In lieu of posting something original, I've decided to post something brilliant. Last week, Gregg Easterbrook posted his penultimate Tuesday Morning Quarterback of the season (wiping away tears). About 25,000 words in, he tackled the mislabeling of President Obama as a "tax-and-spend" President. I learned. I hope you do too:
Federal income tax rates were cut by John Kennedy in the early 1960s, by Ronald Reagan in the 1980s; rose slightly under the elder George Bush; were cut twice under the younger Bush, and cut again by Obama last winter. Capital-gains tax rates have declined too; Social Security and Medicare taxes ("payroll taxes") were raised by Reagan and by Bill Clinton, although not enough to fully fund either program, meaning those taxes are lower than they need to be for fiscal discipline. This chart shows the decline of the federal top rate, to less than half of what it was under Dwight Eisenhower.
The younger Bush was hammered in the press because his two tax cuts reduced the rate paid by the rich: But the same cuts nearly eliminated federal income taxes on the working class and lower middle class. That is, George W. Bush's tax cuts were progressive. Last year, 43 percent of Americans paid no federal income taxes -- in 2009; this year, as many as half of Americans are expected to pay no federal income taxes. Yet public discourse is full of complaints about taxes, and many people claim to hate Washington because of taxes, while practically everyone demands more federal benefits and services.
As middle-class taxes are being eliminated, the top 20 percent of filers -- the well-off -- pay for a steadily higher share of federal government, last year paying 70 percent of total federal taxes. The well-off are financing most of the federal government, and that will intensify next year as taxes go up on household income above $250,000. Other than the spending paid for by the well-off, the rest is being billed to the young, via deficit spending and borrowing.
Keynesian point: It does make sense to increase federal spending when the economy is soft. But the flip side of Keynesian economics is that government should reduce spending when the economy is strong, using the breathing space to pay down debt. Congress loves to increase spending. Is there any chance that as the economy recovers, Congress will abide by the second prescription of Keynesian economics, and reduce spending? A few days ago the House quietly raised the federal debt ceiling to $14 trillion, allowing yet another round of undisciplined, unaccountable giveaways. That big number equates to $46,000 in debt for every American citizen. Since no one in the Boomer generation ever will repay a dime -- the Baby Boom's final sociological act-out may be to bankrupt the country -- the effective debt is more like $100,000 per American under the age of 30.
Fiscal policy point: Think I am exaggerating about bankrupting the country? Last week Moody's Investor Services warned that U.S. Treasury bonds may be downgraded from Triple-A status. Even if the extremely modest fiscal-discipline goals recently announced by President Obama are met, in five years the U.S. debt-to-GDP ratio will be worse than it was in 1950, when America was paying off World War II borrowing.
Media point: Here are headlines from last week's budget proposal release. USA Today's main headline (underneath "What Happens to Avatar 3-D Glasses?") was "Obama Budget Proposal Draws Rapid Fire," the political-quarrel angle. The New York Times' main headline was "Huge Deficits May Alter U.S. Politics and Global Power," the public-policy angle. The Chicago Tribune's main headline was "Obama Budget Proposes $100 Billion for Jobs Subsidies," the blue-collar angle. The Washington Post's main headline was "Budget Calls for Increased Spending," the angle that pleases Post readers, many of whom work for or with the federal government. The Wall Street Journal cut to the chase for its demographic: "Wealthy Face Tax Increase."
Understanding government note: Here is a fantastic graphic showing how the federal budget is spent. Entitlement spending for individuals -- Social Security, Medicare, Medicaid, other health care -- totally dominate. The ticking time bombs are Social Security and Medicaid costs, both of which increase as Boomers retire, and "net interest," which could increase by hundreds of billions of dollars annually if interest rates rise, which seems close to inevitable. Today's undisciplined federal borrowing is happening before pension and Medicare costs will shoot up, owing to Boomer retirements. If Congress has already tapped out the national debt in order to give every interest group everything it demands today, how is the country going to finance the approaching retirement wave?
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