It’s the Tax Rate Stupid

Much has been written since Congressman Paul Ryan (R-WI)and President Barak Obama have released competing budget plans for Fiscal Year 2012 and much more will surely follow as the FY 2012 budget debate heats up.
Ryan’s plan has been hailed as “courageous” since he dared to propose cuts in entitlement spending for Medicare and Medicaid, while leaving Social Security untouched. Ryan’s plan fails to pass the sniff test for actual budgetary reform as his plan simply focuses on one side of the budget equation – spending, and does nothing to address revenue.  This is the equivalent of your monthly budget of $5,000 while you only bring in $3,500 a month.  Your fix to the problem?  Cut your grocery expenses by 20%.  The math simply doesn’t add up.
On the other end of spectrum, President Obama addresses the revenue issue by stating he wants to restore the high end tax rates on the wealthy to the rates of the Clinton years, but does little to address mandatory spending which accounts for the vast majority of the budget expenses. 
There is so much hyperbole going on it’s time to settle on some simple facts:
FACT #1:  Neither plan does anything to balance the budget.  In fact, the only thing either plan does is slow the rise of the overall debt.  Both plans claim to reduce deficits by roughly $4 trillion over the next decade, but deficits and debt are two completely different animals.
FACT #2:  The Fiscal Year 2011 budget that was finally passed (some 6 months after it should have been) calls for estimated spending of $3.82 Trillion!  Estimated revenues for the year – $2.17 Trillion.  The net differential: $1.65 Trillion – there’s your budget deficit. – – Under the Obama and Ryan plans, they’re proposing whittling down the annual budget deficits, over 10 years, by about $4 Trillion or so.  Neither even proposes a balanced budget somewhere along the way.
FACT #3: The FY 2011 budget contains $2.4 Trillion of Mandatory Spending.  These are government mandated spending obligations the government cannot back out of.  They include: Social Security, Medicare, Medicaid, Interest on the Debt, government pensions, Unemployment insurance and Food Stamps.  The delta between Mandatory Spending and projected revenues for FY2011 is roughly $200 billion.  That’s $200 billion that needs to be borrowed simply to meet the government’s statutory obligations.
FACT #4:  All that other spending to the tune of $1.4 Trillion to pay for things like Defense, Transportation, Veterans Affairs, etc. all is being done right now on borrowed dollars.
FACT #5:  Both Republicans and Democrats will spin the numbers in a convincing way over the next several months to sway a public that ultimately will not care an iota about the facts but simply acquiesce to the partisan proposal and tell anyone that disagrees with them how wrong they are.
Here’s the thing, and it shouldn’t take a rocket scientist to figure this one out, the government is spending more than it can afford.  Cutting spending alone isn’t going to balance the equation (see above) You’d still have to borrow $200 billion simply to meet statutory spending this year, therefore in addition to spending cuts revenues must be raised – period.  We’ve been down this path before so instead of rewriting what I’ve already written, let’s just look at a picture…I offer below what the historic debt has been as a percentage of GDP while laying a bar under the debt that shows the highest marginal tax rate on the wealthy during the years.  [I also include a table at the end of this article that lays it out year by year.]
Some wish to cast this argument as class warfare, or soaking the rich, and nothing could be further from the truth.  We are at a point in the national debt debate that all Americans are going to have to feel some level of pain – whether that means loss of or reduction to services or a slight hike in their taxes.  In the grand scheme of things, having a millionaire paying an extra 3% on his or her taxes while families in America are losing homes, heating oil, or food on the table is hardly equates as wealth redistribution.
