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As recorded for broadcast on WCBC Radio, 2-13-10
"The federal government now spends $2 for every 1$ it brings in. The equation cannot be sustained."
Hailing from the Mountain City lo these past 15 years, I’ve known just about every sort of orneriness Old Man Winter can muster in this part of the world, from waist-deep drifts to banshee winds on sub-zero nights.
That’s why the Hut at the Crest of West is heated by wood, home-grown BTU’s a blow for American independence, and a middle finger to corporate energy chiefs and Arab oil sheiks.
Things are starting to get spooky, though, and I’m not just talking 30 inches of snow and a blizzard four days later. Although that’s scary enough, when one ponders the perfect storms of political impotence, foreign entanglements and economic decline that can collide like tectonic plates, shifting landscapes and toppling empires.
Towns and states with drum-tight budgets expended tens of millions plowing snow, and as usual look to Washington to bail them out. But which turn of the federal cash machine will prove one turn too many?
 One wonders how the history of this era will read, to know whether last year’s brush with economic calamity was a lesson learned, or one ignored. All evidence points to the latter, as Wall Street excess remains unchecked, so that history may well record these days as the calm before a storm we will not evade.
Anticipating cabin fever the Friday morning of the big snow, I picked up the Washington Post, and the lead story was foreboding, dark portent haunting like the zephyr gale that wails this blizzard eve.
“It’s another world out there,” I told The Boy after shoveling out the truck.
And it was another world altogether conjured in the story about worldwide panic trading at the prospect of Greece’s economic collapse.
The country carries what the Post called a “huge budget deficit” of 12.7 percent of gross domestic product, prompting fears that it can’t sustain such debt. Public unions were on strike. Civil unrest threatened.
U.S. debt was also in the news of late, with the release of the new budget. Ours is 10.6 percent of GDP. If Greece is the fatal marker, we’re 84 percent there.
Consider the prospect of global economic turmoil at the growth of the U.S. deficit to such levels. World markets are looking to the EU to bail out Greece. Who’s big enough to bail out the U.S.?
And what would China demand in return, not just of cash, but of American hide; of sovereignty?
The federal government now spends $2 for every 1$ it brings in. The equation cannot be sustained.
This isn’t an Obama or Bush issue. It’s an American issue.
And it’s not a game, because it’s about the world we leave our children.
The federal government must cut spending, and the best way to do that is to end wars.
On the other side, it’s got to bring in more money, and Americans from sea to shining sea need to get right with the notion of revenue enhancement.
The best way to do that is to hit the SoBs who got us here. Tax, not the rich, but the obscenely wealthy. And as the Supreme Court held with free speech, treat corporations just like people…
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http://www.nytimes.com/2007/01/08/washington/08tax.html
Our combined state and federal corporate tax rate is second only to Japan among developed nations.
http://www.taxfoundation.org/publications/show/22917.html
Military spending totaled about 20% of the FY2010 budget, and only around 20% of that went toward what the government calls "overseas contigency operations".
http://en.wikipedia.org/wiki/2010_United_States_federal_budget#Total_spending
http://en.wikipedia.org/wiki/Military_budget_of_the_United_States#Budget_for_2010
Take away war costs and you're still left with a $700-800 billion deficit. Eliminate the DoD entirely and you still haven't balanced the budget. Most federal spending goes towards entitlement spending and debt service (to pay for past entitlement spending).
"Most of the right-wing commentary purporting to prove that the rich bear the overwhelming burden of government relies upon the simple trick of citing only the income tax, which is progressive, while ignoring more regressive levies. A brief overview of the facts lends some perspective to the fears of a new Red Terror. Our government divides its functions between the federal, state, and local levels. State and local governments tend to raise revenue in ways that tax the poor at higher rates than the rich. (It is difficult for a state or a locality to maintain higher rates on the rich, who can easily move to another town or state that offers lower rates.) The federal government raises some of its revenue from progressive sources, such as the income tax, but also healthy chunks from regressive levies, such as the payroll tax."
"The sum total of these taxes levies a slightly higher rate on the rich. The bottom 99 percent of taxpayers pay 29.4 percent of their income in local, state, and federal taxes. The top 1 percent pay an average total tax rate of 30.9 percent--slightly higher, but hardly the sort of punishment that ought to prompt thoughts of withdrawing from society to create a secret realm of capitalistic übermenschen. These numbers tend to bounce back and forth, depending upon which party controls the government at any given time. If Obama succeeds in enacting his tax policies, the tax burden on the rich will bump up slightly, just as it bumped down under George W. Bush."
Quoted from Jonathan Chait, Sept. 14, 2009 in The New Republic
I think without a doubt that the rich can afford a "slightly higher" percentage of taxes paid, especially since the last two decades have seen a considerable widening of the income gap between rich and non-rich.
I would side with the economic theory espoused by Keynes, in that when you are faced with a severe recession or depression, businesses are not expanding and are actually cutting back drastically, further contributing to the economic downturn. People are laid off, unemployment soars, and the fear of a poor economy causes most everyone to cut back on spending, contributing to a vicious circle. With no intervention the country would sink into disaster. The other option is for the government to step in and provide the stimulus to keep the economy producing. If anything, the recent government stimulus package was probably not enough, rather than too much.
