In a recent post, a respected commenter here posted that the incomes of those making more than 200k per year totalled roughly 1.3 Trillion, and that if we taxed those folks at 98% it still wouldn't be enough to pay off our current national deficit of 1.35 Trillion.
If those figures were correct, then truly we'd have a real mess. They'd present a couple of really big problems; First, no one (nor any collective set of us) could possibly pay back the debt we are incurring. It would mean we are institutionalizing our deficit and making an insurmountable national debt service because, if true, it is certainly the case that the remaining 95% of us CANNOT pay back this debt. According to 2007 data, that richest 5% get roughly 40% of all income. They, quite frankly, are the only group with the assets to pay off the debt this nation has incurred while they have gotten vastly more wealthy (as a group) than they were in 1980 or even 1995.
Second, and the really big "bummer" is that they certainly don't WANT to pay the tax bill to pay off that debt, and definitely not if they are going to be asked to pay at a 98% rate. They have the power to stop any such attempt, and you can be darned sure they would do so. It would be horribly unfair to ask them to pay at a 98% rate, we wouldn't do it, and it wouldn't pass.
Third, and this is really important, even if we stopped all spending, right now, today, we're still 14 Trillion in debt. This means even if we never spent another dime beyond our current national debt, if the wealthiest 5% of people would have to be taxed at a 98% rate to cover our annual deficit or pay off our debt in anything like a reasonable time, it means as said above, it will never, ever happen.
Fortunately, it isn't true. Fortunately, as we say in the late 1990's, the nation can and did run a surplus's when times were good. Fortunately, we don't have to pay off our annual deficit the year it's incurred. In lean times, in times of true national crisis, it is expected and understandable to run a debt, to fuel the economy with public works jobs. In boom times, it is time to save the excess (rather than give tax breaks to the rich), so that we have the money to pay for those lean times.
But even more fortunately, the figures themselves are completely wrong. They appear to be a byproduct of the same propaganda that tells us the Earth isn't warming, that Obama is a maybe not born in the US (as 40% of Republicans believe). With all intended respect to my conservative commenters, I wanted to move the discussion to its own thread so that facts can be debated correctly, reviewed correctly. And those facts are (from the US Census Bureau and the IRS).
In 2007, the total of personal income in the United States was 11.9 Trillion (source, US Census), of that, the wealthiest 5%, those making about 200k or more per year, was 38% of 11.9 Trillion, or about 4.2 Trillion. By 2010, the total income is 12.5 Trillion. If the percentage of what the top 5% make is the same as in 2007, and it's higher actually, then in 2007 the wealthiest 5% made 4.75 Trillion.
In 2007 (and really for the past two decades) the percentage of income each 20% (or quintile) paid in total taxes has been relatively identical (varying from about 16 percent to about 18% for each quintile). While the top marginal rate federal tax rate is 39%, through deductions, very VERY few people pay anything close to that. Those in the top 20% averaged (approximately) 17.5% (iirc) in total taxes - state, federal and local. They have obviously the highest amounts of disposable income, but they pay essentially the same tax burden as the poorest of us. The poor pay little to no federal income tax (in fact the poorest 20% of us contribute less than 4% of all federal tax revenues), but by contrast the bite that property and especially sales taxes take, is a far greater percentage of their income.
I have a great many more figures which buttress these, so if you have some questions about the income disparity and PERCENT of income paid in taxes, please just ask, but I don't want to clutter up the article more than necessary.
The point is, the top 5% make a great deal more than 1.35T per year. Even if we wanted to ask them to cover the entire budget deficit per year, it wouldn't require taxing them at 98%, more like 50-53%. But, certainly I think we very nearly all agree that asking everyone who makes say, between 250k and 2M to pay 50% in income tax is profoundly unfair.
Just like the following situation wasn't fair or ethical ... In 1985, Ronald Reagan and the Democrats in Congress enacted the largest tax increase in history. It wasn't an increase on personal income (per se'), but rather was an inc ease in the Social Security tax rate. It was forced on Reagan by Claude R. Pepper, a long-time Senator from Florida who took Reagan to task when he suggested "privatizing" retirement planning. Unlike now, a conservative Southerner (Pepper) scoffed at Reagan, pointing out that if the government (on behalf of cutting taxes for the rich), hadn't raided the Social Security Trust Fund in the late 1950's (done by Republicans) and in the 1980's (Republicans), Social Security wouldn't need a "fix". But.. since it had been, and apparently paying that I.O.U. wasn't very darn likely (an IOU written out to Social Security from the general fund of the Federal Government (both in the late 50's and again when Reagan tripled the national debt) - we would have to instead have the current workers pay more - and so, under intense pressure from the elderly (who saw Pepper as their champion), a tax increase funding Social Security well off into the future was passed. Rather than short-change our parents, or ask the elderly poor to suffer so that the rich did not have to, Pepper and a few others with some backbone stood up to the "give money to the rich and they'll share it crowd." The country did not crumble, jobs had already fled despite cutting the marginal tax rate for the richest Americans in half, and the only economic calamity stemmed not from raising that tax, but instead from rampant speculation by Savings & Loans in real estate - which President Reagan addressed by forming a Resolution Trust Corp and buying up all the bad assets (does this sound familiar to anyone?). Asking our elderly and poorest to bear the primary burden (or for that matter the middle class) of paying off the debt, losing services, living on less, is abjectly unfair.
