What Is American Corporatism?

FrontPageMag.com ^ | September 13th, 2002 | Robert Locke

[Remember_Salamis]

What is American Corporatism?
By Robert Locke
FrontPageMagazine.com | September 13, 2002

We are probably heading into some economic heavy weather which will spur needed debate on what's right and wrong with our economy. This will require our being clear about what kind of economy we really have. I have mentioned before that we increasingly live not in a capitalist society but in a corporatist one, and I would like to flesh out this notion.

What is corporatism? In a (somewhat inaccurate) phrase, socialism for the bourgeois. It has the outward form of capitalism in that it preserves private ownership and private management, but with a crucial difference: as under socialism, government guarantees the flow of material goods, which under true capitalism it does not. In classical capitalism, what has been called the "night-watchman" state, government's role in the economy is simply to prevent force or fraud from disrupting the autonomous operation of the free market. The market is trusted to provide. Under corporatism, it is not, instead being systematically manipulated to deliver goods to political constituencies. This now includes basically everyone from the economic elite to ordinary consumers.

Unlike socialism, corporatism understands that direct government ownership of the means of production does not work, except in the limiting case of infrastructure.¹ But it does not represent a half-way condition between capitalism and socialism. This is what the West European nations, with their mixed economies in which government owned whole industries, tried to create until Thatcherism. Corporatism blends socialism and capitalism not by giving each control of different parts of the economy, but by combining socialism's promise of a government-guaranteed flow of material goods with capitalism's private ownership and management.

What makes corporatism so politically irresistible is that it is attractive not just to the mass electorate, but to the economic elite as well. Big business, whatever its casuists at the Wall Street Journal editorial page may pretend, likes big government, except when big government gets greedy and tries to renegotiate the division of spoils. Although big business was an historic adversary of the introduction of the corporatist state, it eventually found common ground with it. The first thing big business has in common with big government is managerialism. The technocratic manager, who deals in impersonal mass aggregates, organizes through bureaucracy, and rules through expertise without assuming personal responsibility, is common to both. The second thing big business likes about big government is that it has a competitive advantage over small business in doing business with it and negotiating favors. Big government, in turn, likes big business because it is manageable; it does what it is told. It is much easier to impose affirmative action or racial sensitivity training on AT&T than on 50,000 corner stores. This is why big business has become a key enforcer of political correctness. The final thing big business likes about big government is that, unlike small government, it is powerful enough to socialize costs in exchange for a share of the profits.

The key historical moments in the development of American corporatism can be easily traced. It got its start from the realization, during the Progressive period around 1900, that the night-watchman state was too weak to make the large corporate actors of the economy play fair. The crucial premise that enters here is that the capitalist economy cannot be trusted to be self-regulating, as it previously had been. This collapse of trust was also implicit in the 1913 creation of the Federal Reserve system. What the Great Depression did was destroy a second kind of trust: that the economy would reliably deliver material goods without government intervention. With these two different kinds of trust gone, corporatism becomes not only worthwhile, but necessary. Crucially, it becomes psychologically necessary, independently of whether government can deliver on its promises, because people instinctively turn to government as their protector.

Anyone who is serious about getting rid of corporatism must explain how they are going to restore these two kinds of trust or persuade people to live without them. In particular, it is almost certainly useless, as verified by the fact that government has grown under every postwar Republican administration, to try to nibble away at big government without renegotiating the social contract that underlies it. If we don't have a plan to renegotiate this social contract, we must face the fact that the electorate will demand that it be respected. Newt Gingrich, who thought that the failure of Clinton's health plan signified the electorate's rejection of "socialism," learned this the hard way.

Clearly, the New Deal was the biggest jump forward into corporatism, though this was not fully understood at the time. Many people, both pro and con, misunderstood it as a move towards socialism.² As is well known, Roosevelt was an empiricist, not a systematic thinker, and many elements of the New Deal that were tried, such as the notorious National Recovery Administration, were rightly discarded. But the fundamental proposition, that government should take responsibility for ensuring the flow of material goods to the people, was rapidly embraced by the American people, which continues to embrace it today whether it admits it or not. When people demand that the government "do something" about a falling stock market, they are playing at capitalism while practicing corporatism.

The fundamental essence of corporatism is not technocratic but moral: what does government have the responsibility to do? What do people have the right to demand be done for them?

