Budget wars: The middle class loses big time
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Now that federal government shutdown has been averted, it’s a good time to examine what’s at stake for most of America in the crucial next round of budget talks.
Not doing anything to reduce the size of government debt will be catastrophic. Not much quibble there. But acting hastily and cutting the wrong things can be even more costly to social and economic welfare.
Neither the Republican nor the Democrat’s budget plans for 2012 will meet the major challenge of sustaining social programs while cutting the most egregious waste.
Since the GOP budget proposal has been published, let’s eye that first. The 2012 budget template, released by Paul Ryan, Republican chairman of the House Budget Committee on April 5, cuts $6.2 trillion from government spending over the next decade. Some clarity is needed here in the semantics of this plan. Cutting is not the same thing as “improving” or “reforming.”
One of the hallmarks of the Ryan plan — a GOP campaign document for 2012 — is cutting top personal income-tax rates from 35 percent to 25 percent. As part of his “path to prosperity” theme, he estimates that along with other cuts and a lower corporate tax, this will create 2.5 million private-sector jobs, lower the unemployment rate to four percent by 2015 and add $1.5 trillion to real Gross Domestic Product over the next decade.
That claim is not only unrealistic, it’s never been supported by any sound economic science. During and after the George W. Bush era, when tax rates were cut on income, capital gains and dividends, unemployment rose and GDP eventually fell.
Would cutting taxes again — actually reducing revenues further and creating a bigger structural deficit — make a difference this time around? This is not only wrongheaded, it makes no mathematical sense. You can’t reduce the deficit by eliminating a key and ready source of revenue.
The trickle-down theory once again rears its ugly head. The GOP plan effectively snuffs progressive taxation on the wealthy. As Joseph Stiglitz, a Nobel Prize-winning economist, says in a recent Vanity Fair piece, “there is ample evidence that something has blocked the vaunted ‘trickling down’ from the top one percent to everyone else.”
The ultra-wealthy used to pay their fair share. From the 1940s to the 1980s, the top tax rate — even during the Eisenhower Republican-dominated 1950s — ranged from 70 percent to 91 percent.
I’m not advocating a return to those lofty rates, but right now you’re a tax chump if most of your income is from wages.
It pays big time to have inherited wealth and investment income, both of which will be largely spared in the GOP’s misguided budget crusade. Stock dividends and capital gains qualify for the 15 percent rate. Additionally, estate taxes went from a $1 million exemption and 55 percent rate in 2000 to 35 percent and a $5 million exemption as of last year.
Since the GOP also wants to privatize Medicare — reintroducing expensive private insurers to the program — the middle class will be digging deeper into savings to cover premiums and larger out-of-pocket costs, especially those under 55. It’s the equivalent of turning the popular, guaranteed health program into a massive 401(k)-style boondoggle. Only private insurers will benefit. You will be on your own and likely to come up short during the most vulnerable time of your life.
The Ryan document also savages the self-funding health reform law, which attempts to reduce healthcare costs over time by allowing exchanges to introduce real competition to private health insurance.
No fewer than five glaring boxes in the Ryan report call for the repeal of self-funding health reform, suggesting that this will somehow slay the triple-headed fiscal demons of Medicaid, Medicare and job losses.
As much as I abhor the GOP plan, I’m no fan of the Obama budget, either, which leaves in place funding for a bloated military and two and half (I’m not sure what to call Libya) needless wars. Neither party even touched Social Security nor the trillions that corporations either bank off shore or avoid through tax breaks.
What both sides need isn’t more patience. They have clearly dug their ideological trenches and will battle it out at our expense. They need to curb their respective dogmas. Real prosperity comes from mutual benefit, sacrifice and universal incentives, not unrelenting giveaways for one percent of society.
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What both of you failed to mention is the greatest sin of the new budget: an almost 12billion dollar cut to the Dept. of Ed. An $845 per term cut off the top of all Pell Grants received PLUS the ever increasing cost of college ADDED ON to this massive, insane cut will just force more students out of college. Where’s The Funding? WTF? How these cuts were possibly justified is beyond the scope of my understanding, and that is shared by the MILLIONs of students that will now need to add third and fourth jobs to their already full plates. The two of you ignoring this problem only hurts more. America is forgetting one of its most important considerations: Its Future.
