Monday, November 14, 2011

We have a Revenue Problem, Not A Spending Problem

Bush Tax Cuts, Two Wars, Mass Unemployment, Lower Property Values

HIGH INCOME EARNERS AND BIG CORPORATIONS HAVE BEEN GETTING A WINDFALL IN TAX RELIEF AS MILLIONS OF AMERICANS HAVE FACED LOST JOBS, EVICTIONS, REDUCED WAGES, LOWER BENEFITS, RISING POVERTY, HOMELESSNESS, DEEP DEPRESSION, AND IN SOME CASES, SUICIDE.

The U.S. population grew from 200 million to 300 million over the past 40 year, so I would expect we would have a "bigger government" to some degree (and so therefore, higher spending).

But ever since the Bush tax cuts, two wars, and a Republican-caused housing crash (resulting in lower property values) which caused the mass layoffs, we've also had a revenue problem. Lower home values and high unemployment has generated much less tax revenues, as did lower tax rates during a time of war.

Bailing out the banks for securities fraud also caused more spending. The massive layoffs necessitated more spending on unemployment benefits, Medicaid, and food stamps. And because of decreased property values and high unemployment, necessitated a "stimulus package" to save government jobs.

But it was two un-funded war with tax breaks for the rich has also caused a revenue problem, and it drives me insane to hear the Republicans flat out lie about this.

President Bush signs his $1.35 trillion tax cut on June 7, 2001, at the White House

It's been very well documented, and has been repeated in thousands of news article over the past ten years: under George W. Bush America went to war for the first time in history without ever raises taxes, but did just the opposite, and drastically lowered taxes - and to historically low levels, such as with the capital gains taxes (which the wealthy primarily benefit from).

Average workers might not have noticed too much of a difference in their weekly paychecks, but for large corporations and CEOs getting compensated with stock options (who pay capital gains taxes), it was a massive windfall. And besides the lobbyists and CEOs, the bankers and hedge fund managers also made out like bandits.

So for the Republicans to constantly claim that "we don't have a revenue problem" is one of the biggest Republican lies in history. And their claim as to "having a spending problem" can mostly be attributed to two un-funded wars and defense spending. (See my post Defense Spending, Bogus Parts, Transnational Mergers, Outsourcing & Budget Cuts)

The Bush administration’s tax policies fostered the weakest job growth in more than six decades. Even if all of the Bush tax cuts are allowed to expire as scheduled, the projected cost of the Bush tax cuts to the federal budget over ten years will have exceeded $4 trillion. The evidence in this report demonstrates that conservative rhetoric about the job creation potential of "supply-side" tax cuts does not match up to the anemic Bush-era record.

Now add to this, another $1.3 trillion in spending for two wars. Keep in mind that many of the wars’ actual costs are invisible to Americans, buried in a variety of different budgets, and so have not been counted or assessed in this figure. The most recent major report from Brown University in the form of the Costs of War Project said that the total cost for wars in Iraq, Afghanistan, and Pakistan will cost the U.S. taxpayers at least $3 trillion.

The fact that we now have the Baby Boomers starting to retire is just a convenient excuse for the Republicans to cut Social Security and Medicare, just for the benefit of corporate profits and more cash in the pockets of bankers, CEOs, hedge fund managers, lobbyists, and investment bankers. The cost of the Republican's two wars in enrich war profiteers and massive tax breaks for the uber-rich have caused the revenue shortfalls we have that were needed to fund our middle-class social programs (and for unemployment benefits, Medicaid and food stamps for those who were laid off during the Great Recession and were never rehired again).

The Republicans know very well that we've had a revenue problem for the past ten years, ever since the Bush tax cuts; but they still insist that we lower taxes more -- and using the excuse of a "bad economy" and "job creators" for doing so. It doesn't matter to them that a revenue problem is part of the cause for our bad economy and high unemployment. It was combination of a revenue problem and the Republican's deregulation of the banks, which caused the housing crisis*, and subsequently, the massive layoffs, which in turn, led the Democrats to increase unemployment benefits and expand the food stamp program for millions of laid off workers.