The economic Left likes corporatism for three reasons:

1. It satisfies its lust for power.

2. It makes possible attempts to redistribute income.

3. It enables them to practice #2 while remaining personally affluent.

The economic Right likes corporatism for three different reasons:

1. It enables them to realize capitalist profits while unloading some of the costs and risks onto the state.

2. The ability to intertwine government and business enables them to shape government policy to their liking.

3. They believe the corporatist state can deliver social peace and minimize costly disruptions.

This process has been described as "socializing the losses, privatizing the profits" by its leftist critics, who also call parts of it corporate welfare. What they don't get is that in a society which grants the fundamental premise that government should take care of everybody, government will, and big business is part of "everybody." Most economic arguments today are not between a socialistic ideal and a capitalistic one, as many seem to believe, but are arguments within the corporatist consensus. This consensus is incapable of gelling into a unitary consensus because it is supported by the two sides for different reasons. There is also no public, coherent ideology of corporatism because almost no-one is willing to admit they believe in it.

Let's look at some specific examples of corporatism:

1. The Export-Import Bank. This government agency helps finance exports of American products. The aim, laudable enough, is to create jobs in the US. But there is still the problem that doing this requires the government to consume capital, which might have created more jobs, (or just more wealth) if it had been allocated elsewhere. So this is classic corporatism: government allocating capital to private industry on the basis of political favoritism.

2. Agricultural price-supports. Contrary to myth, most of the money goes to agribusiness, not small farmers.

3. Industrial bailouts, like the recent one of the airlines. People do not trust the market to provide the airline service they think they "need." The truth is this country has more carriers than the market can support and a few should be allowed to die. No-one who really believes in free-market economics accepts the argument that jobs can be saved in the long run in this fashion.

4. Corporate bankruptcy law. This law assigns an artificial value, not supported by economics, to keeping dying companies alive, rather than letting the carcasses of competition's losers nourish the winners. It is responsible, for example, for preventing a needed cull of the airline business by letting Continental Airlines pass through its protections not once but twice.

5. Tariffs, quotas, and other trade restrictions. These transfer wealth from consumers to producers in the affected industries, whatever their other possible merits.

6. Affirmative action is generally viewed as a social-policy question rather than an economic-policy one, but it fits neatly into the corporatist model: government forces private industry to distribute jobs to a favored political constituency. If people really believed in markets, they would realize that irrational discrimination imposes a cost on employers, who therefore already have an incentive not to engage in it.

7. Fannie Mae, the government agency which raises money for mortgage loans in the private capital markets. This agency has deliberately been spinning out loans to sub-par borrowers who are doomed to default on them. It has become a major prop holding up real-estate prices, and is thus a key culprit in the ongoing mortgage bubble. Conservatives accept it on the grounds that home ownership makes people more conservative. But this may not be true forever if private ownership of housing becomes a public entitlement. This is part of an ongoing phenomenon that corporatism helps to drive: the erosion of the determination of political preferences by the ownership of property.³

8. Sallie Mae, the government agency which supervises student loans. The government has a system of directly-financed public universities, but is has also in effect annexed private universities. Cleverly, it uses a relatively small amount of public money to package the flow of a much larger amount of private capital to tuition. The principal problem with this is that it has become a subsidy machine for the spiraling cost of higher education. There is also the problem that any institution receiving federal funds becomes susceptible to regulations that otherwise wouldn't be legal. Bribes-if-you-do are a much less disruptive means of manipulating behavior than sanctions-if-you-don't, and corporatism hates disruption and loves business as usual.⁴ One way to interpret corporatism is as a systematic way for government to distribute bribes for submission to its authority.

9. In local government, corporatism is principally a matter of real estate. Let's take New York as an example, just because I know it best and the pattern is clearest here, though similar dynamics work in other locales to a greater or lesser degree. Basically, real estate development here has become so over-regulated and over-taxed that it is virtually impossible to do profitably without government help. Government is aware that it has strangled development, but still wants it to occur because voters want jobs, campaign contributors want their projects, and projects create patronage opportunities for politicians. Therefore, government selectively lifts the burden of taxation and regulation on certain projects to push them into the black. It does this with tax abatements, loan guarantees, zoning changes, condemnations, outright subsidies, tax-exempt bond issues, exemption from regulations, and selective public infrastructure investments. As a result, only projects with political support can happen, and every skyscraper is a monument to the political deals that enabled it to get built. The result is capitalist in the sense of being privately owned, but it is not a free market. Government is expected by developers to keep a steady flow of profits going (while keeping politically-unconnected competitors out of the game.) It is expected by construction unions to keep a steady flow of construction jobs. It is expected by the public to deliver shiny new skyscrapers full of jobs.

