Thursday, March 31, 2011

Obsessed With Debt

We have heard enough- far more than enough- of "if a tree falls in the forest and no one is there, does it really make a sound? It is trite, tiresome, and silly. Or maybe not so silly. In his opinion piece on the national debt which appeared in The Wall Street Journal on March 30, Senator Marco Rubio obscenely remarked

We're therefore at a defining moment in American history. In a few weeks, we will once again reach our legal limit for borrowing, the so-called debt ceiling. The president and others want to raise this limit. They say it is the mature, responsible thing to do.

In fact, it's nothing more than putting off the tough decisions until after the next election. We cannot afford to continue waiting. This may be our last chance to force Washington to tackle the central economic issue of our time.

Leave aside the reality that the GOP effort to cut spending in the current budget little concerns the long-term debt, mostly targeting the deficit. And that a few months ago, the GOP, with its co-conspirator in the White House, did all it could to explode the deficit and the debt with a huge across-the-board tax cut. Rubio's right shoulder, presumably, aches as he strains to pat himself on the back for not "putting off the tough decisions until after the next election" as he votes for tax cuts for the wealthy benefactors which bankrolled his election. No, the obscenity lies in the assertion that the debt is "the central economic issue of our time."

This must have escaped the attention of Vice President Cheney, who once argued "Reagan proved deficits don't matter." To be fair, though, both Cheney and Rubio have failed to notice what is happening to the American middle class in part because of the policies the Florida Republican has embraced.

If Rubio had been paying attention, he would know:

a) As the graph below from The New York Times (CBO and Census Bureau statistics) indicates, from 1979 to 2005 income of the top .01% of earners increased 384% while it rose only 20% for the median quintile. It should be no surprise that tax rates for the latter group dropped 4.4% while they plummeted 11.4% for the highest income group.

b) For almost the same period (1979-2007), average after-tax incomes for the top 1 percent rose by 281 percent after adjusting for inflation — an increase in income of $973,100 per household — compared to increases of 25 percent ($11,200 per household) for the middle fifth of households and 16 percent ($2,400 per household) for the bottom fifth (chart and explanation, verbatim, for the Center for Budget and Policy Priorities);

As can be seen from the pie chart below (from a 2010 Economic Policy Institute analysis of CBO average federal tax rates and income), a full 38.7% of the income growth went to the top 1% while only 36.3% went to the bottom 90%.

Thomas Piketty and Emanuel Saez, with 55.6% to the top 1% and only 15.9% to the bottom 90%, in their 2009 analysis found the growth even more unbalanced:

c) Surprise! The result would be, as the pie chart (from G. William Domhoff, who credits for the information economist Edward N. Wolff of New York University in 2010)below indicates, that in 2007 the top 1% held 35% of the net worth, with 43% of the financial wealth, of the nation; for the bottom 80%, the figures were 15% and 7%, respectively. Since that time, the gap between the wealthy and other individuals has widened, with the top 5%, owning 62% of the wealth in 2007, owning 65% in 2009. As of 2010, Politifact confirms, the poorest 60% of U.S. households have a lower total net worth than the Forbes 400.

d) As the graph from Piketty and Saez (from IRS data) indicates, the share of the total of pre-tax income going to the top 1% in 2006 was 20%, the highest since it was 21%, in 1928. You may remember 1928- the year before the Great Depression.

Rubio, calling the debt the "central economic issue of our time," probably figures if the tree falls and no one is around to hear it, it hasn't really fallen. But consider that the current distribution of wealth is not only inequitable and unstable for a society, but that Americans would prefer it otherwise. As the chart from tax reporter David Cay Johnston (for which he credits (Norton & Ariel, 2010) shows, the top 10% holds 84% of all wealth in the U.S.A. Given an opportunity to choose among three (not labeled) charts- the U.S.A.'s actual wealth distribution, the estimated wealth distribution, and that in Sweden, Americans chose the latter. We believe the top 10% should possess 32%, a far cry from 84%, of wealth.

Fortunately, we have only Rubio and his Republicans to blame for this sorry state of affairs. Well, no. In January, President Obama appointed Jeffrey Immelt to his Council on Jobs and Competitiveness. Immelt knows about competing from his post as CEO of General Electric, which The New York Times recently noted has

reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

That may be hard to fathom for the millions of American business owners and households now preparing their own returns, but low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore.

Immelt has been handsomely rewarded, being granted earlier this month a $4 million bonus and $7.4 million in stock awards. And G.E, flush off paying no federal taxes and actually claiming a tax benefit, sees its chief executive officer filling a role which may prove beneficial to his company.

This would be the same President whom some Republicans have found advantageous to intimidate by calling a "socialist." No surprise that the GOP muted its criticism of Obama for having appointed Immelt, nor for placing him on a committee replacing the more progressive Economic Recovery Advisory Board and the inestimable Paul Volcker.

You may not have realized, unlike a President whose focus has turned from the economic slump to the deficit and a Florida Senator obsessed with the debt, that the nation's economy has completely rebounded. But while we limp toward what increasingly looks like a sluggish recovery, the gradual chasm between the very wealthy and the rest of Americans widens.

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