While this doesn’t have to be a permanent position, it’s a good bet that it will take a decade just to be at a point where the budget can begin to run a surplus – and that’s with significant cuts to discretionary spending as well as reform of Medicare and Social Security, but if it’s done in a vacuum without at least raising taxes to the levels they were during the Clinton Administration, then we might as well forget about trying to balance the budget, or paying down the national debt.  Let’s just party like we’re Americans and if and when the bill comes due – and it will! – then we can do the American thing and just declare bankruptcy – make it someone else’s problem.
In the meantime, we can have great knockdown drag out fights over the peanuts in funding the National Endowment of the Arts, Public Broadcasting and Planned Parenthood.  It will make for great theater, and be absolutely meaningless in the grand scheme of things.
As we march down the path of the budget (and debt) debate, let’s keep in mind what the facts really are and not get caught up in the rhetoric that both Republicans and Democrats are going to be throwing out there.  Educate yourself – check the numbers – do the math.  It’s actually easier than high school algebra if you try it and it will help you not be fooled by the politicians this time around.  Hope you enjoy playing with the numbers 🙂
Tax Year
High Rate
High Income
2011
35%
379,150
2010
35%
373,650
2009
35%
372,950
2008
35%
357,700
2007
35%
349,700
2006
35%
336,550
2005
35%
326,450
2004
35%
319,100
2003
35%
311,950
2002
38.6%
307,050
2001
39.1%
297,350
2000
39.6%
288,350
1999
39.6%
283,150
1998
39.6%
278,450
1997
39.6%
271,450
1996
39.6%
263,750
1995
39.6%
256,500
1994
39.6%
250,000
1993
39.6%
250,000
1992
31%
86,500
1991
31%
82,150
1990
28-33%
32,450-162,770
1989
28-33%
30,950-155,320
1988
28-33%
29,750-149,250
1987
38.5%
90,000
1986
50%
175,250
1985
50%
169,020
1984
50%
162,400
1983
50%
109,400
1982
50%
85,000
1981
70%
215,400
1980
70%
215,400
1979
70%
215,400
1978
70%
203,200
1977
70%
203,200
1976
70%
200,000
1975
70%
200,000
1974
70%
200,000
1973
70%
200,000
1972
70%
200,000
1971
70%
200,000
1970
70%
200,000
1969
70%
200,000
1968
70%
200,000
1967
70%
200,000
1966
70%
200,000
1965
70%
200,000
1964
77%
400,000
1963
91%
400,000
1962
91%
400,000
1961
91%
400,000
1960
91%
400,000
1959
91%
400,000
1958
91%
400,000
1957
91%
400,000
1956
91%
400,000
1955
91%
400,000
1954
91%
200,000
1953
92%
200,000
1952
92%
200,000
1951
91%
200,000
1950
91%
200,000
1949
91%
200,000
1948
91%
200,000
1947
91%
200,000
1946
91%
200,000
1945
94%
200,000
1944
94%
200,000
1943
88%
200,000
1942
88%
200,000
1941
81%
5,000,000
1940
79%
5,000,000
1939
79%
5,000,000
1938
79%
5,000,000
1937
79%
5,000,000
1936
79%
5,000,000
1935
63%
1,000,000
1934
63%
1,000,000
1933
63%
1,000,000
1932
63%
1,000,000
1931
25%
100,000
1930
25%
100,000
1929
25%
100,000
1928
25%
100,000
1927
25%
100,000
1926
25%
100,000
1925
25%
100,000
1924
46%
500,000
1923
58%
200,000
1922
58%
200,000
1921
73%
1,000,000
1920
73%
1,000,000
1919
73%
1,000,000
1918
77%
1,000,000
1917
67%
2,000,000
1916
15%
2,000,000
1915
7%
500,000
1914
7%
500,000
1913
7%
500,000
select sources used:
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2 Responses to It’s the Tax Rate Stupid

  1. Sean Asbury says:

    Just a quick caveat – As I publish this my wife is going to the post office to mail off more than a mortgage sized check to the IRS. With four kids, three in college, we do not qualify for any education credits. I think I'm feeling my freaking pain in supporting our government's errant spending ways. We paid over $32,000 in Federal taxes alone in 2010 – which is well over what I used to make 20 years ago.

  2. Jonathan says:

    OK.. Im just not even CLOSE to being smart enough to read and comprehend all of this. Trying to make an intelligent response to this would be futile on my part, so I'll depart with a hearty "GO REPUBLICANS!!!".. A friend of mine (James Lankford) is smack dab in the middle of this as a freshman House member. I'll leave the politicing to him. =)

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