10. In science and technology, corporatism principally takes the form of federal government financing of research expenditures whose value is difficult for the private sector to capture on its own. Government pays for universities to provide industry with the raw feedstock of new discoveries that can be commercialized. State governments have entered this game on a lesser scale. Tax credits for research and development may also be interpreted as a public subsidy.

11. In the capital markets, the quintessential corporatist institution is the Federal Reserve Bank. Legally, it is not technically a government agency at all but a cartel of private banks. Prior to 1913, the maintenance of a viable capital market in the U.S. was not a government responsibility.⁵ From the 30's to the 70's, the Fed tried to institute the grand corporatist project of Keynesianism, but abandoned it when inflation proved it unworkable. Nevertheless, the responsibilities of the Fed have tended to grow as people expect it, for example, to bail out a falling stock market with cheap credit, as I have mentioned before.

12. Bankers are quite well aware that they can make speculative loans to financially weak nations and count on being bailed out by the government if anything goes wrong. Naturally, this creates a moral hazard, not to mention a misallocation of capital. But given that the Left wants to see capital allocated to the Third World, the Right wants banks to be profitable, and the public fears a crash, the bankers can always count on a bailout.

One can see how corporatism is likely to expand in the future. The privatization of Social Security is off for now, but remains inevitable, simply because there is no sustainable way to provide for a future income stream other than saving money now. But the stock market decline of the past few years has destroyed public trust that this market will always provide a reliable store of value, meaning that people will inevitably turn to government to make it provide one. What form this will take, cannot be predicted, but any privatization of Social Security will be accompanied by some governmental mechanism to stabilize investments. At best, this may mean diversification requirements. At worst, it may mean some horrible politicization of the capital markets.

The concept of corporatism provides a good way to analyze the failure of HillaryCare. With its attempt to involve private insurance companies, this plan clearly made a (clumsy) attempt to conform to the corporatist model. It was supported by big companies like GM, which saw it as a way to offload its huge health-care costs. Fundamentally, I think it would have worked if it hadn't been such an arrogant, secretive, heavy-handed, all-at-once undertaking. We are gradually getting the corporatist equivalent of socialized medicine in this country anyway. Corporatized medicine will mean nominally private health plans for the employed that are so heavily regulated in what they can charge and what they must provide that they might as well be run by government. It will mean requirements for all businesses to give their employees health coverage (something big business will love because it will destroy a lot of their small-business competitors.) It will mean regulation of drug prices, which will eventually make drug companies wards of the state. Lastly, Medicare and Medicaid will expand, with the help of state plans, to cover whomever is left, with a tacit subsidy to emergency rooms to cover the last dregs.

As I said, all these can be viewed as ways in which the corporatist state buys people's cooperation. But one cannot play this game without becoming susceptible to it, so that people buy the state's cooperation, too. Naturally, this produces the partly-valid complaint that we have a government for sale to the highest bidder. But in a society where people, institutions, and social groups are politically for sale to the highest bidder, what else could one possibly expect?

Both Right and Left like corporatism in practice and are very cozy with it. But they are also ambivalent about it in theory, because it contradicts many of their cherished ideological beliefs.⁶ At the level of ideological self-characterization, neither side has fully grasped what corporatism is nor can quite bring itself to admit that it endorses it. Thus in its utterances, the intellectual Left is still reflexively anti-corporate and the Right anti-government. Part of the twisted genius of Bill Clinton was that he came closer to admitting we live in a corporatist society than any previous president. Bush, who made his personal fortune off a public-private deal concerning a stadium, is just as good at playing the game in practice, but on the ideological plane he mistakenly thinks that what the corporatist synthesis takes from socialism is "compassion." Hence his painfully sincere efforts to be politically correct and nice about everybody, since he intuitively grasps that Americans will not accept the rhetoric of pure capitalism.

