The economics of polarization

By David P. Goldman at the Asia Times online:

America is engaged in class war, but not of the sort one reads about in the mainstream press. The truly indigent - young African-American men, for example, most of whom are now unemployed - have little to do in this war. Large corporations for the most part are bystanders as well; they will make their peace with the victor. This is a war of survival between the productive middle class on one hand, and the dependents of the state on the other.

The Tea Party's aversion to government spending is as pure an expression of rational self-interest as we have seen in American history. Like any new movement, it attracts more than its fair share of oddballs. The fact that a movement led by amateurs continues to wield so much power proves that it has good reason to be there.


The Tea Party is a middle-class movement, older, better educated and wealthier than average, but it is not a party of the very wealthy, who are conspicuously absent among its activists.  

They know from personal or family experience that taxation is destroying the American middle class. They are approaching retirement, and most of their wealth is in the family home, as it is for the great majority of Americans:

The average homebuyer today, the chart shows, will pay almost as much in property taxes as in mortgage interest. (Mortgage interest is calculated on the basis of the current mortgage rate, reflecting the costs to prospective homebuyers rather than existing homeowners).

That is an astonishing outcome; in the past, mortgage interest typically was two or three times the property tax bill. Put another way, the combined cost of mortgage interest and property taxes is close to a trillion dollars a year today, about the same as at the peak of the housing bubble. Rising property taxes have just about wiped out the impact of lower interest rates and lower home prices on households. The property tax data include commercial as well as residential taxes, to be sure, but more than two-thirds of total property tax collections are from households....


State and local governments, though, have exhausted their tax base, and the continuous rise in property taxes through the crash in property prices has kept the real estate market more depressed than economic conditions otherwise might indicate. A further increase in tax rates would yield less revenue. In effect, the government would have to proceed from taxing private capital to expropriating it, de facto or de jure - for example, nationalizing banks and directing them to make loans to politically-favored projects, after the fashion of Latin American banana republics.

The alternative is to renegotiate pension and health benefits already promised to public sector unions....

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Link: http://www.atimes.com/atimes/Global_Economy/MK01Dj04.html