Let’s Get Real on the Deficit

June 22, 2011

New York Times Pulitzer Prize-winning columnist David Leonhardt today properly calls “bull$hit” on the hot air being blown out of Washington and among political activists about the reasons behind the federal budget deficit and right ways to address it.

Eventually, the country will have to confront the deficit we have, rather than the deficit we imagine. The one we imagine is a deficit caused by waste, fraud, abuse, foreign aid, oil industry subsidies and vague out-of-control spending. The one we have is caused by the world’s highest health costs (by far), the world’s largest military (by far), a Social Security program built when most people died by 70 — and to pay for it all, the lowest tax rates in decades.

To put it in budgetary terms, the deficit we imagine comes largely from discretionary spending. The one we have comes partly from discretionary spending but mostly from everything else: tax rates, Medicare, Medicaid and Social Security.

The doctrinaire, devoid of a solid theoretical or historical foundation, abhorrence of any increase in taxes or reduction of any tax deduction or shelter  by Republicans has to change.  Clinton’s increase in taxes in the ’90s didn’t snuff out the economy.  Bush II’s tax cuts didn’t fuel it.

While I don’t think that Simpson-Bowles is perfect or nearly enough, it’s a start.  Leaders (as opposed to merely elected officials or politicians–there’s a difference) need to step forward and make this happen.

And don’t get me started on how insane it is to not have approved an increase in the federal debt ceiling.  Play with fire and get burned.  Making a mistake on that topic and we will be paying the price for generations.

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Posted by Mark Wegener

The Forty-Seven Percent Solution

April 14, 2010

If it's a small bag, keep it.

David Leonhardt does a nice job today in the NYTimes writing about the recent dust-up over the mid-2009 study that claims that 47% of Americans owe no federal income taxes.

All the attention being showered on “47 percent” is ultimately a distraction from that reality.

The 47 percent number is not wrong. The stimulus programs of the last two years — the first one signed by President George W. Bush, the second and larger one by President Obama — have increased the number of households that receive enough of a tax credit to wipe out their federal income tax liability.

But the modifiers here — federal and income — are important. Income taxes aren’t the only kind of federal taxes that people pay. There are also payroll taxes and capital gains taxes, among others. And, of course, people pay state and local taxes, too.

…

Focusing on the statistical middle class — the middle 20 percent of households, as ranked by income — underlines this point. Households in this group made $35,400 to $52,100 in 2006, the last year for which the Congressional Budget Office has released data. That would describe a household with one full-time worker earning about $17 to $25 an hour. Such hourly pay is typical for firefighters, preschool teachers, computer support specialists, farmers, members of the clergy, mail carriers, secretaries and truck drivers, according to the Bureau of Labor Statistics.

Taking into account both taxes and tax credits, the average household in this group paid a total income tax rate of just 3 percent. A good number of people, in fact, paid no net income taxes. They are among the alleged free riders.

But the picture starts to change when you look not just at income taxes but at all taxes. This average household would have paid 0.8 percent of its income in corporate taxes (through the stocks it owned), 0.9 percent in gas and other federal excise taxes, and 9.5 percent in payroll taxes. Add these up, and the family’s total federal tax rate was 14.2 percent.

To those people who still find it offensive, I suggest they do two things:  1) Contemplate raising their family on $50,000 in gross income, and 2) Contemplate raising their family on $50,000 in gross income then paying $10,000 of it away in taxes.  Doesn’t leave much.  The system is (supposed to be) designed where those with the ability to pay, pay.

Exxon Mobil paid no US federal income taxes last year and few seem disturbed by that. I am not, but then again, this 47% number doesn’t bother me, either.

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Posted by Mark Wegener