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NationofChange / Op-Ed
Published: Wednesday 12 September 2012
“In the midst of partisan wrangling over raising the nation’s debt limit, Standard & Poor’s downgraded U.S. debt – warning that Republicans and Democrats didn’t have a credible plan to tame the deficit. ”
Moody’s in a Mood
The rating agencies are at it again. Moody’s Investors Services says it’s likely to downgrade U.S. government bonds if Congress and the White House don’t reach a budget deal before we go over the so-called “fiscal cliff” on January 2, when $1.2 trillion in spending cuts and tax increases automatically go into effect.
Apparently the credit rating agencies can’t decide which is more dangerous to the U.S. economy – cutting the U.S. budget deficit too quickly, or not having a plan to cut it at all.
Last year’s worry was the latter. In the midst of partisan wrangling over raising the nation’s debt limit, Standard & Poor’s downgraded U.S. debt – warning that Republicans and Democrats didn’t have a credible plan to tame the deficit.
Now Moody’s is worried about the opposite: The spending cuts and tax increases in the Budget Control Act that will automatically kick in at the start of 2013 – unless Congress decides on a better and presumably more gradual approach — are so draconian they’ll push the economy into a recession.
The ratings agency schizophrenia is understandable. Everyone in Washington – and just about everywhere else – knows the budget deficit has to be dealt with. But anyone with half a brain (including Washington) also knows that when unemployment is high and economic growth still painfully slow, cutting the deficit too much now would make a bad situation even worse.
Remember, the real problem isn’t the deficit per se. It’s the deficit in proportion to the size of the economy. Cutting too much too soon will tip the economy into recession because it would reduce overall demand for goods and services when private demand falls way short of what’s needed. And if the economy goes into recession and begins to shrink, the ratio of deficit to the economy gets worse. That’s the austerity trap Europe has fallen into.
Even if the deficit continues to grow in proportion to the economy, we’re safe as long as those who lend money to the U.S. aren’t worried about being repaid and therefore don’t demand high interest rates in return for their loans.
By this measure, the American economy appears safer than ever. Despite all the harrumphing from the credit-rating agencies, the United States has never been able to borrow money more cheaply than it can right now. That’s because no matter how bad the deficit situation looks here, it’s worse in places like Spain and Italy. And no matter how deadlocked Congress becomes, the U.S. is still the most stable and reliable system in which to put your savings.
The fiscal cliff is a real worry. And it’s a worry precisely because the budget deficit isn’t — at least not now. When unemployment is high and growth is anemic, we need as much fiscal stimulus as we can manage.
As long as the rest of the world is willing to lend us their savings so cheaply, we’d be wise to use it to rebuild our crumbling infrastructure and our schools and parks — and thereby put more Americans back to work – rather try to cut the deficit too much and too soon.
This article was originally posted on Robert Reich's blog.
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ABOUT Robert Reich
ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.
4 comments on "Moody’s in a Mood"
September 12, 2012 6:58pm
Suggestion to ALL of the idiots that are in the Congress of the United States of Amerrica. Step back and take a deep breath, then look at how much time it has taken us to create this debt. Once you have that number, do some simple long-hand division. Take the total National Debt and divide it by the number of years it took to create the debt. When you have that number you will know how much surplus you must generate in the Fededral Budget to pay-off the national Debt in the nuber of years it took to create it.
Because the "Rich and POwerful" have been the Class that has benefited the most during the times the National Debt was being made, it only makes sense that they should be made to pay a greater Burden to reduce the National Debt.
I would suggest that we Completely Reform the Income Tax System to accomplish this very hard task.
My Income Tax Reform Plan:
Will Rogers said: “The difference between Death and Taxes is Death doesn't get worse every time Congress meets.”
Thomas Paine urged that “everything beyond what a man's own hands produce" was a gift that came to him simply by living in society, and hence, "he owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation back again to society from whence the whole came."