* The sub-prime mortgage fraud and the resulting decline of bundled securities called "credit default swaps" (because of deregulated banks). Adjustable-rate mortgages were sold to low-income people by mortgage brokers like used-car salesmen for commissions to people who they knew couldn't afford them. The banks had the mortgages backed by the taxpayers and got bailed out. With rising home values, debt-financed consumption increased with home equity loans, and then the mass layoffs began in late 2008 after Bear Stearns, Lehman Brothers, and AIG failed - - and millions of foreclosures ensued - - and more banking fraud continued with home modification loans and illegal foreclosures. All aspects of the current housing crisis are still being debated today.

As budget shortfalls mounted and the economy weakened, the "supply-side" approach to economic policy was once again up for debate. This report and this article reviews the theory underlying supply-side tax cuts and examines their results. The term “supply-side” comes from the idea that economic policy, and tax policy in particular, can influence private-sector production decisions by changing the incentives to work or to invest. In certain circumstances lower tax rates can lead to additional economic activity and can lead to additional government revenue. But it is equally true that in other circumstances lower tax rates do not lead to additional economic activity or government revenue.

But the Republicans have a reason for causing a revenue problem (and a "debt crisis") and for one reason alone...to deliberately strangle, and to eventually dismantle, Social Security and Medicare for the middle-class...two programs that they've been adamantly against since the dawn of mankind. (But the Republicans insist on calling it "reform", as though it just needs fixed.)

We still remember when they tried to get us to invest a portion of our salaries into a personal retirement account - - as in the risky and volatile stock market that crashed in 2008, as opposed to safe government-backed treasury notes held in the Social Security Trust Fund (and this debt should first be honored to our own citizens before any debt to China is ever honored).

And now that we're having a discussion about how only the middle-class suffered through the Great Recession, (and were the only ones who ever made a "shared sacrifice"), when the wealthy actually became much richer and further expanded the disparity in the income gap between the rich and poor. As a matter-of-fact, the income gap is greater today than since before World War I (See my post The Second Gilded Age: History Repeats Itself ).

Add to that, the illegal activities and greed of the big banks that we've learned so much about (and of those who weren't ever prosecuted), and the realization that the Bush tax cuts and two un-funded wars was what drove us into a "budget crisis".

We simply asked that the Bush tax cuts expire, but the commentators on Fox News and the lying Republican politicians have accused the other 99% of class war! They have been pushing the agenda that the rich are already taxed too much, when in fact they've been taxed far too low for ten years!

How we taxed for our previous wars:

During the American Civil War the north passed the Revenue Act of 1862 which increased taxes dramatically, including the first federal income tax and the creation of the Office of Internal Revenue. Even the confederacy initiated a "war-tax", but for various reasons, proved difficult to collect.

Anticipating America's involvement in The Great War (World War I) the Revenue Act of 1916 was passed to raise the top rate on taxpayers with incomes above $2 million. An excess profits tax was also introduced and the modern estate tax was imposed as well. When America entered the war in 1917 Congress responded to the call for higher taxes with the War Revenue Act. This act increased the personal and corporate income tax rates and established new excise, excess-profit, and luxury taxes. For incomes of $1 million or more the rate went to 70.3 percent.

To help finance America's war cost in World War II the Revenue Act of 1942 created the "Victory Tax" that sharply raised income tax rates and allowed for the first time in our nation's history, to have taxes withheld directly from paychecks. The 35-60% graduated rate schedule for the excess profits tax was replaced with a flat 90% rate. And top rate for corporate tax rates rose from 31% to 40%.

During the Korean War ("The Forgotten War") the tax rates during the Fabulous Fifties were much higher than they are today in every category. The top marginal rate was 91%. The Revenue Act of 1950 increased the top corporate rate from 38 percent to 45 percent. The Revenue Act of 1951 increased the top corporate rate from 45 to 47 percent.

