Congress, Justice, Politics, Society

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 Progress.org  

‘ “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.”

  2. My god what a no brainer….Raf your absolutely right tax the people and corps who are making all the money ……hell any dummy should be able to figure that out….How can those idiots in Washington not know the right thing to do, it bloggles the mind…

    Also as for as O or Pres. Obama goes….I come from a long line of liberal democrats and even tho on a couple of occasions I have voted for the odd republican..eg .Sen Danforth I always considered myself a loyal Dem…but I’m having a harder and harder time dealing with the presidents position I find myself not hardly able to watch him on tv anymore I get so mad…lord help me i don’t dislike him as much as I hated the shrub but every day this all gets harder to watch…

  3. Elaine,
    I agree with your linked article, but Corporations will put millions into the political system to prevent having to pay 1 dollar in taxes let alone new taxes due to their financial instability.
    I agree with your comments about Elizabeth Warren. If President Obama was a true progressive, he would have fought for Warren, not to mentione Prof. Johnson as the head of the OLC earlier.

  4. I never thought Obama was a true progressive. He might not look so bad matched up against Rick Perry.

  5. tom,

    I’d say that President Obama is a man of half measures. He is not a true progressive. Otherwise, I doubt he’d get so much money from Wall Street.
    Otherwise, he would have nominated Elizabeth Warren to head the Consumer Financial Protection Bureau. Otherwise, he wouldn’t have caved on a public option. Just my opinion.

  6. Elaine, Do you think Elizabeth Warren could beat Brown in 2012?

  9. tom Does not matter what Obama wants or does not want. The tea party is in control of the house.

  10. The whole “debate” is a sham. Of course, increasing taxes on the wealthy
    and on big corporations is needed, but what permanent, significant
    solutions is O offering? None. Just minor loophole closings etc. His coffers
    wouldn’t be overflowing otherwise. He and the GOP want the same things.

    THIS progressive isn’t buying the notion that O is doing the right things.

  11. rafflaw,

    Both my husband and I thought the following blog post by Simon Johnson, who is a professor at MIT, at the New York Times site was interesting. Johnson is also the former chief economist at the International Monetary Fund and co-author of “13 Bankers.”

    Could Tax Reform Make the Financial System Safer?
    By SIMON JOHNSON
    July 21, 2011
    http://economix.blogs.nytimes.com/2011/07/21/could-tax-reform-make-the-financial-system-safer/

    Excerpt:
    In the deafening cacophony of voices in Washington on the debt ceiling, it is easy to miss a potentially more significant development. There is growing bipartisan interest in tax reform, including changing the corporate tax system to make it more sensible and a bulwark against financial sector instability.

    The House Ways and Means Committee and the Senate Finance Committee held a joint hearing last week — the first time these two committees had met in this fashion to discuss taxation in more than 70 years, their chairmen said. The theme of the hearing, “Tax Reform and the Tax Treatment of Debt and Equity,” might sound dry, but in fact it was well designed to carve out some space for agreement across the political spectrum.

    The basic question at the hearing was: Did the tax code contribute to the severity of the financial crisis in 2008-9? At one level the answer is a simple yes, because the tax deductibility of interest payments encourages families to take out bigger mortgages and companies to borrow more relative to their equity capital. (Dividend payments to stockholders are not tax deductible.)

    But where in the tax code should we focus attention if the goal is to prevent similar crises in the future?

    I testified at the hearing and argued that banks and other financial institutions should be the priority, because their overborrowing was central to past crises and is likely to be a salient issue in the future. It is also ironic — perhaps even bizarre — that while we try to constrain how much banks borrow through regulation, we give them strong incentives to borrow more through the tax code.

    This “debt bias” is covered in detail by two very good Joint Committee on Taxation reports that were released at the hearing, one on business debt and one on household debt. (This committee comprises a subset of members from the Ways and Means and Finance Committees; on these technical issues it makes sense to get as many legislators as possible on the same page.)

    One goal is “tax neutrality,” meaning that from a tax perspective it would be equally attractive to raise capital through issuing debt or through issuing equity. This could be done by limiting the tax deduction on interest payments or creating an equivalent type of deduction for dividends. In other words, you could raise more or less revenue with such a change, but the debt bias can be addressed.

    I proposed that we go further and consider a tax on “excess leverage” in the financial sector. The idea — already being applied by some European countries and further developed by some of my former colleagues at the International Monetary Fund — is based on the premise that a high level of borrowing relative to equity is a form of pollution, creating negative spillovers for the rest of the economy.

    When any entity in the financial system has little equity relative to its debts, it has moved closer to becoming insolvent. We need big banks, in particular, to have strong loss-absorbing buffers, and that is the role played by equity capital. But the same logic applies to insurance companies, hedge funds and even leveraged buyout firms.

    When anyone has a great deal of leverage, this amplifies the upside return on equity — for a given return on assets, equity holders get more. It also amplifies the downside returns. And executives do not generally pay sufficient concern to the effects of their firm’s potential bankruptcy on the rest of the financial system.

    One way to structure this approach would be as a “thin capitalization” tax — so companies of any kind would be taxed on debts that exceeded some reasonable multiple of their equity (perhaps a multiple of three or four).

  16. Which debate is phony tom K? The debate between the Dems and the Republicans or the debate I am initiating here?
    O as you call him, I call him President Obama, even if I don’t agree with everything he does, has offered more than most progressives would have wanted him to and yet he is rebuked by the Rebublicans. To me that is why I wrote this article to suggest that the answer to the problem is to tax the wealthy and corporations at 1960 rates and we would not have any debt problems.

  18. The debate is phony. O is pushing for minor tweaks that will only require
    slight changes in the tax code. If that weren’t true, his coffers wouldn’t
    dwarf all of the GOP candidates combined.

    O is more of a right-winger than President George W. Jetson.

Comments are closed.