Robert Reich said “Equal sacrifice means that in paying taxes people ought to feel about the same degree of pain regardless of whether they’re wealthy or poor. Logically, this means someone earning $20 million a year should pay a much larger proportion of his income in taxes than someone earning $200,000, who in turn should pay a larger proportion than someone earning $50,000.”
Here are the facts. Data from Edward Wolff confirms that from 1983 to 2007 the percentages of net worth and financial wealth for the top 1% remained steady. But the percentages for the rest of the richest 5% increased by almost 20%, while the percentages for the lowest 80% of the population DECREASED by almost 20%.
These issues are difficult to address with Congress largely on the Payroll or Bribe side of the Wealthy and Powerful. At the very least congress should:
(1) Eliminate the tax break on unearned income (capital gains, interest, and deferred interest etc. all earnings or income must be Taxed the same.) The richest Americans, who own most of the stocks, should not pay a smaller tax than everyone else.
(2) Implement a small Financial Stock Transactions fee/tax. It would be easy to administer on computer trades, it would generate hundreds of billions of dollars in revenue, and it would help guard against the reckless speculation that devastated the financial markets and our country.
In case you haven't heard: Freedom isn't free. Just ask the rich Republicans who seem to think it's fair that millionaires and billionaires get big tax breaks not available to middle class working families. After all according to the Rich and Powerful, "Earned Income" is for losers; winners have "Capital Gains" to keep them warm. So what if losers pay a higher rate of tax than winners. Somebody has to pay for all that freedom they…uh, I mean we…enjoy.
I say that any Income Tax Reform that continues to allow for Exceptions, Exemptions and Deduction will never be Fair and Equal to all. Far Too many loopholes exist through which the Top 5.0% of American Tax-Payers the “Rich and Powerful” Individuals and Corporations, Companies, Institutions and Organizations squeeze through and pay NO TAXES.
Even if we made the INCOME TAX RATE on every individual who made over one million dollars be 99%, with the use of the Exceptions, Exemptions and Deductions [that Congress has and would create] they would not pay taxes.
The Entire Income Tax Code MUST Be Repealed and Replaced. By the elimination of ALL the EXCEPTIONS, EXEMPTIONS, and all DEDUCTIONS [with the exception of Mortgage Interest and the standard personal deductions] and by making every source of Income [Wages, Bonuses, Benefits, Interest Earnings, Dividends and Capital Gains and any other Earnings or Gains] be subject to the same Tax Code and Rate no matter How it was earned, Where it was earned, or What it was earned from.
An Income Tax Code that is based upon Fairness and Equality, and the Ability to pay, just like everything else in life. PLEASE note that the implementation of this Tax Code would significantly reduce the size of the IRS, reduce the amount of time to prepare your Taxes, and sorry to say it, but it gets rid of the need for Tax Preparation Companies.
The official numbers for people in Poverty or what the Federal Government say is the Poverty Income level doesn’t tell the full story. The situation of the poor is actually considerably worse than the Government reports. The official poverty line is calculated as simply three times the minimal food budget first introduced in 1959, and then adjusted for inflation in food costs. In other words, the American poverty threshold takes no account of the cost of housing or fuel or transportation or health-care costs, all of which are rising more rapidly than the cost of basic foods. So the poverty measure grossly understates the real cost of subsistence.
My Proposed Poverty Income Taxes:
[1.0] Income earned from $.01 to $13,537.00 for a family of one would pay Zero Tax Rate.
[2.0] Income earned from $.01 to $23,689.00 for a family of two would be Zero Tax Rate.
[3.0] Income earned from $.01 to $30,478.00 for a family of three would be Zero Tax Rate.
[4.0] Income earned from $.01 to $37,267.00 for a family of four would be Zero Tax Rate.
[5.0] Income earned from $.01 to $44,056.00 for a family of five would be Zero Tax Rate.
[6.0] Income earned from $.01 to $50,845.00 for a family of six would be Zero Tax Rate.
[7.0] Income earned from $.01 to $57,634.00 for a family of seven would be Zero Tax Rate.