There is as little hope for an electorate as stupid as ours as there is for the chicken that relies on the fox to protect its hen house.That is why the venal interests in this country will always win out,they can always rely on the self interests,prejudices and narrow minded stupidity of the majority.
I think that not cutting the defense budget or not gutting medicare or education ( the Dems) is much preferable to doing away with medicare, the EPA, Planned parenthood, and privatizing social security. (the Repubilcians). BTW most Dems do want to cut defense. This piece is a perfect illustration of why we are in the mess we are in. FALSE EQUIVALENCY by the media in an effort to be bipartisan will be our downfall. In case you haven’t noticed, the Republicans are ruled by far right wing ideologues. Just stop it please. No wonder voters are confused.
There is one thing that I don’t hear from all who don’t quite have a taste for a spending cut. You seem to forget the economic status of the nation. We are in BAD SHAPE.
Harry Reid shouldn’t be worried about some little festivals and the ability to get ice cream for the kids….and Obama shouldn’t be planning ANOTHER vacation. Yes, he is complaining because he may have to postpone another getaway. We will all be scrounging for something to eat; you can forget about luxuries. It’s time to GET SERIOUS. MAKE THE CUT. No more time to debate.
It seems that some fail to realize our situation. These same officials are supposed to take control of the situation, and help us recover. I say if they aren’t going to part of the solution, they are part of the problem. Let’s get rid of them too, before we all pay the price.
Where’s the reset button?
We can bail out the banks but we cant fund our troops.
Forsing more students out of colleges will force colleges to get rid of staff. This will make the cost of college drop dramatically making it more affordable. That will mean more students can go to college.
As someone who lives outside the USA it is amazing to see the US desperately trying to join the ranks of the developing world. All countries are trying to take care of their citizens not stop it, they are trying to encorage education as it is the only way of maintaining or increasing the prosperity of the nation. They also try and look after the majority of the population rather than a minority of the population.
It will be interesting to see if the USA ends up like the USSR collaping under its own debts and dependant on the rest of the worlds largesse to survive.
Excellent article.
The story here, based on history, is that large countries (China, U.S.A., Russia, India, etc.) cannot function in the modern world. We have developed a system of centralization akin to Russia in the late 19th and 20 Centuries. It just doesn’t work. More and more, we are centralizing everything. The latest is “nationalized” education. In addition, we have developed a cumbersome system of medical aid to everyone (people ARE living longer in industrialized countries) but the system is really run by private enterprise for their welfare, not the people’s. We, unfortunately have a precious few (1%) determining the countries well being.
People need to sit back and see what made America work. People need to step back and see what doesn’t work by visiting large empires and their history. One of the problems is “free-trade.” For the multi-national corporations, it’s a “cake-walk.” For the working person and the small business owner, etc., it’s a dismal failure. Like all empires, we are approaching the nadir of our development. Just like England, France and other’s did. The super-rich know this. That’s why their money is not here. Our government no longer represent us. It represents “larger” corporate interests.
The story here, based on history, is that large countries (China, U.S.A., Russia, India, etc.) cannot function in the modern world. We have developed a system of centralization akin to Russia in the late 19th and 20 Centuries. It just doesn’t work. More and more, we are centralizing everything. The latest is “nationalized” education. In addition, we have developed a cumbersome system of medical aid to everyone (people ARE living longer in industrialized countries) but the system is really run by private enterprise for their welfare, not the people’s. We, unfortunately have a precious few (1%) determining the countries well being.
People need to sit back and see what made America work. People need to step back and see what doesn’t work by visiting large empires and their history. One of the problems is “free-trade.” For the multi-national corporations, it’s a “cake-walk.” For the working person and the small business owner, etc., it’s a dismal failure. Like all empires, we are approaching the nadir of our development. Just like England, France and other’s did. The super-rich know this. That’s why their money is not here. Our government no longer represent us. It represents “larger” corporate interests.
The story here, based on history, is that large countries (China, U.S.A., Russia, India, etc.) cannot function in the modern world. We have developed a system of centralization akin to Russia in the late 19th and 20 Centuries. It just doesn’t work. More and more, we are centralizing everything. The latest is “nationalized” education. In addition, we have developed a cumbersome system of medical aid to everyone (people ARE living longer in industrialized countries) but the system is really run by private enterprise for their welfare, not the people’s. We, unfortunately have a precious few (1%) determining the countries well being.
