End of America

MUST read piece on the White House's huge tax lie


By David Galland in Casey's Daily Dispatch:

Yesterday, after a bit of early head-faking, the president of these United States made his position on the Bush tax moratorium clear – that the moratorium should come to an end, but only for individuals making over $250,000 a year. As such, they should be subject to a substantially different tax regime than their fellow Americans.

It is time, intone the president and his minions, time for the shirking rich to step up to the plate and pay their fair share to reduce the national deficit.

For the record, if you earn $250,000 a year, you are in the top 1% of income earners in the U.S. As a member of that elite group, you and your greedy friends earn a whopping 19% of all the personal income produced in this great nation… but you collectively pay 37% of the entire Federal Income Tax burden.

The top 10 percent of wage earners (loosely, you qualify if you earn more than $110,000 a year) now pay about 68% of the total.

By contrast, the bottom 50% of income earners collectively pay about 13% of the total collected.

If you take a dispassionate look at the percentages just mentioned, the notion that the nation’s top wage earners are not paying their fair share is factually incorrect.

But that is no great revelation, and anyone with a brain can spot the administration’s claims as nothing more than political pandering, with a healthy dash of class warfare stirred into the intoxicating brew the Democrats would like voters to imbibe ahead of the November elections.

I must, however, pause to pull aside the curtain to reveal the blame the government deserves in this debate.

Specifically, even though they are already footing 68% of the government’s bill, it wasn’t the top 10% of wage earners that collectively drove the deficits sky high. It was the very same politicians now accusing taxpayers of not paying enough.

The primary counterargument for not extending the Bush tax moratorium is that doing so will add another $700 billion to the deficit over the next ten years. That argument is specious, because it’s not the revenue side of the equation that’s causing the deficit problem – but the government’s insane spending. The chart here, from the Heritage Foundation, speaks a million words.


As the chart shows, while federal tax revenue has come down in the crisis – to levels last seen in 2004 – the spending has soared.

And it’s important to note that the level of revenue earned in 2004 sits in a trough between the stock market bubble that built up into 2000 and the housing bubble that peaked in 2007. Those bubbles both boosted federal tax receipts – but still were quickly overwhelmed by escalating government spending. If you were to eliminate the two bubbles, the revenues of 2004 – and today – would sync up well with the longer-term trend. More on that momentarily.

In this next chart, you can see the added detail that federal, state, and local government spending has more than doubled since 1965. Importantly, the spending is shown in inflation-adjusted dollars, which means that the increase is not just attributable to currency depreciation.


All of which is to say that for the president and others in his administration to lay the government’s problem at the doorsteps of the Americans who pay the most taxes, by a huge margin, without addressing the core issue of spending or at least having the decency to mutter a mea culpa for helping to bring us to this ruinous point, is deceitful and disingenuous.

There is a matter of principle involved here. But what is the exact principle the government is following when it treats one group of taxpayers differently from another, based on nothing more than income?

For the life of me, the only principle I can come up with is “From each according to his ability, to each according to his need.”

Oh, I can hear the anguished cries of those of you dear readers who lean to more progressive attitudes. Of course the rich should pay a higher level of income tax. Any other system would add to the burdens of those least able to afford them, all the while leaving Bill Gates to soak in every luxury his fortune allows.

I persist despite those cries, sharing my strongly held opinion that just because Bill Gates can afford to pay more without hampering his lifestyle in the slightest, doesn’t mean he should be forced to do so. Not in America, at least.

The issue that we the people should be concerned about is not whether the next entrepreneur will strike it rich and have all that the American Dream promises and more – but rather, exactly how much government can we the people afford?

Having identified the total needed to run a tight ship of state, then a flat tax can be set to pay the bill. If that flat tax causes hardship for some, then the debate should revolve around how the cost of government can be reduced even further, so that the minimal number of individuals are disadvantaged. But under no circumstance should the cost of government be allowed to exceed revenues.

By that last statement, I mean on a straight-up, transparent accounting basis. In other words, no shenanigans designed to obfuscate the fiscal situation as anything other than it is – for example, by misdirecting funds set aside for Social Security in order to pay down the deficit, a stunt that President Clinton used to great effect.

Hear! Hear! I can hear the conservatives among the audience shouting approvingly. Not so fast. When pressed for their ideas on how to reduce the deficits, Jerry Lewis (no, not that Jerry Lewis – the other one), the ranking Republican on the House Appropriations Committee, answered by calling for all non-defense discretionary spending to be frozen at 2008 levels. That, according to Con. Lewis, would save the nation $100 billion a year.

Now, glance back up at the chart above and let your finger slide across to the spending levels of 2008, versus the revenues generated in the current year. See a problem? As in that still leaves a wide gap between revenue and expenses.

And again, if you ignore the escalating ramp-up of government tax revenue in the periods leading into the stock market and housing bubbles, but rather extend the revenue gains in a more orderly upward sloping line – you discover that the current reduced levels of revenue are a lot closer to the norm.

Whether you call today’s level of revenue the new normal or just normal, adopting the Republicans’ plan to spend like it’s 2008 while taking in revenue at the current non-bubble levels still leaves the country with horrific deficits for as far into the future as the eye can see.

And this notion of leaving defense spending alone? It’s enough to make Jefferson’s bones roll over. Quoting the sound thinker…

"I am for free commerce with all nations, political connection with none, and little or no diplomatic establishment. And I am not for linking ourselves by new treaties with the quarrels of Europe, entering that field of slaughter to preserve their balance, or joining in the confederacy of Kings to war against the principles of liberty." (Letter to Elbridge Gerry, 1799)

"Peace, commerce and honest friendship with all nations – entangling alliances with none, I deem [one of] the essential principles of our government, and consequently [one of] those which ought to shape its administration." (1st Inaugural Address, 1801)

In fact Jefferson was against even having a standing army in peacetime, calling it as he saw it…

"The spirit of this country is totally adverse to a large military force" (Letter to Chandler Price, 1807)

Quoting Jefferson as such doesn’t mean that I think we as a nation should be weak to the point of being susceptible to foreign attack. But we need to get real here.

The nation has been driven into bankruptcy by our government’s prolificacy. Spending the equivalent of 5% of the nation’s GDP on the military establishment, as we now do, then saying it’s “off limits” because of some perverse social (and therefore political) meme that has it that the military is sacrosanct is ridiculous.

It’s no surprise to me that the Democrats are going to force me to reach even deeper into my family’s savings in order to allow the government to maintain its reckless spending.

Unfortunately, once again the Republicans are showing themselves to be much the same – just as they always have.

At the end of the day, the pictures painted above – of a nation that spends far more than it collects – is a picture of continuing crisis. Trying to close the gap by raising taxes, rather than getting serious about slashing the cost of government, is not only unfair, it’s simply not going to get the job done.

Crux Note: Each day in Casey's Daily Dispatch, David Galland brings you an informative and entertaining overview of the markets, the economy, and politics... all from his unique and often contrarian perspective. Casey's Daily Dispatch is absolutely FREE and comes right to your inbox, five times a week. To sign up, click here...

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