The Solution to the Debt Crisis is an Easy One.

Respectfully submitted by Lawrence Rafferty-Guest Blogger

I have a slightly different take on the debt ceiling discussion started by Mike Appleton earlier.  The Debt ceiling issue is on every cable and broadcast TV channel and on just about every website and blog including here on Prof. Turley’s blog. The debt limit and its feared default has controlled the airwaves for weeks now, and it isn’t going to end soon if the news reports are to believed. The Democrats want increased revenue and the Republicans want cuts only to spending in order to convince both sides to do something that was done about 19 times during the preceding administration without much fanfare from either side. No matter who you support there is an easy solution to the problem and the majority of Americans agree with it. The Hill

A very easy solution to the U.S. Debt problem is to simply tax the wealthy and corporations at 1960 levels and according to one source, the debt would be erased within a decade. “Some numbers — from an Institute for Policy Studies report released this past spring — can help us better visualize just how monumental this political failure has been. If corporations and households taking in $1 million or more in income each year were now paying taxes at the same annual rates as they did back in 1961, the IPS researchers found, the federal treasury would be collecting an extra $716 billion a year. In other words, if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally vanish over the next decade.” Our Future

The Center for American Progress has provided additional evidence that corporations in the United States are taxed at a low rate when compared to other nations. I know we keep hearing about that corporations are over taxed and if we keep taxing them they will move their jobs out of the country. Here is a link to a series of charts that proves that US corporations are paying lower taxes than some would admit to.  American  

‘ “Conservatives like to claim that our budget deficits are purely a “spending problem.” Said Senate Minority Leader Mitch McConnell (R-KY): “We don’t have this problem because we tax too little. We have it because we spent too much.” ‘ It’s a popular talking point, but it simply isn’t true. Deficits do not stem from spending levels alone. They are the product of a mismatch between spending and revenue. And when revenue is as low as ours is, you end up with big deficits.”  American Progress

Now, it may sound trite or sarcastic, but the facts are clear that our so-called debt problems would be solved very easily without any draconian cuts to socially important programs important to the Left, and without deep cuts to the military budget that the Right wants to avoid. So why is it so difficult to reach this seemingly obvious solution? Why do the wealthy and Corporations have such a tight wrap on the DC regulars on both sides of the aisle? Could the answer be that both the wealthy and large Corporations have the funds to buy or at least ‘rent” Congress and convince Senators and Representatives to look the other way on tax increases?

It couldn’t be the money, could it? And all this time I thought that Gordon Gecko was a fictional character!

Respectfully submitted by Lawrence Rafferty-Guest Blogger.

135 thoughts on “The Solution to the Debt Crisis is an Easy One.

  1. My family members all the time say that I am wasting my time here
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  3. “Speaker Boehner has lost control of his party and default looks like it is going to happen. Some of the bills will go unpaid. A few days after that it could go nuclear and then nothing will get paid and the economy will crash. This is what the tea party wants.” -Swarthmore mom

    You’re correct, Swarthmore mom. This is exactly what the tea party wants.

  4. Speaking of the Tea Party, an acquaintance of mine has just recorded an ode to them. He is a New Orleans composer and musician.

  5. Speaker Boehner has lost control of his party and default looks like it is going to happen. Some of the bills will go unpaid. A few days after that it could go nuclear and then nothing will get paid and the economy will crash. This is what the tea party wants.

  6. You can’t redistribute income . . .

    Income really is the Achilles heel of the progressive movement. The income statistics simply don’t mean what progressives think they mean–something like “resources available for redistribution.” If you want something closer to resources available, you’d use consumption, or wage income. If you combine wage and capital income in the same aggregate, you are counting the same resources twice. This is deeply counter-intuitive, yet all public finance economists understand this. The policymakers in Nordic countries understand this. But progressives don’t seem to understand this. Even Paul Krugman, who must know better, keeps citing income distribution data, which is about as informative as examining the entrails of a chicken.

    A rich guy with lots of income has three choices, consumption, savings/investment, and charity. Let’s dispose of charity quickly. Yes, we could redistribute the money Gates in spending on malaria in Africa, and give it to other Americans. Would that be a gain? I think everyone would say no. On the other hand if a rich guy gives a lot of money to Princeton, to have his name on a building, perhaps that’s really a form of consumption. I’m fine with treating it that way, if the tax authorities decide that’s the way to go.

    But the real money here is obviously in the consumption/investment categories. You can redistribute consumption from the top 1% and give it to average Americans working in a car factory, or a Walmart. But it’s an illusion to think you can redistribute investment from the top 1%, so that average Americans can have a higher living standard. Where do people think the car factory comes from? Or the Walmart building? BTW, this has nothing to do with trickle-down economics, a theory I reject. This is simple accounting. Money put into investment projects isn’t available to boost living standards for the lower classes, unless you don’t do those investment projects.

    So what’s available to be redistributed? Basically consumption (including a modest amount of vanity charity.) And that’s it. Now come back to me with the consumption distribution data, and let’s see what that looks like. I predict that consumption inequality is far lower than income inequality. And that consumption inequality is rising at a far slower rate than income inequality. I’m not saying there’s no problem, but it’s way smaller that the progressives imagine, as the data they use is pure nonsense. Consumption inequality is economic inequality. Income inequality is . . . well it’s meaningless gobbletygoop.


  7. puzzling:

    you are exactly right re medical innovation. we do subsidize world markets and when we go to a national system the quality of medicine in the rest of the world will decline.

    government control is robbing us of innovations across all sectors.

  8. SM,

    The US subsidizes the world with our medical innovations. The motives for this pace of innovation will vanish once the US is on a socialized system. Pharmaceutical companies will become utilities. Those are invisible losses, of course, since most people will never realized what improvements to quality of life and longevity that they are forfeiting in such a system.

    France has a lower standard of living than the US, with about $10K less in consumer spending per capita.

    The top 1% pay more than the bottom 95% in the US. What number do we need to get to?

  9. On the other hand, they probably don’t live as well as the top 1% with all their government sponsored tax breaks.

  10. They live pretty well in France with their socialized medicine and strong unions, puzzling.

  11. ekeyra,

    I’m sure we agree that the US has already been confiscating resources on a global scale… leading with our wars for energy. Perhaps as you suggest we will levy an empire “protection” tax on the billions of individuals now living under US control? Scaling up the pizzo so to speak.

    In the future the US will tax not just incomes but will seize accumulated wealth directly, as France does.

    We agree that this level of taxation will simply result in capital flight to Asia or other friendlier tax venues, resulting in lower overall revenues. That lesson will have to be learned the hard way, just as NJ is learning it on a smaller scale today.

    Government will seek to control this capital flight at all costs.

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