The recent ugly battles over the federal debt have prominently brought into clear focus the two ways governments can reduce debt — spending cuts and tax revenue increases. This debate over these two methods is not new and is an integral part of any government’s policy making. As we all know, Republicans in this country traditionally discourage taxation and encourage spending cuts while Democrats prefer the opposite approach.
What’s encouraging about the current debate is that both sides have now finally agreed on the seriousness of our debt problem. In the one month since my last post, each person’s share of the national debt has risen by $830.43 to $46,974.57 per person. While it’s customary that one side of the political aisle will complain about the federal debt while the other party’s presidential administration is racking it up, it’s fairly unique that both parties are recognizing the seriousness of the problem at the same time. It seems that the threat of (and now an actual) downgrading of our credit rating has been enough to spur action to reduce our crushing debt, resulting in a multi-trillion dollar (cuts only) deal.
The Tea Party movement deserves credit for helping to finally get this important debt message across to the country and moving the needle in the national discourse.
What’s unfortunate is that the Tea Party’s influence is largely causing the Republicans to refuse to consider ANY type of tax increase. The president’s “Grand Bargain” at $4 trillion over 10 years that ultimately failed, was significantly larger than the deal that ultimately passed. With a cuts to revenues ratio of 3:1, it appeared to many that Republicans were about to seal a victory, especially when the revenue increases were targeted mostly at closing loop holes on the most wealthy of individuals and corporate interests — not the general public. What did the Republicans get for refusing to consider ANY tax increases? Two trillion dollars less in deficit reduction.
To show how far this blind allegiance to the “no taxes pledge” has gone, the current Republican Presidential candidates indicated across the board that they wouldn’t raise taxes, even if it was a 10:1 spending cuts to tax increases ratio. It goes against all logic. Pundits explaining this unanimous vote have opined that it wasn’t a fair question and that the Republicans wouldn’t believe this many cuts could be true. This was a hypothetical question intended to understand just how far the pledge has gone. Have we really gotten to the point that we can’t participate in this type of abstract thinking? What if the moderators had kept going… 50:1… 100:1? Doing so would have highlighted this absurd stance even more. It was also a strong indicator of just how much power resides on the conservative side of the GOP.
Warren Buffett’s Op-Ed article “Stop Coddling the Super-Rich” has gotten a lot of attention of late on both sides. Hearing a rich businessman say, “tax me” is not a common occurence. Warren pointed out that his effective tax rate, at 17%, is much lower than the average American’s tax rate around 36%. I believe Warren when he says:
So not only do many rich in this country pay an effective tax rate less than the official top rate of 35%, but overall, the wealth of the richest one percent of the population, the Super-Rich, has skyrocketed over the last 35 years. The graphic below shows that the bottom 90 percent have seen their income rise only by a very small fraction of total growth, while income for the richest 1 percent has grown by roughly 275 percent. But nothing in our tax code has been altered to in light of this massive shift.
I hope Warren’s right and I hope to hear more voices from the Super-Rich stand up for well-targeted taxes on their wealth. If done right, we can help “share the pain” across all our citizens. Granted 50% of our poorer countrymen pay no income taxes at all. There is an opportunity here for additional revenue gains, and a nominal percentage on the lowest tax bracket (say 3%) would preserve the logic that all of us need to sacrifice in this time of great need for the greater good.
Personally I was glad to read Warren Buffett’s op-ed, because it’s getting hard to ignore the reality that despite their rhetoric about how tax cuts for the wealthy and corporations “creates jobs,” the record simply doesn’t bear that out as being fact. If tax cuts for the rich and corporations do in fact create jobs, why weren’t more jobs created during George W. Bush’s two terms in office?
Supply side economics is a bunch of rubbish.