George W. Bush initiated two major wars in Iraq and Afghanistan, but adamantly refused to pay for either of them by raising taxes. Indeed, at his behest, Congress actually cut taxes and established a Medicare Part D. Bush's actions were unprecedented. During every previous major war in American history, taxes were raised for the rich and poor alike.

In 2003 George W. Bush passed the Medicare Part D program for prescription drugs that provided a subsidy for large employers (IBM's annual report estimated that the company would receive a $400 million subsidy from 2006 to 2012). It also prohibited the federal government from negotiating discounts with drug companies; and it denied the government from establishing a formulary (The development of formularies is based on evaluations of efficacy, safety, and cost-effectiveness of drugs).

The Bush tax cuts vastly lowered taxes for the top 1% by lowering capital gains taxes to 15%; and created so many loopholes for corporations that very few even pay the effective tax rate of 35% (average paid 20%, which is lower than China), and the Bush tax cuts lowered the top income bracket for the wealthy and lowered their estate taxes...all taxes that the uber-rich can best enjoy.

And the Republicans want to lower them more (and even eliminate some), claiming the "job creators" will create jobs when corporations are already sitting on over $2 trillion that they don't know what to do with now!

So I'll say it again: The Republicans have a reason for causing a revenue problem (a "debt crisis") and for one reason alone...to deliberately strangle, and to eventually dismantle, Social Security and Medicare for the middle-class. The Republicans only say we have a spending problem because they don't want to tax the rich to fund the spending that's necessary to fund these two programs....to them, that's a "spending problem". (That, and unemployment benefits and food stamps, but yet they don't have a problem with tobacco and oil subsidies.)

We don't have a spending problem, unless you count unnecessary defense spending and two wars. But we do have a revenue problem, and the Republicans damn well know it.

The Republicans have already succeeded in killing the middle-class - - now they want the remnants to live in abject poverty during their elderly years without healthcare - - while millions of Americas still remain unemployed, as wages decline while prices keep increasing -- all when corporate profits are roaring as CEOs salaries have skyrocketed.

And isn't it odd that it's only millionaires that are saying we have a spending problem? Such Bill O'Reilly, Sean Hannity, Eric Cantor, Glenn Beck, Paul Ryan, Herman Cain, Mitt Romney, Newt Gingrich, Rick Santorum, Rupert Murdoch, the Koch bothers, Michele Bachmann, Paul Rand, Nikki Haley, Sarah Palin, Karl Rove, Grover Norquist, Rush Limbaugh, and the other rich Republicans, and those in Congress (of which half are all millionaires).

But what are the Republicans saying? "We don't have a revenue problem, we have a spending problem." That's total bullshit.

In proportion to the population growth (from 200 to over 300 million over the last 40 years as the middle-class has declined), and figuring in for inflation (higher prices and the cost-of-living), and excluding increased defense spending and two un-funded wars, and considering monetization to make up for lost tax revenues, and not basing government spending on GDP (because of all the jobs outsourced overseas and depressed wages that reduced domestic worker's personal discretionary spending), and not including the increased spending in Medicaid, unemployment benefits, and food stamps due to the massive layoffs during the Great Recession, and not counting the massive taxpayer bailouts for poorly run banks, some can argue that as a percentage of ratio to the current spending we currently have, as opposed to 40 years ago, government spending could actually be much less. How does one explain the massive expansion by corporations overseas if they had been over taxed? How does one explain the massive corporate profits and record salaries that CEOs have been earning if they have been over-taxed? How does one explain the massive income inequality if corporations and the uber-wealthy had been over-taxed?

We don't have a spending problem, we have a revenue problem.

