Tuesday, June 5, 2012


Imagine the following. Let's say you own a home that is worth $300,000. You put a small down payment on the house so your monthly payments are about $1,700. Would you rather have an annual salary of $54,000 to pay off your home mortgage or would you rather have $69,000?

What if the difference in your salary depended on you voluntarily giving up $15,000 so that your boss/manager could have a bonus every year? Would you do it? Would you do it if your boss/manager - who you have nothing in common with - promised to share in his prosperity by taking you water skiing on the boat he bought with his bonuses? What if he promised you twice?

Given the financial situation I just described it's hard to imagine anyone who would embrace the offer. So why in the world - given our current national debt woes - would we want to continue with the Bush era tax cuts that go primarily to the super rich and the financial managers on Wall Street? Yeah, I know they promised the wealth would trickle down, but check this out ...

The undisputed financial referee of the U.S. Congress, the Congressional Budget Office (CBO), has come out with their projections and analysis for our nation over the next few decades. It's not pretty.

The CBO points out that if we continue to maintain the Bush era tax cuts (listed in the graph as "Extended Alternative Fiscal Scenario") the total federal debt held by the public will grow from about 73 percent of GDP (what we produce) today to about 200 percent of GDP in 2037 (see also figure 1.2). Worse, federal revenues as a percentage of GDP will grow slightly from 16 percent today, and then stagnate at about 18 percent of GDP.

Translated this means that George W. Bush's tax cuts, which have primarily benefited the rich, will likely push our nation into bankruptcy if we keep them. They do nothing to remedy the financial hole we find ourselves in in today.

However, if we remove the Bush era tax cuts ("Extended Baseline Scenario") national revenue climbs to about 22-23 percent of GDP, and we have a chance. Federal debt held by the public doesn't hit 200 percent. Instead it drops to 53 percent (p. 2). This means we can begin to put a dent in the multi-trillion dollar financial hole that unfunded tax cuts for the rich and Wall Street bailouts have cost us since Ronald Reagan and the Bush's dumped their supply-side trickle down economic policies on the nation.


On another but related note, according to the same CBO report, the total amount of national income that is projected to be excluded from social security taxes will jump from about 15 percent today to about 17 percent by 2037 (p. 64).

Why will this happen you ask? Because, currently, every penny a hedge fund manager from Wall Street earns after $110,000 is NOT taxed by social security. As income gaps between Wall Street and Main Street continue to rise more and more of our national income will be excluded from the social security tax. This means that the super wealthy (the top 1 percent) will continue to pay less into social security as a percentage of their income than you and I do (but we still get to pay for their bailouts).

Why is this important? Because if we raised the payroll tax limit from $110,000 to $300,000 there would be absolutely no problem with social security until at least 2075 (rescinding the Bush era tax cuts would help fix the problem too).

We would also bring some equity to our tax system when you consider that a family with two $100,000 incomes actually pays more into social security (since both are taxed separately) than the Wall Street hedge fund manager who brings home $5 million a year.

Put another way, the GOP's tax cut for the rich jihad needs to stop. America's super rich have received the vast majority of all the income gains over the previous 30 years and all we have to show for it is a pile of debt and a casino economy structurally poised for (yet) another market collapse.

Main Street shouldn't have to shoulder the burden of every market collapse while America's super rich and Wall Street money managers walk away with all the gains.

- Mark

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