Solving our nations fiscal problems in a manner that is fair to every American requires honesty. It requires that we understand the real reasons for our budget deficits and not repeat the mistakes that got us here.
Our national debt is at $14.3 trillion dollars. Currently the average interest rate on that debt is about 3.2% which means before spending a penny this year on any government program, $460 billion dollars from the American taxpayer will be transferred to the holders of our debt. Contrary to popular belief neither China (8%) nor the combination of all major countries in the world own the majority of our debts, Americans do.
President Reagan came into power in 1981 after convincing Americans that our debt was out of control at that time, compared to our gross national product(GNP), it was at a 50 year low. Republicans and Democrats alike voted for Reagans budget that lowered tax rates substantially with the bulk of the benefits going to Americas most wealthy (trickledown economics). By the end of Reagans 8 years, the deficit had tripled. The deficit grew by another 55% under George H.W. Bush after he saw the light of fiscal responsibility and broke his no new taxes pledge. The budget was balanced during the Clinton Administration and the debt was actually on a trajectory to decline. But the federal budget doubled under President George W. Bush after two tax cuts, again mostly to the wealthy, at the same time we were engaged in two wars.
America had its largest employment growth under President Clintons administration and its poorest employment growth under the second President Bush. Trickledown (supply side) economics simply does not work and most reputable economists will admit as much. It fails especially in times of globalization because tax cuts for the wealthy are often invested, not in America, but in countries where growth rates are higher because of slave labor and a lower standard of living.
Over the last 30 years we have dramatically reduced taxes mostly on the wealthy. This resulted in large deficits that impact all taxpayers. Before a penny of taxes is used for entitlements, defense, and infrastructure, a disproportionate amount must first be transferred to the wealthy owners of the debt (the same people who demanded the tax breaks that created the debt). Thus they profit at both ends as they are able to keep more money thanks to lower taxes and tax loopholes and then purchase the US debt which pays them a interest over time. That is the ultimate in wealth transfer from the middle class to the rich.
Now, corporate lobbyists and their representatives in Congress want to decrease the deficit solely by decreasing spending. The real genesis of the budget deficits involved tax cuts and policies that benefitted the wealthy but the pain of closing the gap must be placed on the backs of the middle class. This failed economic approach, and the rhetoric that supports it, must be rejected. While we must remove waste from our entitlement programs, our real problem is that of too low a tax rate on higher incomes. When the top 1% gets more than 20% of the countrys income and owns more than 40% of all of the countrys wealth, there is a problem.
While it is true that 2% of Americans are responsible for a substantial portion of taxes and less than 60% of Americans pay federal income taxes (though they pay social security, Medicare, state, and other taxes) one must ask why. It is not that the top 2% is taxed too high; it is that they own most of the wealth and income. They do not own most of the wealth and income because they are more productive than the average middle class American. They own the wealth because of a structural defect in our economy and how wealth grows, how wealth is earned, how wealth is taxed, and how wealth is transferred. For instance, the middle class pays social security taxes on all their income while the wealthy do not, and, a working person pays up to 35% of their income in federal taxes while an investor pays only 15% on capital gains.
The point is we have now had 30 years of economic policy designed to reward those who already have wealth, and penalize those who work hard to create it.