American Victims of Transgressive Taxation

It’s been over four decades since I’ve used the adjective transgressive in the context of economics.  It was in graduate school, and my professor proved to be not very receptive to my coining of a new word, or meaning in this case, for “any taxation exceeding the boundaries of social acceptability.”  In those days, long before the viral expansion of for-profit schooling – questionably called education, deference, and not just discretion, was the better part of valor.

Although not always in a clear and absolute way, we’ve been able to categorize taxation in three forms – progressive, regressive and proportional or flat – depending on the effect each has on the distribution of income/wealth.  Answering the call, politicians are quick to point out which taxes negatively affect the poor: regressive; or the rich (vaingloriously described in our form of capitalism as the job creators): progressive.  There is also the pious flat tax, supposedly neutral or proportional to all economic casts, although not necessarily so in the eyes of some social scientists.

Our interest in this article, however, centers on the unidentified or hidden form of taxation American legislators and the Federal Reserve place on American citizens.  In most, if not all cases, the taxation, whether overt or by default, is not only regressive but it exceeds those boundaries of social acceptability; the boundaries representing the different stages, the metamorphosis, by which the haves become have-nots.  And this slowly-eroding wealth of the have-less is most often accomplished through what I call transgressive taxation.  We have been witnessing two major examples of transgressive taxation since the real estate bubble burst… and the advent of the financial crisis.

One, imposed by the Fed with the implied consent of government, was a de-facto transfer of wealth from small-savers, whose assets were mostly restricted to liquid bank accounts, to the banking industry via the forced-forsaking of interest earnings.  Retirees and the least affluent were in effect taxed hundreds of billions of dollars with total impunity, and a lack of public outcry brought about by ignorance and political docility.

The second example, one which has been with us for decades preceding this financial crisis, has to do with how inflation is calculated… in effect taxing both the poor and those en-route to poverty, doing it in a way that camouflages political blame for either members of Congress or the POTUS residing in the White House.  Presidents have been using this executive privilege from time immemorial, proving time and again that inflation is all in how it’s reported… and changing the basket of goods and services, or the percentage of contribution by component can bring about a more desirable CPI (Consumer Price Index) to those holding the reins of economic, social, and political power.

Newest presidential tinkering with how inflation is reported, one which would reduce the federal deficit by $100 billion in the next decade, is Obama’s proposal to institute a chained-CPI which in effect recognizes that consumers change the type and quantity of goods and services they buy when prices change.  I call Obama’s approach, “People should be eating chicken instead of beef.”

However, it isn’t in this quality-quantity selectivity that the major transgressive taxation takes place but in the lower socio-economic groups that are part of our greater society.  For some unknown reason, be it laziness or simplification, we seem to be a society where one size fits all.  We do it in medicine, with probably dire consequences if proper research was conducted, as physicians prescribe meds with little or no regard to the physical size of the patient… a process which places medical practice, at least in the Western world, closer to an art than a science. 

In like manner, there is an enormous divide in the distribution of wealth in the US which makes the applicability of the percentages for the different categories in the basket of goods and services (housing, transportation, food, entertainment, medical care, education and communication, apparel and upkeep) applicable only to a meaningless average, adversely affecting the lower economic groups.

In calculating the CPI here in the US, we weigh Food as being 16 percent of the budget total, while China and India use 34 and 48 percent of the total, respectively.  Yet, for as much as a quarter of our population the percentage which food represents in its budget is closer to that of China or India.  It is this quarter of the population, mostly composed of retirees on social security and the poor receiving food stamps, that the transgressive taxation takes place (via lower increases in social security benefits and food stamps).

One size fits all in determining inflation will victimize those who can afford it least.