Realizing that our society is corporatist is the key to undoing many conservative misunderstandings. For example, we tend to be puzzled when the rich support the Left, which under classical capitalism they generally didn't. But in a society where government takes care of business, they often have a lot to gain from big government. Not to mention the fact that whole classes of the wealthy, i.e. lawyers, doctors, lobbyists, environmental consultants, defense contractors and others, make their money either helping people deal with government or are indirectly funded by government. Ownership of property used to make people conservative because they intuitively grasped that the means of the conservation of property were bound up with the means of the conservation of everything else: religious orthodoxy to social mores to cultural tradition to the Constitution. But now that corporatism has co-opted threats to property ownership, they don't feel the need for these things anymore.

I consider it highly unlikely that corporatism can be overthrown, though objectionable parts of it can certainly be fought. I will discuss what it means to be conservative in a corporatist environment in a future article. The key thing for us to understand is that many of our assumptions about what furthers our cause and what doesn't were derived under the conditions of a more capitalist society and increasingly no longer hold.

---

¹ This is not to say that government is necessarily the most efficient owner of infrastructure; I am well aware of the arguments for private toll roads and investor-owned utilities. It's just that, compared with the state-owned steel mills and supermarkets of pre-Thatcher Europe or the Soviet Union, they are not obvious failures. The quality, cost and productivity of publicly-owned utilities compares acceptably to privately-owned ones. And privatization of natural monopolies has problems of its own, as we saw in the California electricity crisis, even if these problems are caused by politics and do not refute the free-market ideal itself.
² The final irony of corporatism is that it represents the triumph of the one 20th-Century ideology that is considered so utterly discredited that most educated people don't even bother to learn what it believed about economics: fascism. The exact means by which the end was carried out were very different in Mussolini's Italy, Franco's Spain, Hitler's Germany, or Tojo's Japan, and the manner was occluded by a lot of violence caused by other things, but the fundamental dynamic is the same as here: government assumed responsibility for guaranteeing the flow of material goods by private means after public confidence in the market's ability to do this collapsed. The fascists did it to avert communism. We did it for less desperate reasons, but the idea is similar. (The German and Japanese Nazis were not fascists, strictly speaking, but the core of their economics, separate from their use of plunder, was similar. See my article on what the Nazis were really about.)
³ See my review of BoBos in Paradise. The Republican share of the rich vote is declining.
⁴ The political class loves corporatism because it enables them to establish themselves in stable, profitable brokerage-relationships in which they manage the exchange of favors between government and the public in exchange for political support. This is a much easier way to stay in office than focusing their efforts on contentious issues and the public's fickle opinions about them.
⁵ This responsibility devolved in practice onto the Morgan Bank on Wall Street, which organized ad-hoc groups of banks to stabilize markets and enforce standards when needed. See the fascinating account in Ron Chernow's The House of Morgan.
⁶ The recently faddish book Empire is an attempt to understand global corporatism from a neo-Marxist point of view. Although rich in hit-or-miss insights, its Marxist assumptions prevent it from getting it right. Marxists have been observing the emergence of corporatism, and desperately trying to update Marxism to accommodate it, for a long time now, the most philosophically interesting attempt being that of Jürgen Habermas in Legitimation Crisis. Such attempts can only be accurate insofar as they pass out of Marxism entirely.

[William Terrell]

From the point of view of people, for whose benefit the state is created in the first place, forms of government, systems of government and economic systems, like any organic entity has a fresh state and a rotten state, and progresses from the former to the latter. Ours is 217 years old.

I think we are looking at the rotten state of capitalism.

The good news and bad news is that enough people to make a difference eventually see through the illusion.

"There is no spoon." (Neo, as he cuts the last elevator cable, The Matrix)

[Kudsman]

There is also no public, coherent ideology of corporatism because almost no-one is willing to admit they believe in it.

Interesting contention.

A question regarding Government Environmental regulations adverse effects on corporate activities makes me wonder why it would be in corporate elites best interest to increase the power of big government. Does the symbiotic relationship alluded to between big business and big government in the US mean that corporate America is actually enabling and encouraging punitive US enviro laws as a vehicle to justify relocating production to Third World countries? Kind of like use the left agenda to enact the regulations and then use the outcry of the right against such measures to make their withdrawal seem more unnoticed or even acceptable?

If this is so, how much of America's lurch toward Corporatism is being puppeteered by the UN? I admit to being no student of economics but this article has aroused my curiosity to the point of wanting to dig deeper. Thx.

[William Terrell]

And, in addendum, introduction of a retail sales tax into the corporatist medium, will create a caste of worker slaves undreamed of by communism, because employees of large businesses will benefit double and triple the norm from such a tax.

