During 2012, Congress forced itself into a grand bargain on what are commonly referred to as the Bush Tax Cuts. These cuts extended large rate cuts to most people in the United States. In order to get these cuts through Congress during his term, Bush put in a sunset provision, which meant that the tax cuts would expire in 2010. President Obama extended the deadline to the current 2012. What this means is that all tax cuts are set to expire at the end of the year.
In order to attack this problem, Congress put a bill together that implements cuts to government programs across the board. This was to try and get Congress to come to a compromise agreement to prevent the Bush Tax cuts from expiring. Ben Bernanke termed this the “Fiscal Cliff”, an unfortunate term that has been adopted by the media and by Congress.
Much of the benefit of these tax cuts accrue to the wealthiest Americans who saw their income tax rates cut, and the tax on dividends and capital gains cut signficantly. Many, mostly on the right, argued that reducing rates on everyone, especially the wealthy would spur economic growth and lead to greater revenues for the Treasury. Paul Krugman, nobel prize winning economist wrote that “supply-siders claimed, without evidence that tax cuts would pay for themselves”.
The evidence shows that, since the first tax cuts in 2001, tax receipts have been below the long term average rate of receipts, around 8.4%. Far from increasing revenues, the cuts show a decrease in revenues. This has not stopped Republicans and their financial leaders like Grover Norquist from insisting that tax cuts pay for themselves, that Republicans would never raise taxes, regardless of the circumstances.
Over the past thirty years, income disparities between the poor and the wealthy have grown incrementally. Where the average wage has stagnated, or even fallen in real terms, income for top 1% has grown disproportionately at greater than twenty percent per annum.
Not only that, but, far from the wealthy creating new jobs in the economy, the unemployment rate has risen, with more people falling out of the job market. Jobs that are cut from firms in the United States, or outsourced to cheaper locales overseas are either lost entirely, or are replaced by low wage jobs. Obama’s financial policies have managed to pull the economy out of the financial hole that George Bush created and unemployment has begun to ease.
Federal, state and local governments have cut jobs over the last four years, increasing the unemployment problem and placing people in lower paid employment that does little to ease the budgetary malaise that has befallen Washington.
In addition, the two irresponsible wars initiated by George Bush and his cohorts has placed inordinate pressure on the treasury. The financial crisis of 2008, combined with the shortfall in receipts by the Treasury as a result of these two examples of military adventurism has devastated the Middle Class and placed the countries finances under severe strain.
Congress now wants to negotiate a change to the law that would extend the Bush Tax cuts, President Obama has refused to extend the tax cuts for those earning over $250K/yr. Republicans, of course want the cuts to stay in place, and cuts to social programs like Social Security, Medicare and Medicaid to cut the deficit.
As Paul Krugman points out ad nauseum, this is not the time to concentrate on balancing the budget. What we need to do now, is get people back to work at all costs. It does not really matter what they do, as long as they are employed. Keynes, the famous economist wrote during the Great Depressions that we should bury money in coal mines and pay people to dig it out, merely to get them working again.
Conservatives continue to reject economics of this sort. They insist on tax cuts, on cutting government programs, firing teachers, fire fighters, police officers and a host of other government workers as a way to cut the deficit.
The current situation in Europe, and especially countries like Spain, Italy and Greece shows the futility of cutting government services as a way to balance budgets. The situation in Spain has become worse, with unemployment running around 25% and among the youth, above 40%. The situation is getting worse, and unless Europe enacts a program of job creation, much of Europe will plunge into Depression.
How would we cut the deficit in a responsible way, without cutting popular, and essential social programs? The problem is not that complex, but it will entail affecting programs that are beloved of conservatives.
The single most effective way to raise revenue, and make sure that working class people get back to work, is to tax the wealthy. For too long in this country they have taken from the poor, living off the labor of the poorer classes, while paying those workers subsistence wages, cutting their benefits, reducing their sick time, vacation time, cutting pension plans and medical insurance plans.
It is time for the wealthy to pay the piper. Just as tax rates in the 1950’s rose as high as 91% on the top marginal rate, so too should they do so today. Congress is about to embark on negotiations to keep Middle Class tax cuts and to raise rates on the very wealthy. They are arguing about a 4% rise in rates, from 35% to 39%. It is ridiculous that we should be arguing about whether the wealthy should pay 4% more in tax.
There should be a concerted effort to create a much more progressive tax structure, with rates rising in tiers to 39%, say 45%, 51% and so on, the rates can be determined at the time, on income at various levels. There is no reason that someone earning $5m/yr cannot afford a top rate of 51%, someone at $20m cannot afford a top marginal rate at 60% or more.
It is time to level the playing field and make all work worthy of a decent wage. The minimum wage should be raised to $12.50 at the very least, and probably more than that.
The next item that I would tackle in the budgetary wars is the defense budget. This country spends far too much on defense. We do not need new aircraft systems, tanks, another aircraft carrier, or any one of hundreds of boondoggles that burden this nation with unnecessary expenses. The military should, as even Donald Rumsfeld saw, be smaller, more specialized, relying on small technology rather than the large land, air and sea assault machines that currently encumber the military. We could easily cut $100bn/yr from the military. This country cannot afford a large military machine.
Agricultural subsidies can be slashed. Large corporate farms can survive in the market on their own, they do not need help from the government. If this is to be a free enterprise system, they should stop relying on government assistance to skew the market. Small, local farmers, however, those with under say a hundred acres, they could do with support.
Tax loopholes that support the wealthy,such as shielding income in IRA or 401k plans to make them non-taxable should be eliminated. Beyond perhaps $2m, income in tax-free accounts should be fully taxable. Using instruments like the carried interest rule that allows income to be classified as dividend income and taxed at a lower rate than ordinary income should also be eliminated. All those loopholes that allow the wealthy to get away without paying tax should be cut.
All offshore income, including that for large corporations should be taxed as US income, whether it is repatriated or not. What is blatantly unfair is when a corporation like GE, one of the largest corporations in the world gets money back from tax payers. In 2011, it received over $12bn rebate. It did not pay taxes at all, we paid them to be in business. The distortions in the US tax code should make sure that profitable companies pay their fair share of tax.
The inheritance tax should be raised dramatically. There is no reason that those that did not earn the money in the first place benefit from it. People should make their own way in the world and not rely on income form their parents, as people like the Waltons, part owners of Wal-mart, do.
Raise the cap on Social Security, which ends at around $105k. All income should be subject to Social Security taxes. IN this way, the program would remain solvent for the next 75 years, and the elderly would not have to worry about their future.
There are other ways to cut the deficit, almost all of which would target the most vulnerable, the poor, the Middle Class, and parents. We need to make this nation more equitable once more, when anyone that works hard can earn a living wage. In that way, the deficits will disappear, and the country will once again become wealthy.
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