The Weiner Component #140C – Congress & the National Debt

National-Debt-GDP

National-Debt-GDP (Photo credit: Wikipedia)

The National or Public Debt is money that the United States has borrowed above what it collects in taxes and which, with taxes, it uses to operate the country.

 

The high current level of the National Debt was brought about by the three last Republican Presidents: Ronald Reagan and the two Bush presidents, father and son.  The majority of the balance came about by policies and wars by these three men.  Prior to Reagan assuming office the National Debt, which had existed since the inception of this nation, was under one trillion dollars.

 

Republican led economizing actions toward the Public or National Debt have been penny wise and dollar stupid; particularly since the Republicans took control of the House of Representatives in 2011.  Since this period their economizing policies have actually exacerbated both the unemployment situation and lowered the overall economic health of the United States, actually keeping the GDP (Gross National Product) considerably lower than it could or should have been.    Their tactics of forcing their agenda through by refusing to enact necessary legislation unless their economizing bills were also passed have cost the government millions, if not billions.  This is particularly true with bills funding the Federal Government or raising the nation’s debt limit that they mostly caused to be as high as it is.  In fact we are just passed a point in time when the government once again needed to have the debt limit raised above the 18.1 trillion limit or cause financial crises by not allowing the Treasury to have enough funds to pay the continuing costs of running the Federal Government.

 

Fortunately this was one of the final acts of the retiring Speaker of the House of Representatives, John Boehner.  He, with the majority leader of the Senate, Mitch McConnell, and with President Obama worked out a compromise bill through a telephone conference.  They raised the National Debt so that it will not have to be adjusted for two years and also funded the military properly for the oncoming year.  This was done in both Houses of Congress with Democratic help.

 

The conservative Congress presumably wants to or was attempting to use this as a bargaining/blackmailing tool to force the President to cut discretionary spending, which already has been and will again be automatically cut by the sequester at the beginning of the New Year.

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The National Debt, all 18.1 trillion of it, consists of two categories, Public and Private Debt.  The Federal Government owns through its assorted agencies probably, at least, 50% of its own debt.  It could be a lot higher than that.

 

Question: Can an entity owe itself money?  Can any individual or entity owe itself money and legally charge itself interest on these funds?  Apparently only the Federal Government can and does do this.

 

But is it real?  Since money has no intrinsic value the Federal Government could print any amount it wishes.  There is absolutely nothing behind the dollar but the word of the National Government.  There are, of course, reasons why it doesn’t but the Federal Reserve can and does occasionally increase the amount of money in circulation in the National Cash Flow.

 

Of course if any agency like Social Security, which has been showing a profit since 1983 when it was last adjusted and is currently owed about three trillion dollars, were to need any of its additional funds or some of the monies owed to it, that would create problems since the monies has been and are continuing to be spent, both the principle and the interest, and Social Security is given book credit for all these amounts.

 

This process is also true for a large number of government funds that run a surplus; the excess money is freely added to the general fund.  The major exception to this practice would be the Federal Reserve which will and has used debt funds to make adjustments in the National Cash Flow, adding money when there is a shortage during periods of deflation or recession and taking funds out of the National Cash Flow during periods of increasing inflation when there is too much money available in the flow.

 

The rest of the Public or National Debt is private, borrowed on a short or long term basis, from individuals, countries, and other entities.  The major foreign holder of American debt is China, (whether its individuals, companies, or the government itself is another question), holding about 3 trillion dollars’ worth of this loan paper.  Japan is next holding a little less.  The third, I believe, is India.  Companies and individuals hold this mortgage paper.  The FED has sales of it going on all the time, selling short to long term bonds.

 

In addition people buy EE bonds as gifts and as a form of savings.  These bonds function over a 5 year period and their cost is less than the face value of the bond which is the value after 5 years.  They make nice gift for youngsters in that they cost less than their face value and if they are held over 5 years pay additional interest.  I bonds tend to cost more and generally pay a higher rate of interest.  Here the interest is added on to the bond.  There are no state or local taxes on these bonds.

 

How real is the Public or National Debt if the Federal Government owns a large percentage of its own debt?  An interesting question and different economists have different conclusions or interpretations of this fact.

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Alan Greenspan, a conservative economist, was appointed Federal Reserve Chairman by President Ronald Reagan in August 1987 and served until January of 2006.  He held that the Free Market was essential in making economic decisions.  Reagan and his advisors followed the same principle.  They deregulated the banking industry and allowed them to move freely forward.

