In my previous article I mentioned that I want to study the issues such as US national debt, Taxing rich and the war, Republicans so desperately want and know how to win. People take the issue of debt so lightly. I have read people mentioning debt to be a non-issue for individual people. I don’t know the logic behind such view, but I see the recent European stories alarming. Europe is the crystal ball which Americans can look into to see their future if they choose to ignore their debt and/or let it increase it. In this NYTimes graphics the ratio of government debt to GDP for Ireland is 113%, Italy is 123% and for Greece is 153% (as of April ’12). The same ratio for the US was 101% (2011). Now if you take a look at the so-called rigid economies of the world we see the contrast. The same ratio for France and Germany was 86.5% and 82% respectively (2011). The countries –with booming economies– such as India has 51.3% and China has 43.5% of debt to GDP ratio. Even if we exclude developing economy as being not big enough it is clear that US is not in a great position as far as government debt is concerned.
Paul Krugman rightly points to some key aspects of US debt in his article ‘Nobody Understands Debt’. He explains how governments are different from families or individuals as they never actually pay their debt. They only pay the timely interest on the debt. Governments still should make sure that the debt should not increase faster than their tax base. This is where the US is in trouble. US debt of $14.3 Trillion is owned by US government ($6.2T), Foreign countries ($4.5T) and Public (3.6T). So most of US debt is owned by US government. People often fear that China owns most of the US debt but in fact it owns only $1.2 trillion. Another important piece of data is that every dollar owned by a foreign country in US debt, US owns 89 cents of foreign debt or assets. US earns better returns since the interest rates paid by other countries are higher than the 3% paid by US. So one can sign debt off as a nonissue but the key aspect here is payment of interest.
“(T)he principle of spending money to be paid by posterity in the name of funding, is but swindling futurity on a large scale.”
— Thomas Jefferson (Source: thecomingcrisis.blogspot.in)
This payment, in economically sound way, would come from the revenues generated by the country. US has chosen the not so prudent way of printing money to pay the interest. The wars that Republicans started to defend US has left it vulnerable in a much deeper sense. They didn’t pay for it, didn’t make any future provisions for the payment and blocked liberals whenever they tried. The ‘Reducing your expenses’ philosophy goes only so far. The large and popular projects such as Social security, Medicare and Medicaid makes it nearly impossible for US government to reduce their expenses significantly. The current US expenses for these projects is $725B, $485B and $275B respectively. On average they are expected to increase by 40% by 2017. These three are just part of what US spending. I haven’t even touched the on and off budget defense expenses. This bit of statistics might help republicans believing in the slogan ‘We spend too much’. Still the important piece of information is the interest paid by US government. It stands at $229B and is estimated to double by 2017.
Once you consider the revenues that US government generates then the real picture emerges. Total revenues including personal, corporate, production and import taxes; social security contributions and income generated from assets is $2.5T. This is almost same as the amount generated in 2006 thanks to dear Republicans. On the other-hand the Federal expenditure has gone up from $2.7T in 2006 to $3.8T in 2011. This makes me wonder how one is supposed to believe that cutting taxes will help US reach sustainable growth as a country. Personal Income tax accounts for about $1.0T of the revenue. This is where the ‘1% vs the Rest’ fight is being fought.
Source: Internal Revenue Service.
The top 1% has paid 36.7% of total income tax compared to 2.25% paid by bottom half in 2009. This means whatever rate this top 1% is paying, they are paying a big chunk to US. The argument, I frequently make with my good friend Liberalcynic, is someone has to pay to cover the expenses. The debt may never be paid in full but the interest payment makes it necessary for the tax increase.
Source: Internal Revenue Service.
Since top 1% is paying more than a third of total taxes, it seems feasible to me that this is the only group which can make any significant difference to US revenues if the tax rates go up. The bottom half is paying negligible amount which makes them useless as a direct source of income to US government. Thus the tax rates should not or maybe should never increase for these people. The Republican notion is and has been –the millionaires and billionaires are the ones who invest and keep the economic engine running and thus we should not increase their taxes– The share of tab picked up by top 1% has been constantly increasing since 1981 and if taxing rich was so bad for economy then we would have never seen the ‘Post Reagan’ growth that Republicans so often boast about. Moreover, the sharp increase in share of total income tax paid by top 1% occurred during Reagan years.
The top 1% has been paying more and it is this top 1% who will be needed to pay more if we are to increase our revenues.
libertarianskeptic 
Most of the federal tax revenue comes from the rich. While that makes greyer the moral question of taxing the rich even more, fiscally, it’s a no-brainer. In the real world, every tax must be weighed in cost-benefit terms. Does the benefit to the government outweigh the pain caused to the taxpayer? For the rich, the answer is yes. For the middle class, the answer is no. The poor already struggle under regressive sales taxes, so taxing their income is out of the question.
Let us also consider what increased the debt to begin with. While the subprime mortgage industry has rotted the economy from the inside, we have both agreed previously that no one forced the common people to buy bigger and bigger houses. Having said that, the connection between the oil- and auto-companies and the Republican party is incestuous, and the Democrats are in bed with the auto-workers’ unions, so they all benefit when tensions escalate in the Middle East. The Iraq war caused that. Not to mention the defense contractors who made hay when America went into Afghanistan and Iraq. I’m not discussing the wisdom of the two wars here, just who benefited from them.
In short, the rich find ways to profit from the tides, whichever direction they may turn. If those tides which made the rich richer have contributed to making the country poorer, a libertarian case can almost be made for increasing the taxes on the 1%. What say?
If a company is too big then the tax that it pays to country is a big number (considering that there is no or few loop-holes). This should apply to individuals also. You know this better that in real world, a tax is never weighed in cost-benefit terms. About the people benefitting from wars, I have my doubts. It is no-brainer that oil companies benefit from price hike and they are friends with Republicans. On the contrary the car sales should and have gone down when the gas price goes up and/or economy goes south. The Union membership has been on the decline in US since late 60’s and it is currently lower than 40’s level. This tells me that democrats shouldn’t be gaining much from this. Regarding your question of taxing 1%, I think we previoiusly agreed that the blame for financial collapse of 2008 can never be traced back to big corporations, atleast not legally. Similarly, the phenomenon of rich becoming richer actually made a country poorer can never be proved.
Assuming the arguement is right that the top 1% pays more in taxes, that does NOT mean they pay their fair share in taxes AND it means that the top 1% have outsourced jobs and got rid of jobs that the bottom 50% depend on. How do you expect a poor person without a job to pay taxes? Your arguement stinks.
First of all, you don’t need to assume that rich are paying more because it is a fact and I have used official data to make the graph. The argument about fair share is a little dicey. I am of the opinion that rich people benefit from governmental programs such as infrastructure and also they have more to loose so they should pay more for National defense. I am not sure if it is wrong to outsource jobs to earn more money. If that’s wrong then buying stuff at Supermarket for lesser price should also be bad. Regarding the poor people, I think that they don’t earn enough. So even if you increase tax on such people, it won’t contribute to tax revenues significantly. Finally I am saying that it is rich who will have to and should pay more. Please read the article in totality.