Hey Zach, I would also like to see any examples of there of tax cuts for the wealthy creating jobs. Anybody out there have an example? As far as tax rates for corporations, I think we need to get competitive with the rest of world’s corporate tax rates but also ensure these taxes are enforced. Thanks for your comment. -Brandon
Excellent post Brandon. I believe wealthy Americans should be asked to pay more in taxes. Tax cuts can work in the right environment, sure. But the truth is, taxes are low in this country. Taxes are not creating economic drag, that’s a rightwing talking point. Confidence in the overall economy is the issue. I think we should raise tax rates gradually, starting with those making $500,000 annually. And then we need a stimulus style jobs bill along with a regulation holiday. Spending cuts are needed, but they need to be carefully targeted, fairly spread, and delayed in order to make sure we don’t hurt this fragile recovery.
As for The Tea Party. I don’t like radicalism of any kind, so I’m not a fan. I’ll give them that they have been a force for much needed spending cuts. But for the most part they’ve damaged confidence in our political system. We’d be better off without them. We need less extremism and more moderation on Capitol Hill.
Hey Jeff, To better match the money blast-off trajectory of the top earners illustrated in the graphic, asking the Super Rich to pay a higher percentage than they are currently are doesn’t seem like a huge ask. Those earning $500K a year or more seems a good place to start, I wouldn’t want to go any lower because we’re then we’re not really talking about the “Super Rich.” The Tea Party has indeed been extreme in their rhetoric and extremism is not what we need to solve our nation’s challenges. I’m hoping not all those with tea party inclinations are totally against sensible compromise. Anyone tea party types agree? I’m not sure a new stimulus looking to promote jobs would be popular or effective. Isn’t there a way to create jobs without adding to the debt? Thanks for your comment. -Brandon
It goes…
Well I would like a balanced approach as well but let’s be realistic. We spend between 4 and 5 billion a DAY more than we collect in taxes. We also now have a 14+ heading for 17 trillion dollar National dept. To correct the imbalance over the next 10 years we would have to raise revenue and makes cuts in current spending levels in the neighborhood of 12 trillion or more. This would only balance our budget if we want to pay down the debt over say 20 years we would need to to collect in taxes or cut 20+ trillion more over that time period and we would still have residual but an affordable amount of National debt.
This is a big hole to climb out of. Until we fix our entitlement programs and make them fiscally independent of the US budget we will sink together in this debt like quicksand.
Hey Jeff, Those are some daunting and depressing numbers that further stress the need for significant action now. Can you tell me where you’re getting your data? Which current entitlements do you think are the most wasteful? Thanks for your comment. -Brandon
brandonwick
I see and hear so many people, who if you listen to them, seem to indicate that raising taxes on the rich, closing tax loophols and fixing laws that allow companies, that generate millions and billions of revenue in sales in the U.S., to avoid taxes by claiming their corporate offices are elswhere, which I’m 100% in favor of.
However this approach without significant reform of, and to our entitlement programs, that adjust collections from the participants to match spending levels is nothing more than fools gold.
The issue that no one, is or wants to discuss openly, is that the current participants of these programs contributed far less into than they are getting out of these programs. Unfair/unbalanced use of these programs are responsible for the crux of the fiscal nightmare in Washington right now.
Until we adjust our expectations to match the contribution rates of those using the system it will fail and drive this country so far into debt that it will never recover.
Compassion is a commendable attribute but when it leads a nation off a cliff it is destructive. The citizens in these entitlement programs need to understand that these programs are not just for them to use as a blank check for their health care issues, but a bank that that holds their contributions and once spent it needs more deposits, by those drawing on the account, to function properly.
We all need to be realistic. Expecting current taxpayers’ to pay a disproportionate amount of “their” care with little hope, if no significant changes are made, of our contributions being there when we need them, is unfair and inexcusable.
I have no qualms with us taxpayers helping with 10% of the cost of the elderly but forcing us to cover more than 50% is unfair. Where else in this world would any citizen expect that.
Im many countries you don’t get any care without paying as-you-go and they have lived within those systems to this day. I don’t want to drop to that level but we need to increase revenue and limit care or we willk collaps the system under its own unsustainable excessive spending.
We need to be honest about what it will really take to fix there problems. If anyone out there can show me a “honest solution” that is fair to current taxpayers and is fiscally self supporting please spell it out for me in intimate detial because I have not seen anything proposed by anyone that is fiscally balanced and self supporting. – JF Dubya