At the point that the economy is stabilized, which can be difficult to determine, the government needs to back out of the picture and close off the money spigot.
And that should be the time when the deficit is addressed; not before.
Bringing down the deficit is most certainly going to involve a combination of increased taxes and decreased government spending. Most of the expenditures for the government are fixed, in the form of entitlements....Medicare, Social Security tops on the list. Until we come to grips with the fact that entitlement programs will need to be cut, we are headed for a default on our national debt. Our politicians in both parties pay lip service to this reality, but ignore actually doing anything about it, as trying to enact any changes is assuredly political suicide.
Also I found the article by Jonathan Chait referenced above and he gives no source to the numbers he cited. They don't make sense to me. The highest income tax bracket is 35%. I can't imagine how local and state taxes would lower the effective tax rate to around 30% especially since these taxes are typically at much lower percentages. Also, if this group pays the bulk of the federal income tax 5% of that is a lot of money.
While the highest federal income tax bracket is 35%, I think that most of the very wealthy come nowhere close to paying that amount, due to loopholes.
If Mr. Chait is indeed correct, and I am going to trust that he is, given his reputation and the magazine that he writes for, the issue is not that the rich pay a lot in taxes. As a total amount they do pay a lot, but as a percentage of income it is no more than the average hard-working low-wages person. I have no problem in having the rich pay a higher percentage of their wealth, given that our economic system allows them to amass ungodly amounts of money. They can certainly be expected to give some of it back to their society.
Check out this site for the info: (http://www.ctj.org/pdf/taxday2009.pdf).
I'll stay on the side of Dick's article: the filthy rich can and should pay more in taxes.
The Citizens for Tax Justice sums it up very nicely for me: "The richest Americans are those who benefit the most from the public services that taxes make possible. The massive fortunes that are accumulated by Americans who are industrious, clever or just lucky would never materialize if not for the infrastructure, educated workforce, public safety and stability that government provides. It is therefore reasonable that the extremely wealthy contribute more in taxes than the middle-class."
In discussing taxes, once again the error is in focusing on the total amount paid, rather than the amount as a percentage of income. The point is missed if you are stuck in the mindset of "forget about the percent of income." Yes, yes, yes, the very rich do pay lots of money in taxes, but they should, as they are still left with lots and lots of money.
"For the first time this year, we are also presenting data on the top 0.1% of tax returns (the top 10 percent of the top 1 percent). This 10 percent of the returns in the top 1 percent amounts to only 141,000 tax returns but accounts for nearly 12 percent of the adjusted gross income earned and approximately 20 percent of the nation's federal individual income taxes. The average income for a tax return in this top 0.1 percent is $7.4 million, while the average amount of income tax paid is $1.6 million, indicating an average effective individual income tax rate of 21.5 percent. This very top income group actually has a lower average effective tax rate than the rest of the top 1 percent of returns because these extremely high-income returns are more likely to have income from capital gains and dividends, which are typically taxed at lower rates. (Note that in the case of capital gains and dividends, in most cases the income has already been taxed once by the corporate income tax, which is not included here.) from www.taxfoundation.org
By an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy, according to a new study by the Institute on Taxation & Economic Policy (ITEP)."
From the Citizens for Tax Justice website:
“In the coming months, lawmakers across the nation will be forced to make difficult decisions about budget-balancing tax changes—which makes it vital to understand who is hit hardest by state and local taxes right now,” said Matthew Gardner, lead author of the study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. “The harsh reality is that most states require their poor and middle-income taxpayers to pay the most taxes as a share of income.” (From citizens for tax justice; www.ctj.org)
Ten states—Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada, and Alabama—are particularly regressive. These “Terrible Ten” states ask poor families—those in the bottom 20% of the income scale—to pay almost six times as much of their earnings in taxes as do the wealthy. Middle income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families. “Virtually every state has a regressive tax system,” noted Gardner. “But these ten states stand out for the extraordinary degree to which they have shifted the cost of funding public investments to their very poorest residents.”
The report identifies several factors that make these states more regressive than others:
-- The most regressive states generally either do not levy an income tax, or levy the tax at a flat rate;
-- These states typically have an especially high reliance on regressive sales and excise taxes;
-- These states usually do not allow targeted low-income tax credits such as the Earned Income Tax Credit; these tax credits are especially effective in reducing state tax unfairness.
“For lawmakers seeking to make their tax systems less unfair, there is an obvious strategy available,” noted Gardner. “Shifting state and local revenues away from sales and excise taxes, and towards the progressive personal income tax, will make tax systems fairer for low- and middle income families. Conversely, states that choose to balance their budgets by further increasing the general sales tax or cigarette taxes will make their tax systems even more unbalanced and unfair.”
Implications for State Budget Battles in 2010
“In the coming months, many states’ lawmakers will convene to deal with fiscal shortfalls even worse than those they faced last year,” Gardner said. “Lawmakers may choose to close these budget gaps in the same way that they have done all too often in the past—through regressive tax hikes. Or they may decide instead to ask wealthier families to pay tax rates more commensurate with their incomes. In either case, the path that states choose in the upcoming year will have a major impact on the wellbeing of their citizens—and on the fairness of state and local taxes.”
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Who are the filthy rich? How about the top 1% for starters?