As always though, the details are more complex than any simplistic approach of paying off any debt the year it's incurred. That approach is silly. First, in economic recession (or Great Recession as we are experiencing now), income goes down and costs go WAY up as I said before. What you ought to do, what private citizens and businesses alike do, is you sock away funds in good times, and you use that savings to cover the extra costs in bad times. It is EXACTLY what was done in the design of Social Security. There is supposed to be a huge stockpile of cash in the Social Security Trust Fund, and there would be if it weren't raided to give the appearance of more balanced budgets (as many Presidents did over the past 30 years, but especially so by George W Bush).
Instead, you pay off such debts by ensuring your revenue stream is sufficient to meet costs in normal times, you don't cut taxes by 450 Billion per year on the rich - as was done in 2001, and which never produced the jobs promised. You don't extend that tax cut when you are running a 1.35 Trillion dollar debt. If you are SERIOUS about addressing the debt, you don't FURTHER cut taxes on the rich as the Republicans did as their first agenda item following the 2010 elections. In fact, asking the richest 5% to pay the 450Billion would amount to a 10% marginal increase, taking them to an average 28% percent, not 98%. Having them pay that 450 Billion, if it had been done since 2001, would mean there wouldn't be the kind of debt we have today, Bush wouldn't have taken the national debt from 4.8 Trillion to 9.3 Trillion.
But, in economic down times, you spend more than you take in, and sometimes, like we did in 2009, you do so to keep the economy from collapsing. Some people believe that we should have allowed AIG, Goldman, Citibank, and Morgan Stanley to fail. Please, if you accept anything, accept that I work in this industry and EVERYONE, without one exception, conservative or liberal, radical or reactionary, everyone I know says the same thing, if we hadn't acted, if OBAMA hadn't done what he did (to his credit), our economy would have collapsed as badly or worse than it did in 1929-1932. Hoover's mistakes in the period (which Roosevelt repeated in 1937), was not in acting too much, but instead in not taking the risk seriously enough. We had to spend money to keep employers afloat for a time, we had to spend money to keep our auto industry afloat, and we HAD to spend money to simply keep money moving. Failure would have resulted in your friends, many of them, many many more than you saw, losing their jobs and their homes. We would have had soup lines, we would have had social upheaval. The one failing is that by saving those financial firms, we also save the most wealthy and those most wealthy KEPT Washington from passing the kind of reforms we needed. I don't like that at all, but better that than 30% unemployment. THAT is the kind of thing you SHOULD run debt to prevent, that's the EXACT kind of reason, and Obama, like him or not, like his other policies or not, acted in the best interests of this country, in a way which was politically unpopular, and may well mean he is a one term President. It took guts, the kind Bush never showed, it took bucking the political trends, but it was needed.
Lastly, the fact is we don't have to pay for this solely with personal income taxes. Social Security should be fixed with (unfortunately) a change in the Social Security rate (as we did in the 1980's,), but also with a law preventing the raiding of it (as Al Gore proposed in 2000- funny how prophetic he was, huh?).
Medicare should be fixed by fixing the way we pay for and deliver health care.
But the overall budget gap should be fixed by what we should NOT do. We should NOT reduce capital gains further, we should NOT extend the cut to it enacted in 2001. We should NOT extend the inheritance tax, but rather should raise the limit on exemptions.
The Ryan proposals as well as proposals from various tax policy fairness institutes (conservatives and liberals alike) all point more or less strongly to needing to increase revenue. Most proposals INCREASE not decrease the rates the very wealthiest pay, not primarily the top 5%, but rather the top 1%, the 1% who have estates above $10 Million. You see, it isn't in personal income taxes alone that revenue is derived. Institutionalizing wealth, making economic kings and queens (through inheritance) of the children of the ultra-wealthy is very bad for our country, we get Paris Hilton, and candidly, George W Bush - it locks up money, creates a two class society, and reinstates something our country was founded to stop, namely the perpetuation and establishment of a super-privileged ruling class of elites. They may not have the title of Prince or King or Baron, but they have everything else.
Bluntly, if we make those changes, and perhaps as the current proposals envision, we increase the tax rate on the wealthiest by 5 or 7%, over time, there wouldn't be a running federal debt - well, except for needing to pay back Social Security of course, and for dealing with health care of course, in short, exactly the things Obama has said we must address.
In short, we must PLAN, we must set our income at a rate which meets needs in normal times, lock away excess in boom times, and tap that excess in bad times. Rather than using highly distorted and or misleading figures, we must work together to reassert that the nation does best when we greatest number of us propser. We must address our problems in a serious way, rather than blaming the poor for overutilizing health care. As good and decent people (christians among us) we must NOT ask our poorest to eat less often so that our richest can drive 100' yachts.
We must repay social security of course to ensure it is solvent for our children's children, and we must do so by asking those who were vastly benefited by the Bush (and Reagan) tax cuts, to finally pay the fair share they should have been paying all along. It means rather than paying at an average marginal rate of 17%, they should pay at a rate of perhaps 25-33% (depending on the place in that upper 5% that they are), which while it is a certainly a real increase, it is also roughly half what it was 30 years ago. Cutting taxes on the rich did nothing to save jobs, to spur growth, create factories, all they did was incur vast debt. It is now well past time to recognize it didn't work, will never work, and now that the chickens have come home to roost, we're supposed to ask the poorest and elderly among us to AGAIN do with less??? instead of asking those who were SUPPOSED to save us but didn't, to pay? Well., not me. In the spirit of Claude Pepper, we cannot ask our children to pay for our mistakes. We must pay as we go, and we must ask those who benefit the most to pay in proportion the how much they benefit. To do less is hardly fair, and sure as hell isn't just.