The Revenue Problem

According to House Speaker John Boehner and the Republicans in congress the US government has a spending problem but not a revenue problem.  For FY 2011 congress reduced spending by approximately $79 billion compared to President Obama's proposal for that period and according to the Congressional Budget Office the President's budget proposal for FY 2012 will result in deficit spending of $1.4 trillion for 2011 and $1.2 trillion in 2012 (cutting over $1 trillion in spending over 10 years).  The Republicans wish to cut these amounts of spending as laid out in the budget bill they passed last Friday which aims to cut spending by $6.2 trillion over the next decade.  This bill also reduces the top corporate and personal tax rates to 25% down from the current level of 35%; they justify reducing the top tax rate to the lowest levels since 1931 by claiming the deficit problem resides solely with spending and that easing the burden on the so-called "job creators" will spur economic growth, increased government revenue, and a decreased unemployment rate.  History shows a different story.

Let us take a look back at what the Clinton administration was able to accomplish with increasing taxes on upper-income taxpayers in combination with reductions in spending.  The reason I chose the Clinton administration is because it was the most recent time that we have seen a balanced budget and the elimination of deficit spending that lasted for consecutive years, this will also dispel the Republicans' assertion that increasing taxes on the top income earners and corporations will create higher unemployment and stall the economic recovery. 

Clinton came into office promising to eliminate deficit spending and reduce the debt, he raised the top income tax rate from 31% to 39.6% and established a corporate tax rate of 35% in the Omnibus Budget Reconciliation Act of 1993, his plan also reduced the tax burden on low-income families and small businesses.  Please note that this Act was passed without a single Republican vote.  President Clinton also enacted a payroll tax for Social Security that has led to the surplus we have to day that is invested in the Social Security Trust Fund (currently over $2.5 trillion).  The unemployment rate was at 7.5% when Clinton took office and had fallen to just 4% at the end of his second term, even with raising taxes on the "job-creators" the Clinton administration managed to create 22.7 million jobs.

I'm going to try to make this as simple as possible, the Clinton administration raised taxes on the wealthiest Americans and corporations as well as reduced spending; it was these policies that led to President Clinton presiding over the longest period of peace-time economic expansion in American history which led to the creation of over 22 million jobs.  President Bush reduced taxes and didn't address spending and led us to our current economic state resulting in the loss of $2.6 million jobs in 2008 alone.

Currently the wealthiest Americans are doing better today than they did prior to the recession, CEO pay is up 23% over last year with the average salary 343 times higher than the average worker (notice which party in that article wants to do away with the pay-disparity disclosure rule).  Corporate profits rose 29% over last year setting the fastest pace of growth in six decades; 3rd quarter profits were the highest in American history.  Even though the rich are doing well the unemployment is currently 8.8% (this figure has been declining due to job growth created by President Obama's spending policies) and the Republican party wants to reduce the burden of the wealthiest Americans at the expense of those who are struggling.

Nobody wants to pay more taxes and we all go out of our way to pay as little as the law will allow (just look at corporations who are able to avoid paying taxes at all) but as history has shown we do better economically when tax rates are higher and worse when those tax rates are reduced.  Aside from lowering taxes now is not the time to haphazardly reduce spending, basic economics says and history demonstrates that the only way an economy can recover from a recession is through targeted government spending.  Why government spending?  Because in lean economic times the government is the only entity with the ability to spend and spending keeps the wheels turning and puts people to work.  The most recent budget cut spending, this will do nothing but slow our economic recovery and keep the unemployment rate high, but as it has been the case this year the Republicans were able to move the debate to the extreme right and the Democrats felt they had to move farther to the right to garner public support.  But they just ended up doing harm.  Spending will have to be addressed to solve our budget issues for the long-term but that debate must wait until we emerge from our current economic circumstances.  In the meantime we should focus on cutting waste and ineffective programs while continuing to invest in the programs that lead to a productive economy and increased workforce.

It is a mathematical impossibility to solve our budget and debt issue through cuts in spending alone, there just isn't enough that can be put on the table to make any real progress on this issue and the Republican plan just targets spending for programs they don't like shifting the burden to low-income families, children, and the elderly.  We can only seriously address the deficit and debt by smart reductions in spending (small amounts now, more later) and increased revenue. 

First we must repeal the Bush tax cuts for the wealthiest 2% of Americans, but this alone will not help as the majority of the wealthiest salaries are in the form of dividends that are subject to the capital gains tax (not personal income tax) which is currently only 15%.  We must also make an effort to collect the $330 billion in unpaid taxes, this amount is 90% more than what was cut in spending by the most recent FY 2011 budget bill.  Once these policies take hold and we are on better economic footing we can more seriously address the issue of spending.  But we must not fall back into the cycle of decreasing taxes once we achieve a government surplus, it's this mistake that has led us back into deficit spending and a struggling after each period of solid economic growth.

Until the Republicans can own up to the fact that we do have a revenue problem we will never be able to solve our current economic, deficit, and debt issues.  They must get serious and the Democrats need to hold firm.