People need to sit back and see what made America work. People need to step back and see what doesn’t work by visiting large empires and their history. One of the problems is “free-trade.” For the multi-national corporations, it’s a “cake-walk.” For the working person and the small business owner, etc., it’s a dismal failure. Like all empires, we are approaching the nadir of our development. Just like England, France and other’s did. The super-rich know this. That’s why their money is not here. Our government no longer represent us. It represents “larger” corporate interests.
Its obvious that the writer of this piece either failed or never took macro economics. It is widely accepted by economists (except for the Soros crowd) that when tax go up, investment goes down. The inverse is also true that when taxes go down, investment goes up. Get a grip, progressive tax policy aren’t advancing progress.
Very typical American voodoo economic when the budget deficits are in trillions, they want a stupid tax cut. The rich should pay the services of the poor like in the EU. That’s a fair society. Not winners take ALL. The absolute greeds of Wall st is incredible. They should pay 60% tax
What I would like to see is:
No tax cuts for the rich because it wont do a lick of good.I am rich and I can tell you now that making me more rich will not translate to more jobs. It will translate to me moving my money to another country because I have no faith in the government or corporations here. “Never put all your eggs in one basket.”
More defense cuts because its all corruption anyway. Most of the money doesnt go to the troops, it goes to corrupt contractors who have friends in government creating contracts just for them. Time for this stop. Companies like Lockheed, Raytheon, and Boeing need to be leashed. They are corrupt to the core and nothing can fix them now.
I still think we need to do something about welfare and medicare. Keep it for kids, but take it away from any adult able to work. No more holding their hands. No more freebies. Creates jobs for them or force them into low pay jobs on farms and such. Heck build a bunch of hamster wheels and make them run to generate electricity. Whatever. No more handouts.
No more free trade with countries that dont respect the floating currency system. Basically, put huge tariffs on countries like China who have no respect for us. If they dont want to behave properly, then its their own grave.
No more free education post high school. Sorry but our colleges have become pathetic. They have all become degree mills giving out things that i do not want to pay for and most of the people graduating get out with no useful skill. So whats the point? I might be willing to maintain subsidies for certain productive majors that are in demand but no more artsy fartsy grants. If you want to be cute do it on your own dime not on the back of tax payers.
Cut non-academic school programs. I love music, football, and art but I dont think it should be subsidized by tax payers. These things should be optional. If a student wants to participate they need to pay for it. Sorry but we dont need more sports stars and actors. They do nothing productive. Please do it on your own dime.
Take out the abortion clauses. I see no point in rewarding rapists with progeny or allowing irresponsible people to have kids. Keep religion out of politics or feel free to move to Afghanistan.
@marc5477. I agree with most of what you said especially the part about no more tax cuts for the rich. I’ve made some very good investments recently and found myself getting all sorts of perks that I’m not accustomed to especially at the bank. “Sample of perks include an offer from my bank to move me to another country and get me settled in, help to do business in another country, and also an offer to open an offshore bank account. (Woweee when I heard that last one!) I will likely spend my newfound wealth like my doctor friends; on things that are probably not American made nor will I use it to generate business or to employ more people. This supply side economics has a very low elasticity. Meaning every “surplus” dollar I gain reflects slowly into the domestic economy since I will most likely spend my disposable income on luxury european made cars and vacations out of this country. I know many wealthy people and they spend their money the exact same way. The wealthy one percent of the U.S. is taking the 99% left for a ride and their simple minds don’t even comprehend it.
I realize the need to pare our debts — and we can do that over time. But we shouldn’t throw out the baby with the bathwater by sacrificing education, health care and social programs that are real national security issues. We have to stop subsidizing people and corporations who don’t need it.
threeRivers wrote:
“Forsing (sic) more students out of colleges will force colleges to get rid of staff. This will make the cost of college drop dramatically making it more affordable. That will mean more students can go to college”
That “logic” sounds like someone already lives in the parallel universe where the Tea Partiers have one.
We are a society that values entertainment above education, that believes we can determine the correct form of government for others (and then invade them if they do not agree), where just one of our investment banks last year paid each of its 26,000 employees an average of $370,000 (nearly ten times the take-home pay of other American workers), where 1/4 of the 400 wealthiest people make their money from money (only 8% could claim that in 1982), and where the central bank attempts to solve the problem of too much leverage by printing more money.