[Ahban]

My guess is that Locke is an assumed name, and he is really someone else who dares not print this in his own name.

[bvw]

You miss a few inportant aspects of sales taxes.

They are avoidable.

If set too high, higher avoidance occurs. Sales Taxes are collected by small businesses -- smarter folks than the corporateers.

There is an old saying: "If you are so smart why ain't you rich?'

The answer is: smart people don't have to be rich.

[William Terrell]

You avoid too high sales taxes by not buying food, heating oil, gasoline and clothing. You avoid too high income taxes by not paying them.

[x]

So long as we have universal adult suffrage and large corporations whose failure would cause great suffering it's hard to see how we can ever be able to get away from "corporatism." If we all owned, lived on, and worked our own farms or small shops, it might be possible to get rid of "corporatist" programs, but even then, population movement to the cities would eventually help to foster large-scale enterprises and big government programs. Now perhaps with global competition and population decline, a lot of countries, including our own, will have to scale back subsidies and the welfare state, but the result may not be quite as rosy as some think.

[bvw]

Sales taxes present many more common-man and safe approaches to avoidance. The income tax -- especially our bribery crafted arcanity of overregulation -- is avoidable only by the well-connected or rich.

[Remember_Salamis]

How so?

[Remember_Salamis]

Please research at: http://www.fairtax.org

[Remember_Salamis]

Amen.

[William Terrell]

Employees make out because all they have to do is collect a paycheck and company provided M&D. With outsourcing, those jobs will be at a premium, and people so fortunate will endure much to keep them. Even coercive socialization.

No, companies will not raise pay because they are not paying contributions to FICA; the saving will go into extended benefits to sweeten the honey trap.

Those at small companies and making a living for themselves will suffer, and most likely have to file for assistance to afford the necessities for existing. Getting a payback from an income tax is for luxuries; payback from a NRST is for the basic needs of existence. The opportunity for social control will far exceed that of a tax on the income side, because people will be dependent on government for their lives.

And, no there is no reason for manufacturers to lower their prices. There will be no competition ("gas wars"); they will do what they do now, agree to maintain prices at an all-the-market-will-bear level because that's what companies in a capitalist system do, unless HR25 requires by law they do so, and it doesn't.

Retail outfits will still have to do complicated extraction and filling at the state level for the federal portion, so they will markup their prices for that hassle and expense, and no, I doubt very seriously that the fed rebate will cover the cost, especially for the Mom&Pop operations, if they survive. And even if it does cover expenses, they will still raise prices, if the others around them do, because that's what businesses in a capitalism do.

A NRST system, besides breaking the last bulwarks of state sovereignty, will enrich corporations immeasurably, in addition to allowing social control, so earnestly pursued by corporations. You posted the article, think about its implications.

An income tax sucks. A NRST is dangerous. But I can see the allure of not having to file personal returns every year and passing that off on retailers to do every month. I can't see the allure of getting rid of a federal IRS and replace it with 50 smaller ones.

[William Terrell]

Yeah, I read HR2525. I see no differences. If there is, point them out to me.

[William Terrell]

Sales taxes present many more common-man and safe approaches to avoidance.

How do you avoid the sales tax without buying used merchandise? (The can be no such thing as used services)

The income tax -- especially our bribery crafted arcanity of overregulation -- is avoidable only by the well-connected or rich.

Then why is it the lament by the NRST folks that only 50% of the people actually pay income taxes. That a NRST will force all to pay their "fair share"?

[Remember_Salamis]

It's HR 25 now. I'm not sure if there's any differences.

[Remember_Salamis]

I simply don't know where to begin. I guess I'll just start at the top of your post and work my way down.

Under the FairTax, Outsourcing will GO DOWN. There is a principle in economic theory, actually one of the key tenets, called the elasticity of demand. What happens is that companies try to look for a perfect balance between the profit margin per item and market share. When the two are in perfect harmony, overal profits are maximized. In markets where there is competition, prices WILL FALL; it's a fundamental economic law. Every company is fighting one another for this "perfect balance" between price and market share. If this weren't the case, prices would continually spiral upward and upward.

Now, since prices are lower, goods manufactured in the US compare better with their foreign competition. Therefore, more US goods will be sold. As a result, more googs will be maufactured in the US BECAUSE IT IS MORE PROFITABLE. It will also put an end to re-importation.

