Thursday, December 6, 2012

No Dice without Higher "Rich-People" Taxes

Many of us are concerned about what the future holds for us as a nation.  The "Fiscal Cliff", or as Charlie Pierce from calls it "The Fiscal Gentle Incline" is a combination of spending cuts and tax increases to deal with the deficit problem.  This agreement was bipartisan originally, and was supposed to serve as incentive to make a deal.  Neither party wanted Sequestration to go into full force because it hurts everyone equally.  During the Presidential campaign, both candidates voiced their opinion regarding the spending and taxation habits of the Federal Government...and the public decided that a more populist and economically liberal position was preferred.  As a result, The Democratic Party has been empowered with a strong mandate to make their ideas a reality.

For those that remember the debates last year when the Debt Ceiling was looming over everyone's head, the President, in an effort to avoid any potential possibility of a Default of US Debt, the President caved to Republican calls to extend the tax rates on the top 2% of tax payers for two years.  Republicans got their way and the artificial crisis was averted.  However, the president also promised that such a move would never happen again.  And this time he's correct.  The Obama Administration and Congressional Democrats hold all the winning cards right now and the GOP has been backed into a corner.  The GOP has put themselves squarely into a very tight and unfortunate box.  One side of the box is the Public.  The public has overwhelmingly supported higher tax rates for the wealthy by a 12 point margin in most major national polls. Further, the public has also voiced that if we go over "The Fiscal Gentle Incline"...that Republicans will feel the brunt of the public's wrath.  Furthermore, the GOP has a funding problem...because of their "pledge" that they never raise taxes, thanks to Grover Nordquist, the GOP is afraid of their fundraisers who they fear will cut them off from their bottomless moneybags if they don't support their championed causes.  GOP leaders are deeply conflicted about how seriously to take this pledge.  On one hand, there's the ability to fundraise, which Republicans are very good at due to their many numbers of rich supporters...but, then there's voters who are quite pissed about how dysfunctional the government has become due to the severe amounts of partisanship present in Washington today.  Much of that anger is directed at the Republican caucuses of the House and Senate.  There are many GOP lawmakers who are beginning to abandon this pledge out of necessity and pragmatism.  It's hard to win elections when you do very unpopular things to the public.  And right now...we have a functional revenue problem regarding the United States Government.  Simple math of the budget numbers show over and over again that simply removing deductions for the wealthy will not create the revenue numbers necessary to close the hole.  Further, the deductions that Republicans have proposed have been non-existent.  There are no specific deductions mentioned that they would part with.  It's the same proposal that Mitt Romney proposed when he was running as the GOP candidate, and lost on. Even if they were to remove every wealthy deduction, it still would not generate enough revenue growth to make any noticeable dent in the deficit.

There are other reasons the President is unwilling to cave on the top rate.  As incomes have fallen for the middle class, the incomes for the wealthy have increased substantially. If most of the taxes were paid by the middle class, then this would be a non-issue. But right now, we're having revenue problems. As a percentage of GDP, the Government is only taking in 10% according to The World Bank, and 9% according to the Non-partisan Tax Policy Center of that by way of taxes. It may seem like a lot of money, but not when you have a 15T$ tax base. If we have rates of 36% but are still only getting 9-10% of the total national economic activity from income taxes...there's something functionally wrong. I would strongly prefer we not go over the "Gentle Incline" if we don't have to...but for the president to get his way and to force some compromise from Republicans, he's willing to let it happen. The top rate issue is not open to negotiation The President because he caved to Republicans last time and it cost him a bit. It's time for the wealthy to pay a fair share, and it's time to get people back to full employment, full middle class wages, and to jump-kick wage growth again.  Wage growth will come with ensuring that all players play by a fair and equitable rule-book ..which is currently not happening in our economy today.

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