a drawer — eyeglasses, reading glasses — put ’em on, turned to page three, and I found the most amazing column that I would have missed had I stuck with football yesterday. It is a column by a guy named Robert Frank. He is an economist at the Johnson School of Management at Cornell. He’s the author of Falling Behind: How Rising Inequality Harms the Middle Class. This guy’s a college professor and an economist. This guy has access to young skulls full of mush, in a university setting, not just Cornell. That is not open to inquiry anymore. It is simply indoctrination of one particular point of view. The university, academe today, is not what this mythical dream of it was and used to be. It’s not a place for curiosity, to open inquiry, and the open exchange of ideas. It is purely for indoctrination of one particular point of view, and that’s a leftist point of view. This guy’s theme is to revive the tax code and to fix the ‘unfairness,’ we need to install a consumption tax. Get rid of the income tax and instead implement a consumption tax, meaning large sales tax — which, in a just pure philosophical shell, I happen to think is an interesting way to go with this, but not the way this guy gets us there.
You will not believe some of the assumptions that he makes which are so wrong, a properly educated sixth grader could know it. The problem is there aren’t any properly educated sixth graders when it comes to economics. ‘Given the political risk of proposing painful tax increases in an election year, many fear that the crisis will remain unresolved.’ He’s talked about how trickle down doesn’t work and even Republicans admit that Bush’s tax cuts are causing increased deficits, which is absurd! It’s absurd on its face. If you look at the numbers, the revenue pouring into the Treasury has exceeded everybody’s expectations because of Bush’s tax cuts and the capital gains tax rate reduction to 15%. The deficit is getting smaller. The government budget is going to be in balance — theoretically, if nothing changes — years ahead of what it was supposed to be. So some of the assumptions here are sophomoric, and yet this is an economist at the Johnson School of Management at Cornell University. He is wrong not because he’s factually wrong; he’s wrong ideologically. He’s a lib, and, as a lib, you believe that tax cuts build deficits. You believe that tax cuts favor the rich.
You ignore the data on these tax cuts, of who is paying the lion’s share of income taxes in this country. You have to ignore all that — and it’s exactly what I was saying earlier. You ignore it because it throws all kinds of kinks in your theory. So you ignore it. It proves you wrong, so you ignore it because your ideological triumph is what matters more than any factual honesty. This guy has access to young skulls full of mush and they’re churning them out of Cornell who believe this stuff and half of them are going to end up as bureaucrats in the government anyway. So he says, ‘Given the political risk of proposing painful tax increases in an election year, many fear that the crisis will remain unresolved.’ Many fear it, meaning out-of-control spending, not enough taxation to close the deficit, Social Security and all this sort of stuff. ‘Yet a simple remedy is at hand. By replacing federal income taxes with a steeply progressive consumption tax…’ Any time you see the word ‘progressive’ in context of the tax code, think ‘unfairness.’
Any time you see ‘progressive’ to describe someone’s ideology, think ‘socialist.’ Think ‘liberal.’ When you see the word ‘progressive,’ used by a liberal, red flags ought to go up. ‘[T]he United States could erase the federal deficit, stimulate additional savings, pay for valuable public services and reduce overseas borrowing — all without requiring difficult sacrifices from taxpayers. Under such a tax, people would report not only their income but also their annual savings, as many already do under 401(k) plans and other retirement accounts. A family’s annual consumption is simply the difference between its income and its annual savings. That amount, minus a standard deduction — say, $30,000 for a family of four — would be the family’s taxable consumption. Rates would start low, like 10 percent. A family that earned $50,000 and saved $5,000 would thus have taxable consumption of $15,000. It would pay only $1,500 in tax. Under the current system of federal income taxes, this family would pay about $3,000 a year.’ Now, aside from the assumptions that Professor Frank makes here that are incorrect, all this sounds fairly reasonable — until you hear what’s next.
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RUSH: Okay, folks, we now rejoin my sharing with you the details of a proposed new consumption tax by the brilliant economist and professor Robert Frank at Cornell University. By the way, I only found this, as I said, because I went to the kitchen during a lull in a football game and put something in the microwave, and I found this accidentally, just opened the New York Times. I’m reading this and I got so agitated by it I forgot what I put in the microwave. I eventually went in there and got it, but it so distracted me. So now we’re up to the point where he’s proposed a consumption tax to replace the income tax, and he wants to give every family of four a $30,000 consumption exemption. But you gotta save money. If your family of four earns $50,000 and say you save $5,000, that means that your taxable income — well, he defines consumption as the difference between what you earn and what you save, the rest of it you consumed, and that would be what you’re taxed on. You get a $30,000 exemption as a family of four, so if you save five on a $50,000 income, then you consume $40,000 worth of what you made, leaving $15,000 taxed as your consumption.