Low Corporate Taxes = Excessive CEO Salaries

It doesn't matter what a corporation pays in taxes as compared to GDP, or how it's compared to any other index of measure (to skew the numbers), it's what they actually pay to the U.S. Treasury after loopholes (aka "deductions") that matters most. And for the last 25 years corporations have actually paid historically low taxes.

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

The same can be said for their CEOs and other high-income earners. While although the top bracket is also almost historically low (at 35%, when it was once over 90%), what they actually pay is nearer to 15% because the majority of their income is earned through capital gains.

And because corporations have been paying a low effective corporate tax rate for decades, that didn't keep them from outsourcing jobs overseas for cheap labor, but rather, it did enable them to pay very excessive CEO salaries...who only mostly pay 15% in federal income taxes on their capital gains.

6 comments:

  1. With the higher tax rates on the upper income earners and corporations in 1969, we put a man and the moon.

    With the much lower tax rates we ended the Shuttle missions and gave our space program to the Russians.

    Thanks to our wealthy "patriots" whose personal income and corporate profits comes before the country.

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  2. Good article at the Huff Po today:

    Wall Street waged war on the American economy and middle class with its reckless gambling.

    It wasn't Fannie Mae or Freddie Mac that crashed the economy. It wasn't the federal government. It wasn't hapless homeowners who were sold mortgages they couldn't afford. It was Wall Street financiers that aggressively sought and bought mortgages to package and sell as derivatives, which the banks could wager on.

    Americans bailed out Wall Street, handing it a Marshall Plan for reconstruction after its bad bets blew up the world economy. Now, three years later, happy days are here again for the Wall Street banksters. They're hauling in big profits and paying outrageous bonuses. But the American middle class continues to suffer high unemployment, record foreclosures and rising poverty.

    So it's time for Wall Street to pay reparations. It's time for a crash tax, a tiny sales tax on Wall Street transactions, the revenues from which would pay for Main Street restoration. It's time for the 1 percent to repay the 99 percent, for Wall Street to share in the sacrifices necessitated by its rogue behavior.

    http://www.huffingtonpost.com/leo-w-gerard/crash-tax-wall-street-rep_b_1091446.html

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  3. The poll data just keep on coming. America, most Americans feel, has become much too unequal. The annual American Values Survey, released last Tuesday, shows “big agreement among all religious groups for leveling the economic playing field and taxing millionaires.” Among younger Americans, seven in ten believe “society would be better off if the distribution of wealth were more equal.” Two other surveys out last week carried the same message. In a Wall Street Journal/NBC News poll, 76 percent agreed that America’s economic structure “favors a very small proportion of the rich over the rest of the country.” In the latest Washington Post/ABC News poll, a 60 to 35 percent majority wants public policy to “to reduce the gap between wealthy and less well-off Americans.”

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  4. Spiraling paychecks have become an accepted fact of life throughout Corporate America's executive ranks, not just in CEO suites. Last year, says a new study from Equilar, compensation for U.S. corporate COOs — chief operating officers — rose 30.1 percent. The Dodd-Frank reform legislation that passed Congress last year has several provisions designed to slow down America’s executive pay gravy train. What impact is Dodd-Frank so far having? Americans for Financial Reform has assembled a blue-ribbon panel to track the legislation’s progress at an upcoming December 12 conference in Washington, D.C.

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  5. CEOs only “earn” bonuses when their company “performs.” One measure of that performance: “earnings per share,” or company income divided by outstanding shares of stock. Execs have figured out they don't have to boost earnings to hit their per-share targets. They simply reduce the number of company shares — by having their companies “buy back” shares of their own stock off the open market. U.S. corporations overall have so far this year authorized $445 billion worth of buybacks.

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  6. Almost 70% of all capital gains taxes are paid by the top 1%

    A week after hinting he may raise the capital gains tax, Jon Huntsman proposed eliminating it altogether.

    http://thinkprogress.org/economy/2011/08/31/308914/a-week-after-hinting-he-may-raise-capital-gains-tax-huntsman-proposes-eliminati
    ng-it-altogether/

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