Bernie Sanders: Yet Another Demagogue

I am currently writing my next post for my “What Would Homo Economicus Do?” series but for personal reasons, I have not been able to spend a lot of time writing.

However, just today, a friend posted on his Facebook page an article from Occupy Democrats about a list that Bernie Sanders made. It was a list of corporations that didn't pay income taxes.

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The first thing that I thought when reading the article was that Occupy Democrats really should learn to date their articles. As Sanders' list was a response to an op-ed piece that was signed by 80 Wall Street CEOs that advocated for austerity spending in the United States, I naturally thought that this was a recent article. I searched all of the Wall Street Journal to find the op-ed piece but couldn't find it.

It was only later when I found the letter in the Journal's archives as the op-ed was published in the Wall Street Journal in 2012, making Sanders' list about three years old too.

The article was titled “Bernie Sanders Calls Out 18 Corrupt CEOs For Stealing Trillions, Outsourcing Jobs, and Evading Taxes.”

As much as I disagree with Sanders about almost everything, to his credit, he himself did not use the word “steal” when describing the bailouts that corporations were given by the government. Though there were corporations that were screaming to be bailed out, there were also those that didn't want the bailout money but were told to take it anyway. 

By definition, that cannot be “stealing” and it once again goes to show the intellectual bankruptcy of headlines.

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However, there were many other things in the article that I thought was nonsensical, misleading, and pure demagoguery. The following is my list of what I found wrong here.

1) “The Wall Street leaders whose recklessness and illegal behavior caused this terrible recession...”

Was the sub-prime mortgage crisis a result of recklessness? Without a doubt. But was it illegal? Hardly.

2) “Before telling us why we should cut Social Security, Medicare and other vitally important programs, these CEOs might want to take a hard look at their responsibility for causing the deficit and this terrible recession.”

The bailout of 2008 was approximately US$700 billion and was given out to a total of 951 recipients. Of those 951 recipients, 123 companies have so far failed to repay the government and resulted in a loss to taxpayers. However, even after including the losses incurred from those 123 companies, taxpayers have made a net profit from the bailout in total. Thus far, taxpayers have profited by US$57.7 billion.

On the other hand, how much does Social Security and Medicare cost? It depends on whom you ask. If you ask the Cato Institute, a libertarian think tank, the War on Poverty has cost US$19 trillion over the past 50 years.

However, the Devil is always in the details. For instance, if you ask Mike Konczal, a fellow at the Roosevelt Institute, a progressive think tank, the federal government spends US$212 billion per year on “what we could reasonably call “welfare.””

Even if we take the Roosevelt Institute's much lower price estimate, whereas the bailout of 2008 was a one-time payment of US$700 billion, which resulted in a US$57.7 billion profit for taxpayers, since 2008, the US government has spent a total of US$1.484 trillion on welfare.

The bailout was hugely problematic for many reasons, and it is something that everyone should have opposed from the beginning. But at the very least, it generated a profit for taxpayers. What has spending on welfare gotten people? Has it lifted people out of poverty? No, it hasn't. But wasn't that the goal of welfare?

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3) “Our Wall Street friends might also want to show some courage of their own by suggesting that the wealthiest people in this country, like them, start paying their fair share of taxes.”

“Fair” is a tricky word. It can mean different things to different people. That's why Sanders and others like him keep using that word. But let's look at the numbers, shall we?

According to the Pew Research Center, those with adjusted gross incomes of more than US$250,000 paid nearly half of all individual income taxes. In contrast, people whose incomes were less than $50,000 paid just 6.2% of total taxes.

Whether paying nearly half of the income tax is fair or not is open to debate. But people should not pretend or insinuate or otherwise that the less well-off are somehow paying more than the well-off.

4) “...at least a dozen of the companies avoided paying any federal income taxes in recent years, and even received more than $6.4 billion in tax refunds from the IRS since 2008.”

We should get the terminology right. The federal income taxes that corporations pay are called corporate taxes. And it's true that many corporations do not pay corporate taxes. That is because there are two ways to tax a corporation.

The first way is to consider the organisation as a single entity and tax it accordingly, thus taxing any surpluses or profits that the corporation makes at the organizational level. A corporation that chooses to pay its taxes this way is called a C Corporation.

The second way is to tax the individuals who get money from the corporation. A corporation that chooses to pay its taxes this way is called an S Corporation.

This is the Wikipedia entry for the difference between C and S Corporations:

An S corporation, for United States federal income tax purposes, is a corporation that makes a valid election to be taxed under Sub-chapter S of Chapter 1 of the Internal Revenue Code.