Now, adressing your next point regarding "sweeting the pot". What you mentioned, increasing benefits, is EXACTLY what happened in the 1960s and 1970s because of the tax law. Employers passed on what would have been wage growth in the form of benefits. Why? For two reasons:
1. Companies get a tax break for providing employees with health care.
2. Employees do not pay FICA or INCOME TAXES on a benefit.
As a result, both parties, employer and employee, mutually benefited from this arrangement: the employer got a tax write-off for providing health care, and the employee got an UNTAXED benefit.

Under the Fairtax, this WOULD end. Companies would no longer recieve a benefit for providing health care (no more corporate taxes, hence no more corporate write-offs), and employees would no longer benefit (there's no reason to have an un-taxed benefit if you don't pay taxes anyway). Therefore, the FairTax would put an end to the practice of passing on wage growth in the form of extra benefits. In fact, decades of this practice is the prime reason (other reasons: socialized health care for seniors and a terrible malpractice system) for our distorted health care system. Employers give bloated health insurance that puts little onus on the employee to conserve costs. As a result, people go to the doc for runny noses and scraped knees. To make a proper analogy for the kind of health insurance companies get, it's like having your homeowners' insurance cover broken windows. Health insurance, like all forms of insurance, is designed to cover the "catastrophic", such as a car wreck, a house fire, or major surgery. The FairTax would end all this.

Next point: you are assuming a cartel. A cartel is when a group of producers get together and agree to fix prices, like OPEC. So, you're "gas wars" analogy is a little off. Now, in other noncompetitive industries, like utility companies, there WIL BE PROBLEMS because there is no competition to force somebody to drop prices. But all this would do is encourage deregulation, which is a good thing.

Regarding small businesses, they will monumentally benefit. The Corporatist system (which the article is about) protects the business interests of politcal constituencies. A lot of these barriers will fall. What's more, it will be cheaper to borrow money and invest under the FairTax. There won't be tax breaks for big companies anymore either. Plus, the "health care advantage" enjoyed by large companies gives big business an advantage over small business through the ability to provide massive group health care plans, and then write it off on taxes! Why do you think GM backed HillaryCare? They can afford to provide health care for their workers, while the competition was less able. Simply put, the FairTAx will make the game more about pure competition and less about who you know and whether or not you're "too big to fail".

Regarding state and fed. filing: they already have the hastle now! TWhat's more, most states would have to change their tax collection to a NRST of their own. After all, almost every state tax collection system in America (if not every one) piggybacks off the federal system. So, with a new federal system, states can piggyback off the new federal system, of erect their own independent collection system, which would be costly.

Bottom line regarding the FairTax and it's effect on corporatism:

Most of the strings binding Big business to Big Government are Corporate taxes and corporate welfare. With both of those gone, American business will be less attached to American Government.

[William Terrell]

Under the FairTax, Outsourcing will GO DOWN.

First, let's not call it the "fairtax". Nothing is fair about a 30% NRST on top of a 8-10% state sales tax. Nothing is fair about a 30-40% income tax, either. "Fair" might be a 10% flat income tax. Make no mistake, the large amount of money generated by these high rates are to fund socialist programs.

As for the outsourcing going down, even without corps not having to withhold, foreign labor is going to cost a lot less than American labor, unless we drastically lower our standards of living. If we lower our standards of living, foreign made goods at their low price will be as affordable as American prices before industries went over seas.

The industries that have gone overseas are not coming back. In many cases we have lost the infrastructure to host them, and are rapidly losing the skills to do them again. Of the industries gone or going, the price of American labor is only a part of the reason; heavy government regulation in areas not affecting worker compensation is the rest and will not vanish with an NRST.

Googs manufactured in the US will never be as cheap as those manufactured overseas. The 30% NRST will apply to both. Now, if the NRST applied to only foreign made goods, it would make some sense.

Remember, both your and my theory is just that, a theory. Interactive economics has so many variables that trained economists have been unable to predict outcomes. Once a tax structure is changed, it is set. Better the beast we know than the beast waiting in the wings. We at least know we can survive the present beast.

Now, adressing your next point regarding "sweeting the pot".

Even now, employees sweat over losing their job because of the lost benefits, when the money they need not use for M&D can go for luxuries. Under a NRST, the cost of medical care will be 30% higher, and the basic cost of living will be 30% higher. The security of being an employee for a large corp will be worth the reeducation classes and submission to thought and behavior control for most.

