As one may recall, the final year of Bill Clinton’s presidency saw a federal budget surplus. This was accomplished by raising the top marginal tax rate to 39 percent, and avoiding costly wars. George Bush promised major tax cuts that benefited mainly the well-off, declaring that tired and continuously discredited right-wing mantra that these cuts would eventually be paid for by “trickle down” economic growth. After losing the popular vote and “winning” the 2000 election, Bush told us that he “heard” the people and would revisit the tax cut issue, but once in office reversed course and eventually managed to get all of the tax cuts he wanted for himself and his wealthy backers passed in budget reconciliation. As during the Reagan and Bush I years, the “trickle down” propaganda proved to be delusional, and Bush forgot to tell us that he and Tricky Dick Jr. had a war planned for us, and that in smoke-filled backrooms, they and their non-regulators were going to allow their banking and mortgage-lending friends gamble away the economy.
In the year 2010, after a decade which saw one-sixth of U.S. manufacturing jobs disappear, a banking meltdown, massive tax cuts for the rich still in place, a war still raging, and unemployment hovering at 10 percent, the people are wondering why the federal budget cannot be balanced. People want the government to do something for them, which many do not understand means spending money, not reducing spending; of course, the wealthy who don’t need such “help” want to keep more money for themselves, just because it’s theirs and not the people whose backs they made it off of. Not surprisingly, these off-setting, competing and oppositional theologies produced a net worth of receipts applied to federal government coffers only 2/3 that of spending. Of total receipts worth $2.381 trillion was, much less than half—$1.06 trillion—was derived from personal income taxes. Another $222 billion came from corporate taxes, and $158 billion came from sources like customs, excise and estate taxes. This totals out to $1.440 trillion, which technically pays for $2 trillion in non-Social Security, government pension and health care costs. If we subtract the stimulus bill funding and the war, there would be near balance in the revenue/expenditure stream; if we had allowed tax cuts for the wealthiest Americans to sunset, we might even have a slight budget surplus.
The other $940 billion in revenue is accounted for from mainly Social Security and Medicare payroll taxes. Now things become a little tricky. About $1.6 trillion is spent on Social Security, federal pensions and health care services. For the first time, Social Security outputs exceeded inputs, and of course health care costs continue to spiral out of control. This is where the real budget crisis lies. The Congressional Budget Office wrote in a report last summer that in 2035, 92 million Americans will be collecting Social Security, compared to 53 million today. By 2039, it concludes that the Social Security trust fund will be exhausted.
What to do?
Earlier this year, Matt Yglesias at ThinkProgress suggested eliminating the income ceiling on Social Security taxes, in exchange for a graduated benefit for everyone according to what an individual inputted. This would cover 95 percent of shortfalls in funding for the foreseeable future. Andrew Biggs of the American Enterprise Institute countered that any ensuing “bubble” of surplus payroll taxes entering into a trust fund amounts to little more than an accounting trick (just ask the Federal Reserve), not real money just sitting in the bank; furthermore, with all that “money” being unused in the short term, the temptation would inevitably arise to use it to cover costs of other government programs. Biggs assumes that employers for wage-earners over the current cap would refuse to cover half the 12.4 percent Social Security tax, and force the employee to cover the full burden—thus raising an already high marginal tax rates for upper-income wage-earners. However, Biggs, like the most of his colleagues on the right, do not offer an alternative solution (well, there is the "Work Till You Die" plan), so their complaints seem more like the mendacious sobbing of the well-off. A study by Boston University economists Laurence J. Kotlikoff and David Rapson showed that the “all-in” marginal tax rate for virtually everyone is 40 percent, regardless of income bracket, when one takes into account sales, property and other taxes that generally hit the lower-income harder. For its part, the CBO only suggests a tax increase on Social Security pay-outs to “level out” at 9 percent, and increase the age limit for full benefits.
The present presidential commission seeking ways to reduce the deficit only seeks to reduce Social Security pay-outs mainly by increasing age limits, and cutting “fat” from Medicare; “fat” chance of that given complaints from doctors about already meager payments. Taxes? The commission actually wants to reduce the top marginal rate, to be “off-set” by taxing capital gains and dividends as normal income, and addressing some, but not all corporate tax breaks (some of the largest companies, like Exxon and GE, managed to pay no taxes at all in 2009). Otherwise, the only suggestion is to cut social programs. Like other attempts to address the budget deficit, like the farcical “Deficit Reduction Act of 2005,” it is all hokum to fool the masses.
The U.S. has 4.4 percent of the world’s population, but 30 percent of its millionaires and 40 percent of its billionaires. The U.S. also has one of the widest—perhaps the widest—income disparities of any industrialized country. Yet even a newspaper in an allegedly liberal city like Seattle for months raged against an extremely modest state income tax on the wealthiest residents proposed by the father of Microsoft mega-billionaire Bill Gates; the Seattle Times didn’t just editorialize against it, but repeatedly issued highly debatable “factoids” that revealed alleged sinister “secrets” that you might not know about. Of course, this was all greedy blather from the Blethen family and the right-wingers on its editorial board. After the defeat of that initiative and the passing of an initiative blocking the sales tax increase on junk food and beverages, the Times opined about what the state was going to do now with even less revenue and even more gutting of education and health care.
Mendacity, mendacity—always mendacity, to quote Big Daddy, when it comes to taxes and budget deficits.