As our nation teeters on the edge of a fiscal cliff and our world is headed for an abyss from which we may never recover, I ask for honesty and introspection.
Before the election, we were asked to stay the course. The economy was improving, but more time was needed for the recovery to be complete. Since the election, with four more years assured, we find ourselves on the precipice of financial disaster. The solution? Tax rich people more and cut an entitlement or two. (Is the military an entitlement?)
This approach raises some uncomfortable questions, not the least of which is the following: What is the goal behind raising taxes on the rich? Is it to increase revenue or is it to punish the rich for "not paying their fair share?" The danger is that punishing the rich won't lead to the increase in revenue that is needed and we, the not-quite so rich, will be punished even more in the process.
I believe the Democrats and Republicans will come to some sort of half-hearted agreement at the last possible moment, averting disaster before the imposed tax increases and entitlement cuts go into effect. Taxes on the wealthy will go up, practically nothing of substance will be cut from entitlements (even though the minor cuts--or decreases in spending growth--will be made to appear larger than they really are) and our financial free fall will continue.
This is equivalent to a child who overspends his allowance and then petitions his parents for more money so he can buy more toys.
In today's Wall Street Journal, Peter Schiff wrote an op-Ed piece that explains that the rich pay just as much, in percentage terms, as they did in the 1950's when the top tax rate was 91%.
The link for Peter Schiff's article is: http://online.wsj.com/article/SB100014241278873247051045781516015549828…. A Wall Street Journal subscription may be needed to read it.
Here is an excerpt from the article that summarizes Mr. Schiff's position(and mine):
In 1958, the top 3% of taxpayers earned 14.7% of all adjusted gross income and paid 29.2% of all federal income taxes. In 2010, the top 3% earned 27.2% of adjusted gross income and their share of all federal taxes rose proportionally, to 51%.
So if the top marginal tax rate has fallen to 35% from 91%, how in the world has the tax burden on the wealthy remained roughly the same? Two factors are responsible. Lower- and middle-income workers now bear a significantly lighter burden than in the past. And the confiscatory top marginal rates of the 1950s were essentially symbolic—very few actually paid them. In reality the vast majority of top earners faced lower effective rates than they do today.
I'll dive into this in-depth next week in a couple Fiscal Cliff posts, but, in short, I think we all want much lower taxes. But, in the short run, we all need to take our medicine. It won't taste good, but it'll make us feel better in the long-run.
Also, let's not pretend that the super-rich class hasn't taken their fair share of gov't benefits. Only instead of welfare checks, they've benefitted from no-strings attached bank bailouts and dozens of other stealth bailout programs. (TARP, TALF, etc.)
The easy argument is to raise taxes to pay for spending. The hard argument is saying that we have overspent and it can't continue forever so we need to pick and choose more wisely as to what we want our government to provide us and how much we are willing to allot to such endeavors. It's why I get angry when I hear people calling the debt ceiling an impediment. Obviously we aren't going to default on our debt. The whole point, in my opinion, is that having the ceiling forces the burden of proof on those who want to raise it as to 1. Why it is we need to keep spending this money 2. Why it is practical to keep spending like this. Right now what we SHOULD do is slice spending, raise taxes and just deal with it all now. I have no issue with my taxes going up when spending tangibly goes down with it. I have a huge issue when they raise taxes again, again and again to fund a balloning deficit with nothing tangible form it and no end in sight.
Think of it like a credit card and what your financial adviser would say....
Client: I have a net income of $100k, but I enjoy my lavish lifestyle, and I need to give my family the best of everything, so my credit card bill is $150k per year.
Will your GS adviser tell you to a) Stop buying BMWs and Louis Vuitton purses, or b)will he tell you to get a higher paying job?
If you answer "b", congratulations, you're a fucking idiot. Everyone in finance should know that spending more than you make is the root of all problems, and you can rake in $50MM per annum and still be broke as fuck.
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