Under the Fairtax, this WOULD end.

When the corp provides health care to employees, that is a service and will be taxed at 30%, because they will have to pay the NRST on that service.

Next point: you are assuming a cartel.

You don't have to belong to a cartel to collude with others in the same business to keep prices up. It happens all the time. A good example is the upholstery trade. I have first hand knowledge that this goes on. The prices aren't exactly equal to one another but they never drop and competition never causes a price war.

Why should anyone drop their prices? The public is used to paying them and will understand, somewhat, that those price will go up with a consumption tax. They are being told the prices will increase 23%. This is one of the reasons I know there is hidden problems in the NRST because if not, there would be no need to lie, and it is a lie, by definition.

Deregulation would be a good thing, but much regulation is not related to to compensation, but for federal control of the of the behavior of the business,and consumer safety, like the sewn in DO NOT REMOVE tags on new goods.

Regarding small businesses, they will monumentally benefit. The Corporatist system (which the article is about) protects the business interests of politcal constituencies. A lot of these barriers will fall.

Small businesses are mostly retail businesses. After a NRST, they will have to report monthly to the state version of the IRS. Much regulation occurs at that point. One of their expenses will be keeping their software up to date, and the potential cost of being audited and sanctioned should they do anything wrong.

This is the point where fraud can occur, and the regulation for such will be heavy, expensive and oppressive. The cost to the consumer will rise to compensate, just like the price of drugs rises to compensate the dealer for his potential danger.

What's more, it will be cheaper to borrow money and invest under the FairTax.

Will not an NRST be placed on the service of borrowing money? In HR2525, the indication is that it will be. All services and new items will be taxed.

There won't be tax breaks for big companies anymore either.

Big companies are invariably manufacturers of finished goods, not having to collect the tax on their sales to retailers and not having to pay the tax on raw materials.

Why do you think GM backed HillaryCare?

Why do you think large corps back an NRST. That should be suspicious right there.

Regarding state and fed. filing: they already have the hastle now! TWhat's more, most states would have to change their tax collection to a NRST of their own. After all, almost every state tax collection system in America (if not every one) piggybacks off the federal system. So, with a new federal system, states can piggyback off the new federal system, of erect their own independent collection system, which would be costly.

All business have the hassle of filing with the state and feds now. With an NRST, only retailers will have to file and be regulated under the future (we don't know how egregious they will be yet). 95% of the unregulated manufacturers are huge corps and 95% of the regulated retailers are small businesses. Large retailers will push even more small retailers out of business, creating a oligarchical effect.

Have you considered the change in relationship between the states and federal government after the feds can compel the state to collect revenues for them?

Under a NRST, no state can choose to not collect the tax and report, which means federal regulation in areas the state have never known before, far beyond the tax and it collection and reporting, but into areas that may affect the tax collection and reporting, including social areas.

I can see ways to benefit from the NRST as well as the income tax, personally and financially. I, personally and financially, can survive as well under either. But a tax on consumption has far more potential for social control than a tax on income. Its has the potential for the iron fist and jack boot like the income tax could never have, and provides the framework for an even farther swing away from the ideal this nation was based on.

[Remember_Salamis]

I think we're going in circles...

Hers' a nexecerpt from the Federalist Papers #21:

"Imposts, excises, and, in general, all duties upon the articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. If inequalities should arise in some States from duties on particular objects, these will in all probability by counter-balanced by proportional inequalities in other States, from the duties on other objects. In the course of time and things, an equilibrium, as far as it is attainable in so complicated a subject, will be established everywhere. . . .

It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end proposed,--that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and tow do not always make four." If duties are too high they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment."

[William Terrell]

A 30% NRST starts off as excessive. According to HR2525, that's just the first year, then it goes up by statute. In HR2525, one of the things the tax rate is keyed to is the level of social security receipts.

If the amount of tax collected drops below that necessary to maintain that level of social security, the rate must go up, by statute. Pressure on Congress will not regulate and cap the tax rate if an increase is mandated in the original legislation.

Used goods will not be taxed, therefore it is reasonable to expect that traffic in used goods will be brisk, profitable and huge, reducing the tax receipts.

I presume all this is the same in HR25.

[balrog666]

I presume all this is the same in HR25.

It is!