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.