Friday, November 30, 2012

Solving the debt problems

For the past 40 years or so there has been a de facto class warfare in this country. While workers' productivity has soared, worker compensation has remained essentially flat. Meanwhile, corporate profits have boomed and the gap between the top 2% of income earners  and the remaining 98% has widened to the largest its been since the gilded Age of the Robber Barons (late 19th century) or the time just preceding the Great Depression.

(There is really no dispute about this; to see some background and charts, here are some from the Economic Policy Institute.  Also check out this discussion of CEO pay increases at the Institute for Policy Studies.)

In spite of this, Republicans and other so-called "conservatives" are suggesting that we somehow must all share equally in reducing the public debt and balancing budgets. What makes this even more outrageous is that they don't even mean equally. What they mean is that the rich should continued to enjoy tax breaks that are unequally in their favor, while Congress must enact spending cuts that hit programs that the wealthy don't need or even like -- e.g. national parks, protective regulation, healthcare and aid to education. Thus, as Weill/Brecht say in Three Penny Opera "The answer to a kick in the pants is just another kick in the pants." Thus, the much-vaunted "Simpson-Bowles" prescription for paying down the debt is yet another kick in the pants for working non-rich Americans.

Yet, we can "fix the deficit" and end class warfare simply by cutting away the nonsense about "job creators" and "balanced approaches" and all the rest of that 2% propaganda that even the Democrats are circulating. Several years ago I suggested an alternative tax and spending program that would have balanced the budget (at that time): You can find it here; it has a link to a NY Times "budget calculator" which, though somewhat outdated, is fun to play with; click here (you can use it to check some of the figures for the suggestions I make below).

Here then is my updated program for tax fairness and spending reform.

1. Tax all income equally. In other words, eliminate a special Capital Gains Tax and tax all income including dividends at the same graduated rates. This will prevent Mitt Romney and Warren Buffet from paying at a lower rate than their secretaries.

2. Put a sales tax on sales and purchases of stocks and bonds. Speculators should pay a tax on their sales and purchases the same as most of us do on school books, garbage cans and refrigerators. I discussed this in a previous blog. This tax would be small (¼% on each sale and each purchase) and would not be burdensome to people who are actually investing as opposed to speculating. It could generate as much as $100 billion a year.

3. Cap total deductions for income tax purposes to something around $50,000. This was, in fact, an idea proposed by Mitt Romney near the end of this year's campaign. I doubt that either he or any Republicans would actually support its implementation since it would do a lot to level the tax playing field.

4. Return the Estate Tax to 1998-2000 levels (around 50% on estates above $3 million -- we could raise that to $5 million even).

5. Sell carbon licenses to industry and allow trading of these licenses. This was also at one time a Republican plan, before the party became opposed to everything except showering money on its wealthy patrons.

6. End the state of perpetual war and cut the military budget  to pre-Cold War levels (as percentage of GNP). Bring all troops home from Afghanistan and Iraq. Drastically cut troop levels in Europe, Japan and Korea.

7. End the expensive and ineffective War on Marijuana and redirect most of the rest of the ineffective "War on Drugs" toward treatment of addiction. This would save not just on police time but also help to lower the lavish spending on prisons.

8. Cut agricultural subsidies to big agribusiness (especially ethanol subsidies to "Big Corn").

9. Cut oil subsidies to companies like Exxon-Mobil.

10. Save Social Security for a century by eliminating the limit on income subject to the FICA tax. Doing this would make raising the retirement age or adjusting the COLAs unnecessary.

Note that I didn't mention ending the "Bush Tax Cuts." I am assuming that they will disappear on schedule January 1. Reinstituting them for people earning less than a quarter million dollars a year will probably be one of the few things that will happen in a somewhat bipartisan way: the Republicans can't afford not to.

This leaves the last and biggest elephant in the tent: Medicare, Medicaid, and healthcare in general. People far more knowledgeable than I have made many suggestions that might be effective. We know that the problem can be addressed effectively because every other advanced industrialized country (and many others besides) have systems that provide better healthcare results than ours and at half the cost. We should have had "Medicare for All" (the "public option") but that didn't happen because of the power of the insurance industry. Nevertheless, we can start with substituting "outcome-based" compensation for the current "fee for services" contracts. Instead of doctors and hospitals being paid for the number of treatments and tests they provide, they would be paid for keeping certain numbers of people healthy over certain periods of time. This is part of Obamacare, but needs to be the standard "operating procedure" for all of national healthcare.

The steps I have suggested above would raise far more money in a far fairer way than anything proposed by either political party. Furthermore, they would help reduce the burden unfairly placed on the working people of this country by 4 decades of class warfare against them.


  1. Regarding points one and two above: as the Republicans were fond of saying throughout the entire 2012 campaign, the government shouldn't be in the business of determining "winners and losers." Why should making money by one means be favored in tax policy over making money by other means, and why should financial transactions be favored taxwise over other transactions? It's that old Republican "level playing field," right?

  2. I make $500,000 a year and fall in the top bracket for this. I'm fine paying the rate I'm currently paying on this salary. But why should the investment income that I earn from investing my after-tax savings also be taxed at the same rate?