Monday, January 21, 2013

Party Up, Chuck

From Talking Points Memo:
Sen. Chuck Schumer (D-NY) said Sunday that Democrats in the Senate intend to draft a budget this year that will include revenues, regardless of House Republicans use of the debt ceiling to force the Senate to come up with a  budget. 
"We're going to do a budget this year, and it's going to have revenues in it," he said on NBC's "Meet the Press."  "And our Republican colleagues better get used to that fact."
 Chuck — we've got you covered. All you need to do is ...
  1. Expand the number of brackets to what they were during the early Reagan years, and bring the top marginal rate back to the 50% it was back then. It was good enough for St. Ronnie; it's good enough for today. 
  2. Get rid of the capital gains tax. Treat all income as ordinary income. 
  3. Junk the mortgage interest deduction. OK, just phase it out then.
  4. Set the trigger for the alternative minimum tax at $250,000 (for a household) and adjust it automatically for inflation.
A couple of other things. There's been a lot of screaming about the deficit lately, but very few people are noticing that the deficit has been getting smaller.

The graph above shows that the deficit got worse in the 70s, but got considerably worse at the same time the Reagan tax cuts were enacted. (Hint, hint). Then things got much, much better in the 90s under Clinton, and we were in a surplus at the end of his administration. (Psst -- Clinton raised taxes.) And then the bottom fell out under Bush. There's the the first big dip, which is the result of the Bush tax cuts and the wars in Afghanistan and Iraq. It improves somewhat, and then craters once the recession took hold (and tax receipts fell). (Note that the 2009 budget was created by Bush, and included a modest stimulus package. Then Obama enacted his own stimulus package. Both were the right thing to do.)

But since 2010, the deficit has been decreasing — at a pretty aggressive clip. And, if employment rates continue to rise, more people will leave government assistance and start paying taxes again. So this trend line is really, really good.

Better news still is what we're spending to service the national debt.

From the New York Times
Holy moly! As a percentage of GDP, our interest expense is the lowest it's been since the 50s! This is because the interest we're being charged is crazy.

From the Department of the Treasury
The real interest rate (e.g., the one calculated after accounting for inflation) is negative for anything with less than a 20-year maturity. So when we borrow money now, we're actually paying less back in the future! Pretty cool.

And, finally, there seems to be an idea that there are just great gobs of government waste floating around out there. Here's a breakdown of the 2011 budget by type:

From Wikipedia

Sixty-two per cent of the budget goes to defense, Social Security and health care. An additional 6% goes to servicing the national debt. So that leaves 32% open for cuts — and just 18% if you're looking solely at discretionary outlays. Sure, the budget is an eye-opening $3.6 trillion dollars, but when you put aside caring for the army, old people and the sick (and interest), you're looking at an effective budget of $1.152 trillion for a nation of 300 million people. That's about $3840 per person, or $320 per month, or $10 a day — for research on disease, air traffic control, food inspections, air quality standards, national parks, the federal highway system, NASA, the Library of Congress — everything. That strikes me as rather cheap.

We don't have a spending problem. We have a revenue problem. And some of us aren't paying our fair share.

From the New York Times.
And note that this table includes neither state income taxes or sales tax, which are very regressive in nature.
For more on how our total tax structure is basically flat (e.g., regressive), see this article from the Atlantic.

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