‘As taxable consumption rises, the tax rate on additional consumption would also rise. With a progressive income tax, marginal tax rates cannot rise beyond a certain threshold without threatening incentives to save and invest. Under a progressive consumption tax, however, higher marginal tax rates actually strengthen those incentives. Consider a family that spends $10 million a year and is deciding whether to add a $2 million wing to its mansion. If the top marginal tax rate on consumption were 100 percent, the project would cost $4 million. The additional tax payment would reduce the federal deficit by $2 million. Alternatively, the family could scale back, building only a $1 million addition. Then it would pay $1 million in additional tax and could deposit $2 million in savings. The federal deficit would fall by $1 million, and the additional savings would stimulate investment, promoting growth.’ How? How in the world does this happen? You know what’s going to happen, it’s like anything else, tax behavior and you will change the behavior. So he’s going to stop consuming. Remember Ernest Hollings out there, a long time ago, ‘Too much consuming going on out there, Bob,’ so you want to shut down consumption and if you want to hurt people who benefit from consumption in the private sector, then go ahead and do this, 100 percent consumption tax on certain incomes of whatever it is and above.
Then this automatically zero-sum game analysis that all this new tax raised reduces the deficit! He’s forgotten the fact that the first thing that happens with money that flows into Washington is it gets spent! The federal deficit’s not your fault, folks, it’s not mine. The national debt’s not your fault and it’s not mine. Well, those of you on the government take are contributing to it somewhat. It’s the government. All money starts as ours, they tax it, they take it, and they start spending it and they spend more than they take, they borrow, voila, we’ve got a deficit, voila, we’ve got a national debt. It’s not our fault. It’s not that we’re not paying enough money. It’s not that we’re not paying enough taxes. We’re overtaxed as it is. The irresponsibility is inside the Beltway. A lot of that money is spent sending back to voters to buy their votes. We’ve been through all this. You know all this. It’s conservative economics 101. But look at the examples. A family that spends ten million, wants to put a $2 million wing, so make it cost ’em four million. That will make them scale back. But here’s the next best part.
What happens is that people in the middle class who are going into debt trying to ‘keep up with the Gateses,’ as he says, will be less motivated to build additions on their houses when the rich cut back on building new wings on their mansions. And this, he says, would help everybody. It would help the self-esteem of the middle class who wouldn’t feel left out, it would close the gap between the wealthy and the nonwealthy in terms of appearance, because the wealthy would not be able to showcase their wealth as much because it would be taxed if they did, and so we’d have much more love and togetherness as a society because there will be much less class envy out there. Forget the economics of this. This is sheer, 100% liberal ideology, coming up with this plan. He says, ‘The median new house in the United States, for example, now has over 2,300 square feet, over 40 percent more than in 1979, even though real median family earnings have risen little since then.
‘The problem is not that middle-income families are trying to ‘keep up with the Gateses.’ Rather, these families feel pressure to spend beyond what they can comfortably afford because more expensive neighborhoods tend to have better schools. A family that spends less than its peers on housing must thus send its children to lower-quality schools. … Should a recession occur, a temporary cut in consumption taxes would provide a much more powerful stimulus…’ It would cause a recession! The whole thing would — (laughing) it’s unbelievable! This is learned scholarship. (interruption) Yes, Mr. Snerdley, quick, what’s your question? Hm-hm. Hm-hm. I didn’t understand the… he’s yelling and screaming in there like I was when I was reading this yesterday in my kitchen.
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RUSH: So this graduate school professor at Cornell, Robert Frank, wants to keep you in a poor neighborhood so that you have to send your kid to a poor school. Rather than elevating yourself, he wants, like all other liberals, to take everything you’ve got and everybody else has and put it in a central fund and have smart people like him distribute it, thinking that will make life fairer. And he’s a graduate professor.
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RUSH: The thing here about Robert Frank, the economist at the Johnson School of Management at Cornell, which is a grad school, but he does teach economics 101, I’ve been told. He says here, ‘Some people worry that tax incentives for reduced consumption might throw the economy into recession. But total spending, not just consumption, determines output and employment. If a progressive consumption tax were phased in gradually, its main effect would be to shift spending from consumption to investment, causing productivity and incomes to rise faster.’ So people, rather than trying to buy a nicer house in a better neighborhood to send their kids to a better school, which he condemns in the piece, meaning you should be forced to stay in a neighborhood with a bad school, that you will instead, rather than go out and spend money that would cause your tax rate to rise, you will invest it.
