I suspect most of you have seen or heard about this exchange during the Republican Presidential Debate in Iowa last Thursday night:
It was a bullshit question, first of all unless those spending cuts are immediate they’ll never materialize… particularly when the baseline for negotiations is that the taxes increase are made in the first year, while the spending cuts are made over 10 years. Everyone remember President Reagan’s 3:1 deal? Heh, yeah, we’re still waiting for those spending cuts to be made. At least Republicans learned that lesson.
Second, the notion that we can tax our way out if this debt debacle is pure lunacy. As I’ve explained previously, this is not a revenue problem, it’s spending problem… The federal government spends roughly a $1 trillion more each year than it collects in revenue. President Obama and the Democrats in Congress argue that we can close that gap by raising taxes on the “rich”.
But what does that get us? Blake Ellis answered that very question at CNN Money.com recently:
President Obama has defined the nation’s wealthy as those who make $200,000 or more a year.
According to a recent report from the Internal Revenue Service, that leaves out about 97% of the tax-paying population.
The report, which provides a complete breakdown and analysis of returns for the 2009 tax year, found that only a mere 3% of tax returns were filed by people earning a gross adjusted income of $200,000 or more.
Americans earning $1 million or more were even more rare, comprising just 0.2% of total tax filers and accounting for a mere 236,883 of the 140 million tax returns received in 2009.
The wealthiest taxpayers — those earning $10 million or more in adjusted gross income — are even less prevalent. There were only 8,274 people belonging to that elite club, according the IRS.
Out of the nearly 4 million “rich” people making more than $200,000 a year, 1,470 didn’t pay any income tax whatsoever in 2009. But the people who did pay taxes earned a total of nearly $2 trillion in income — about 26% of total taxpayer income in 2009.
President Obama’s tax proposals — which many Republican’s call “job-killing” tax hikes — include getting rid of some corporate tax breaks enjoyed by oil and gas companies and corporate jet buyers, and restoring some Bush-era tax rates for high-income households. If the Bush tax cuts expire as planned in 2012, the top two income tax rates will revert to 39.6% and 36% from 35% and 33%, respectively.
Yet, even though these high-income earners are a minority, Obama says the proposed tax increases would boost revenue by $750 billion over a decade.
Does anyone else see the fallacy of the President’s argument? The simple truth is there no way in hell we’re going to balance the federal budget on the backs of just 3% — three percent of income taxpayers. $750 billion in new revenue over a decade — $75 billion a year doesn’t even begin to put a dent in the annual budget deficit much less the debt.
As you can see, the idea that raising taxes on a small minority of taxpayers can solve our budget problems is just… its nuts!
If we’re going to talk about our nations budget problems and tax policy, let’s do it, let have serious adult conversation about it. Not simply toss around the same old, worn out class warfare rhetoric.
Step 1, amend or repeal the Congressional Budget Act of 1974 to eliminate baseline budgeting and force the federal government to live by the same Generally Accepted Accounting Principles as everyone else.
You may not realize this, but baseline budgeting automatically increases the federal budget every year. What Congress likes to do is use a bit of smoke and mirrors to make spending cuts that aren’t really cuts at all. For example if program is scheduled to see and 8% increasing in spending Congress will reduce it to 3% and call it a cut when it’s still a 3% percent increase over the previous year. Frankly, if a publicly traded company managed its finances the way the federal government does it would a) go bankrupt and b) the management would be indicted for fraud.
Step 2, undertake comprehensive tax reform that broadens the tax base and flattens rates. Personally, I’d scrap the entire current income tax code and replace it with a simple, no deductions, no loopholes 15% flat rate income tax. In short, it would work like this everyone would keep the first $10,000 they earn each year income tax-free. After that everything, earned income, interest, dividends, capital gains etc. would be taxed the same 15% rate. In other words someone who earns $30,000 a year would pay an income tax of 15% of 20,000 or $3,000… Someone earning $300,000 would pay an income tax of 15% of $290,000 or $43,500. I’d follow a similar model for the corporate income tax rate.
Step 3, undertake comprehensive regulatory reform with an eye toward merging or eliminating agencies with overlapping jurisdictions and reducing regulatory impediments to economic growth.
And that’s the bottom line, if we’re going to get out of this hole we have to get our economy moving again… The goal of the federal government should be creating an environment where 5% GDP growth year over year is the norm.