[8.0] Income earned from $.01 to $64,423.00 for a family of eight would be Zero Tax rate.
For those who are not in the Proposed Poverty Income Level the Tax Rates would be as follows:
[9.0] Income earned from $13,537.00 to $100,000.00 would pay a 15.0% Tax Rate. PLUS.
[10.0] Income earned from $100,000.01 to $500,000.00 would pay 17.5% Tax Rate. PLUS.
[11.0] Income earned from $500,000.01 to $1,000,000.00 would pay 20.0%Tax Rate. PLUS.
[12.0] Income earned from $1,000,000.01 to $50,000,000.00 would pay 25.0% Tax Rate. PLUS.
[13.0] Income earned from $50,000,000.01 to $1,000,000,000.00 would pay 30.0% Tax Rate. PLUS.
[14.0] Income earned from $1,000,000,000.01 and up would pay 35.0% Tax Rate.
I would also create a Financial Transaction Fee of $ .25 on each and every Financial Transaction, to generate from $1 to $3 Trillion in Revenue to “Reduce the Deficit and to Invest in our future, our Infrastructure and our middle class.”
U.S. Corporate Income Taxes that were actually paid (the effective rate) fell to a 40 year low of 12.1 percent in fiscal year 2011, despite corporate profits rebounding to their Pre-Great Recession heights. The United States of America, both taxes its Corporations less and raises less in revenue from corporate taxes than its foreign competitors.
Therefore; under my Corporate Tax Rate Corporations would pay 15.0% Income Tax Rate with NO Exceptions, No Exemptions and the NO Deductions. Or they can pay the same Tax Rates as an Individual, seeing as the Supreme Court has ruled they have the same Right to Freedom of Speech, therefore they should have the same Right to pay the same Income Tax Rates. Corporations should not make Business decisions based upon the Income Tax Loop-holes; they should be based on what is the best thing for the Corporation, Employees and the Investors. The top 500 Corporations, Companies, Institutions and Organizations within the Fortune 500, Pay No Taxes today. This Income Tax Plan would ensure that all Corporations, Companies, Institutions or for Profit Organizations that earned a Profit would PAY TAXES.
If Congress wants to provide an incentive to Corporations, Companies, Institutions or Organizations, Congress can do so by creating a Specific Tax Credit for A Specific Corporation or Company, with specified amounts and for specified time limits.
[3.0] Write a Constitutional Amendment that would make it Mandatory for the Federal Government of the United States of America to have a Balanced Budget. In each year of a Declared War, or Declared National Emergency Congress would have the Right, Authority and Ability with a 2/3 vote of the Congress to grant a Deficit Budget.
September 12, 2012 5:33pm
Borrowing more from other Nations is the problem, not the answer. We need to vote out of office all Republicans in Congress. Then demand that Democrats add another 16 tax brackets on top of the existing 6 brackets that need adjustment. We need 20 Brackets to $20Million with a top marginal rate of 60%. I believe everyone should help foot the bill in the income tax codes. For this reason, we should have a minimal rate of 3% for incomes of $0.-$40,000, 6% for incomes from $40,000.-$60,000, 9% for $60,000-$80,000, 12% for $80,000-$100,000, 15% for $100,000, 18% for $100,000-$$200,000, 21% for $200,000-$400,000, 24% for $400,000-$600,000, 27% for $600,000-$1,Million, 30% for $1Million-$2Million, 33% for $2Million-$4Million, 36% for $4Million-$6Million, 39% for $6Million-$8Million, 42% for $8Million-$10Million, 45% for $10Million-$12Million, 48% for $12Million-$14Million, 51% for $14Million-$16Million, 54% for $16Million-$18Million, 57% for $18Million-$20Million, and 60% for all income over $20Million. Now that is "Fair and Balanced".
September 12, 2012 1:56pm
Brilliant.
September 12, 2012 11:28am
Excellent -RIGHT ON! Thanks again Prof. Reich -we need all the reminding and clarifying we can get.