Now, he starts out here by saying if a family that spends ten million, wants to add a $2 million wing to their house and with a 100 percent consumption tax on the spending, then that $2 million project would cost four million, two to the contractor and two to the government to reduce the deficit. Now, no matter what you do, taxation changes behavior, as the tax cuts of George W. Bush, and Ronald Reagan, and Jack Kennedy all demonstrated. We’ve got full employment; we’ve got beyond full employment statistically. We’ve got people making more money than they’ve ever made. We’ve got opportunity for achievement, prosperity, and people’s objectives, at an all-time high in this country, and yet these people, these are the learned ones, these are the ones with the degrees, these are the ones that spent their lives becoming scholars and it’s what we get for it, idiocy, blindness to sheer reality. I’ll guarantee you, that the family with $10 million to spend and wants to put a two-million-dollar wing on the house is not going to do it. And they just won’t put a one-million-dolllar wing. They just won’t do it. They’ll make due with what they’ve got, and then the contractor that would be hired doesn’t do it, he doesn’t get the job, and the people that work for him don’t get the job. This is really good to spur the housing market, isn’t it? Or these people would find a way to do it off the books somehow. These people do not understand the dynamics of American life.
It’s interesting. I got an e-mail at the Rush website subscriber address from a guy who took a class from this professor. ‘He proceeded to give all the money to a central decision-maker, he says living in a communal system and taxing can lead to the best economic outcomes. Basically, he preached to give all the money to a central decision-maker, i.e., the government, let the government distribute it evenly or the best way. He said that the best outcome is for everyone to have a bigger piece of the pie, so if you take the money from the rich and put it into the pie, then the poor’s pie gets bigger and that’s better for everybody else.’ It’s asinine, and it’s socialistic. How long ago did McDonald’s start up? Sometime in the 1950s, right? When did Ray Kroc get started, fifties and sixties? You realize if the government had come up with the idea for McDonald’s back in the fifties they’d still be holding hearings on it: what the pay scale should be; what the zoning regulations would be allowed to be; what kind of ingredients in the food. They don’t get anything done.
It’s like I’ve asked constantly, ‘Why in the world would we hire people who have never been in the health care business to design a national health care system?’ But people have accepted that premise. Why would we do this? Isn’t the lament about the insurance companies already, in health care, that we’re turning over medical decisions to insurance companies? Don’t you find that ridiculous? Those of you that go to HMOs and others, that have to live under these severe restrictions and guidelines of the insurance companies, isn’t one of the things that you say, ‘Well, why are they making medical decisions? Why can’t my doctor make the decision?’ Well, by the same token, if you’re not going to be confident with an insurance company making medical decisions, why in the world would you be confident with Hillary Clinton doing it? She doesn’t know anything about what she’s doing, but why this blind faith acceptance that ‘I’m from the government, and I’m here to help’? Why do people accept this? Well, I know why, because for 50 years it’s been portrayed as the engine of fairness.
Here, listen to this guy’s last paragraph. ‘Although the Bush tax cuts for the nation’s wealthiest families threaten American economic prosperity…’ It is just the opposite. It’s staring this guy right in the face with life in America today. You don’t even need the statistics. In order not to believe it you’ve gotta have a closed mind governed by liberal, slash, socialism. Anyway: ‘Although the Bush tax cuts for the nation’s wealthiest families threaten American economic prosperity, they have done little for their ostensible beneficiaries. When the wealthy spend millions of dollars on ever-more-elaborate coming-of-age parties for their children, they only raise the bar that defines a special occasion. Even purely in terms of self-interest, they and their families would have fared much better if the money had been spent to repair aging bridges and inspect the cargo containers that enter the nation’s ports,’ rather than have a coming-of-age party for their young children. It’s none of your business, Mr. Frank, what people do with the money they earn. It’s not your business to judge it. It certainly isn’t your business to start making tax policy and economic policy based on it. But that’s who the educated among us are, folks.
These are the smart people, these are the learned ones. They know better than you and I. They don’t like the way any of you spend your money, even those of you in the middle class who want to get a bigger house in a nicer neighborhood to get your kid in a nicer school, that shouldn’t happen, either. Government should be in charge of who decides who’s going to go to school. If these people win the White House in ’08, this whole process is going to start. I don’t know if this guy’s consumption tax policy will ever become law. I frankly don’t think they’ll ever give up the power they have to social architecture with the progressive income tax, but this kind of thinking is going to rule the day. By the way, Mr. Frank would be happy if he had the money to throw the greatest coming-out party for his kids in the world because he’s smart enough to know how to do it, you are not. He will not make sure his money goes for new bridges or whatever the hell else. Yours will, but not his.