The middle class is shrinking. Those in power have run up enormous debts on public credit while shoveling most of the money into private pockets. The corporations that have benefitted from this borrowing binge, meanwhile, leverage the global trade system to transfer their profits beyond the reach of national governments.

Meanwhile, we have been told lies by Democrats and by Republicans, divided into artificial camps and led into debates that are either irrelevant or so dramatically scripted that we fail to realize every choice leads to the same result: the dismantling of the social framework that defined and sustained the opportunity of the last century. National mobilization of resources has given way to radical individualism under a narrative that, in the wealthiest nation in the world, we must always expect less.

In this tumultuous time, we search for a way forward - a new Square Deal for the American people.

Wednesday, June 8, 2011

America has a Tax Cut Problem

Listen to politicians today, and you'll hear a lot of people saying that America does not have a revenue problem but rather a spending problem.  This refrain has become a Republican rallying cry, a rebuttal to the Democratic message that we need to let Bush-era tax cuts for the wealthiest of us expire when they reach their next renewal point in a year.

"Let the tax cuts expire" is an honest statement; they are temporary, and they will expire if not renewed or made permanent.  It is also Democratic spin.  Spun another way, the mantra is an attempt to head off a tax increase on the wealthy, one that Republicans tell us would not significantly affect the deficit anyway. 

Which is it?  That depends on what we want.

If we are paying for things that Americans in general would rather not fund, and we are borrowing money to do so, then we have a spending problem and should reduce or eliminate the programs that our citizens reject as wasteful, even if some people think those programs are important or critical.

If, on the other hand, we are borrowing money to pay for things that Americans in general demand, then we have a revenue problem and should use taxation to raise the money needed to cover our citizens' priorities, even if some people would rather not pay for the programs.

What we as a people want and expect our nation to provide for us is ultimately for us to decide.  Any politician who usurps that power -- whether to insist that we must do something we all despise, or to insist that he or she absolutely will not do something that we all want -- is betraying the national trust and should be removed from office immediately.

Moreover, genuine waste and fraud should always be reduced, regardless of available revenue and particularly within essential programs.  Our most important priorities are the ones most in need of delivering results.

But the question of whether we have a "revenue" or a "spending" problem, while essential to the future of our country and deserving of a full national debate, has little to do with our spiraling national debt.  That is because the question of revenue/spending is a question of how to balance the Federal budget.  The existing debt, meanwhile -- being subject to the laws of compound interest -- will grow either way.

Short of bankruptcy, which at the national level is called default and which virtually anyone can understand on its merit to be a very bad idea, there is only one way to reduce an existing debt, and we all know it because it is as true for our household budgets as it is for a national budget (one of the few things that does actually apply equally to both).

Whether we decide to cut spending or raise revenue, or both, yielding a balanced budget will leave us saddled with the same huge and growing debt.  Paying down a debt requires a long-term, sustainable surplus.

Unfortunately, we have become addicted to tax cuts.  The line that we pay too much in taxes already has been drummed out again and again for decades, beginning with Ronald Reagan and continuing through every administration since that time.  Even when the government has raised taxes -- which Reagan, Bush, and Clinton all did -- the notion that taxes were actually already too high has persisted.

We used to believe that taxes were a civic obligation to cover spending, and that elections were the means by which we set spending.  Now, we have divorced the two: we spend on what we want, be it perpetual extensions of temporary unemployment benefits or perpetual wars in pursuit of nebulous and undefined goals, and we look to cut taxes at every turn.  Actual tax increases, of course, are off the table; merely failing to cut taxes is these days viewed as something of de facto tax increase.

The last time that the Federal government had a projected surplus was in the last years of the Clinton administration.  The surplus was in part a phantom echo of the Dot-Com boom, which we tend to forget had already ended by the time of the attacks on September 11, 2001 and our shift towards a wartime budget (absent the wartime taxes).

But even if we believe that it was a real surplus, remember that the first Bush tax cuts enacted also predated the September 11 attacks.  At that time, we already had a very large national debt, yet we chose to cut taxes.  Then we invaded Afghanistan, and prepared for an invasion of Iraq.  Spending soared.  And we cut taxes again.

What has our response been to the collapse of the Real Estate bubble?  More spending, to be sure -- but also a payroll tax holiday and an extension of "all of the Bush tax cuts."  Keep in mind that it is only the "all" on which Democrats and Republicans disagree!  Given full control to do so, with zero Republican opposition, Democrats would keep at a time of a spiraling national debt keep the Bush tax cuts in place for the vast majority of Americans -- who, of course, we are told "already pay too much in taxes."

We need to change the narrative.  Cut waste because it is waste.  Eliminate fraud because it is fraud.  Decide what we want the public sector to provide and fund it.  Pass a balanced-budget amendment, by all means; done sooner, that would have kept us from getting to this point.

But don't be fooled: when we've balanced the budget, we will need more revenue, and it is not going to come just from "the rich."  For all of their enormous wealth, concentrated as it is, the wealthiest among us have far less than it takes to repay our debt.  That's because budget surpluses are not about one-time transfers but rather are generated through taxes on sustainable, repeated economic activity.  And the economic activity that flows through the world's largest economy comes from all of us, on a mind-boggling scale.

If you're honest with yourself for just a moment, you already know that you could pay more in taxes and not be significantly affected.  Maybe it would be 5 cents more per year; maybe $5; maybe $1 per day.  But we spend constantly -- that's what makes the economy move, and ours is huge -- so that we have the money is self-evident.

We need to break out of the mold.  It's our debt because it's our country.  We can make changes before and during the repayment to make sure that this doesn't happen again, but whatever else we decide, the tax cuts have to stop, and taxes need to go up until the bills are paid.

Whatever its priorities and vision for the future, America has a tax cut problem, and if we can't fix that, very little else will matter.

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