In general, S corporations do not pay any federal income taxes. Instead, the corporation’s income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns. This concept is called single taxation; if the corporation is taxed as a C corporation, it will face double taxation, meaning both the corporation’s profits, and the shareholders’ dividends, will be taxed.

So, it is true that many corporations do not pay the federal corporate income tax. But that is because individual shareholders elect to pay the personal income tax on profits, not the corporate one.

Whether or not dividing the tax schemes this way is equitable or efficient is a different topic. However, using the fact that many corporations do not pay organizational corporate taxes to imply that that is some kind of evidence of widespread tax dodging is tantamount to lying.

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5) “They might work to end the outrageous corporate loopholes...”

The phrase “close the loopholes” is the refuge of the fool. It is easy to say “close the loopholes” and end the debate feeling like a self-righteous 19-year-old Political Science major who has discovered the Holy Grail that would cure all of society's ills. But there is a reason tax loopholes exist.

One of the reasons that corporate taxes are pernicious is that they encourage businesses to use debt finance, rather than equity finance even though debt finance makes companies riskier. That is because payments on debt are tax deductible, and dividends are not. This gives many businesses strong incentive to use debt rather than equity finance.

So why not end the deductibles on corporate debt payments? That is because if that “loophole” was closed, that would put illiquid industrial firms with heavy capital costs at a MASSIVE disadvantage.

If you think Detroit is suffering now, wait and see what would happen if Sanders and his supporters get what they want and all these pesky loopholes get closed. I'll be here with a bucket of popcorn while the Social Justice Warrior types once again claim that this hypothetical future is further evidence that The Man hates black people.

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6) “Many of the companies also have outsourced hundreds of thousands of American jobs to China and other low wage countries, forcing their workers to receive unemployment insurance and other federal benefits. In other words, these are some of the same people who have significantly caused the deficit to explode over the last four years.”

Firstly, outsourcing jobs is important to ensure that the prices of goods and services remain cheap and that businesses can remain competitive.

If Sanders could get things done his way, the vast majority of American factory workers would still have union-wage jobs because they would still be producing television sets in America. That sounds good except that those television sets would be much more expensive than television sets from, say, Korea or Thailand. American factory workers might earn a bit of coin under Sanders' economic plan, but everyone else not working in factories would see that their money buys them fewer goods and services.

There are two types of Fortress America. The first one is the type proposed by conservatives and neo-cons. A powerful American military that can eliminate threats anywhere in the world and a country that would close its borders to brown-skinned and yellow-skinned people who might want to commit acts of terrorism against Americans. Except that the US' military is already practically uncontested but it still has a difficult time trying to completely defeat illiterate goat-lovers.

The second one is the type proposed by progressives. A rich American workforce that will allow people to live as comfortably(?) as they did under the New Deal and a country that would close its borders to trade with brown-skinned and yellow-skinned people who might be able to sell things more cheaply.

Except that a choice has to be made – pursue inefficient economic policies that lead to meteoric rising prices and economic stagnation OR pursue comparative advantages and creative destruction that lead to cheaper goods and services for as many people as possible and economic productivity, which unfortunately also comes with job insecurity.

You must choose one or the other. You cannot have your cake and eat it, too.

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7) “These are the names of TRAITORS who have forsaken their people and nation to worship at the altar of greed:”

And THIS is what it comes down to, isn't it? Occupy Democrats, the Occupy Movement in general, Sanders, his supporters, etc. do not understand economics. And even though information is free and open to all, they do not want it. They do not want the facts. After all, facts are so TL;DR.

What they want are enemies to hate and traitors to blame. Anyone to blame for all their problems aside from themselves.

Is Sanders an idiot? I think that it is easy to claim that politicians are idiots. But being able to get voted into office and maintaining an incumbency rate in the high nineties despite dismal popularity rates is not something that any fool can do. So, I think that merely saying that politicians are idiots is intellectually lazy and counterproductive.

But the likes of Occupy Democrats who chant “Go, Bernie, Go!” without actually looking into the facts? They are not nearly as smart as they like to think they are.

If you have read this whole thing and you also happen to support Sanders, believe me when I say that I am not telling you to support Marco Rubio or Rand Paul. God knows that they are lying snakes in the grass, too. I don't expect to change your opinions or your core beliefs.

But, God, I dearly hope that I have given you cause to try to see for yourselves what you are advocating.

“I have here in my hand a list...”
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