The political theater in DC, and the complete failure to deal with any issue seriously, is just a reflection of our society — buffoons like Boehner and Ryan are a black comedy, and we are laughing at our own reflection in the mirror.
@marc5477 Well said.
Do you think politicians (both Republican and Democrat) really care about us? Seems like they care most about the rich (to get funding for the next election) and the poor (whose votes they can “buy” – want some more welfare?)
And the sad thing is that many of us are more concerned about the “reality” shows that come out of Hollywood – instead of the show that comes out of Washington DC
Digest this for a moment: allowing people to keep more of their own money is NOT a handout. Second, weaning freeloaders off of gov’t largesse will NOT kill them, it will make them more productive. Gawd.
There is danger in hasty cuts. Stop and think what happens when you combine the removal of birth control for the poor with the removal of WIC. Simple example, obvious consequences. Where is the analysis? I for one am tired of random action, poor analysis and worry if there is anyone who actually studies the effects of the decisions these guys make.
@Jsnake: The federal dept. of education should not exist. We have 50 states and countless local govts that are more than capable of handling education. Sending money to Wash DC and then expecting them to give it back to us is the most inefficient way possible to fund education or anything else.
Want the wealthy to pay their “fair share”? Flat tax: One deduction of say $20K, then tax the rest about 20%.
This could be our entire tax code:
(Income – $20,000)*.20 = what you owe the feds in taxes.
No loopholes, no exemptions, no special programs, nothing. Just pay it.
Mheld45, though I wish I could agree with you, if you leave it up to the states Kanses among others will only teach creationism and ban evolution, and who knows what other subjects will get biblically revised. Isn’t our education system enough of a mockery to other industrialized nations already.
Well said. We debunked Reagan trickle down voodoo economics previously and now the Republicans are peddling it again. So if Republicans are so convinced that the second time around is the charm and that reducing taxes further grows the economy then why not just eliminate all taxes. A welcome side benefit is that we would eliminate Congress and we wouldn’t have to listen to the likes of Boehner and his tea potters.
Only select sections of the US economy saw tax cuts in the past 25 years, and those tax cuts were huge on percentage basis. As the article states, the highest income tax rate and therefore short term cap. gains tax rate was at 70%. We forget how important that 70% short term cap gains tax rate. It stopped rampant speculation and fostered long term investment – the opposite of today’s environment.
The $1.0 million dollar bracket plus saw a drop from 70% to 15% (much of the top 1% income comes from dividends) for the past 25 years. The Reagan lowered this bracket’s rate down to to roughly 30%, and was further reduced to 15% by Bush2 – EVEN DURING A TIME OF WAR!!! Yet in this same period of time social security tax increased on the first $100K from 2.8 to 8+%. Do you get the picture? And we wonder why the middle class is suffering so?
The boom/bust in real estate and finance is completely related to the favorable tax treatment these two sectors receive. In real estate investment property, cap gains tax is deferred easily and certain option trades are taxed at only 10%.
A flat tax is no quick answer since you really have to decide what you tax: income? cash flow? net worth? sales? And should an option trade open and closed in one day be given the same tax treatment as a 5 year investment?
The whole budget deficit of the US is basically the result of the upper 1% ripping off this country. However the ripp off is worldwide. The ability of the wealthy to avoid taxes by arbitrarily legally domiciling in in some tiny atoll in the Pacific is ludicrous?
A simple tax that would balance government budgets worldwide
A 2% intangibles tax on all persons, trusts, companies, etc. with a net worth greater that $10 million. We can call it the Elite AMT. But unlike today’s AMT on net worth – not income!!
Acetracy, your proposal is so easily dodged it is laughable.
(1) Borrow money equal to your net worth, offsetting it with a matched liability.
(2) Transfer the borrowed money to an off-shore account.
(3) Pay zero taxes.
But that is a good thing. If it COULDN’T be dodged, then anybody and everybody with assets would flee the US. Real returns on investment are generally quite low — a 2% tax on equity would erase any possible benefit of operating in the US.
I tend to favor some combination of income and consumption taxes.
TFF,
Flee to where. Cuba?
I hear they have zero taxes there as well.
Why is it that writers like this always complain about “the rich not paying their fair share” when they completely ignore the fact that they are the only one’s paying taxes? 50% of American “taxpayers” do not pay income taxes. I would say that this is patently “unfair”.