 

Greenspan served for almost 20 years as Chairman, the second longest tenure of any chairman in the FED and was looked upon by many members of Congress almost as a seer who could foretell the economic future.  Unfortunately Greenspan, even with all the information provided by the Federal Reserve’s constant monitoring of the economy missed the major change that occurred during his term as Chairman.  That was the need for rapid monetary expansion by a rapidly growing economy.  Instead of the FED increasing the money supply in a sane fashion it was left to the unregulated banks to expand the amount of currency in circulation.  This was done slowly at first and then gathered speed like a free moving vehicle rushing downhill.  By 2007 the signs of eminent economic collapse were present.  But they were faced with denial by a generation of bankers who had known only rising real estate values.  The Real Estate Crash came in late 2008 when the entire real estate market disintegrated overnight.  So much for economic awareness by the experts!

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First, what is the real National Debt?  Is it just the Private Debt or is it both, the Public and the Private Debt?  The American dollar today is still considered one of the most prized currencies in the world.  The FED has never had any trouble selling its bonds both domestically and to foreign investors.   Most other nations rank their currencies to the value of the dollar.  Some economic theories or beliefs seem to occasionally be in a process of change.  Finally the United States does not seem to be even near the point of going bankrupt.

 

We are moving into economic areas where it would seem new laws of economics seem to be about to be discovered.  Money, in terms of Macroeconomics, is related to the system of taxation but not dependent upon it.  Money, to the state, is a tool utilized to enhance productivity and the levels of national consumption and standards of living for the entire population.

 

The determining factor of how much money should be in circulation is or should be determined by the level of inflation or deflation that exists in the nation.  A high rate of inflation determines that not enough goods and services are being produced. People are bidding up the price of everything.  A rapid drop in prices indicates that too much goods and services are available and there is not enough cash in the general society to purchase them.  One of the main jobs of the Federal Reserve is to maintain a balance between these two forces. For this process the 12 Federal Reserve Banks are supposed to constantly monitor their areas of responsibility.

 

This was not done properly by the FED from the 1970s through 2008 and the Real Estate Collapse was brought about by the deregulated irresponsible banking industry that created excess trillions of dollars that were added to the National Cash Flow.  If the increased cash needed for the economic growth for this period had gradually been added to the national economy by the Federal Reserve there would never have been the 2008 Real Estate Disaster.  The FED, under Alan Greenspan, allowed the Free Market or unregulated Capitalism to bring about economic disaster.

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Many economists believe that as long as the Public Debt does not exceed the Gross National Product (GDP), which is all the goods and services produced in the nation in one fiscal year, the country is safe.  The GDP is estimated to be 17,419 trillion dollars for 2015, the Debt Limit has to be raised beyond 18.1 trillion dollars.  The estimated growth in the GDP between 2014 and 2015 is estimated to be 651 billion dollars.

 

There have been times in the past, usually during major wars or economic emergencies like the Great Depression, when government spending has exceeded the value of the GDP.   These have lasted for short periods of time.  Once it regularly exceeds that level there is, according to some economists, a serious problem.

 

Also as we move toward the middle of the current century the retired population and those needing more continual medical treatment will increase significantly raising the costs of Social Security and Medicare.  Both of these programs will take a larger and larger percentage of discretionary spending continually bringing up the Federal Government’s costs.  Presumably the costs will increase far above the GDP.  At this point, according to some economists, the ever growing National Debt could cause continual economic harm to the country.

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If we accept this premise as accurate there are certain known variables that have not been factored into this premise.  There may also be other unknown variables that could come up.

 

The first major factor to consider is time.  Most of these future projections are based upon the present; that is, given a future of a decade or two or more, if everything remains exactly the same except for what is being discussed, then the projection will happen.  Generally no one can accurately project all the changes that will come about ten or more years from now.  On that basis any prediction is flawed.

 

Think of your own lives.  What was your world like ten or more years ago?  Could you even imagine being where you are now?  Could you imagine the world as it is now?  I recently found myself standing in a supermarket checkout line looking at a display of chocolate bars.  They were on sale, 4 for five dollars.  For no reason I said aloud, “What happened to the 5 cent bars of chocolate?”  The person in front of me, who was being checked out, start to muse aloud about how, as a child, how much candy he could buy then for a quarter.  He was in his mid-fifties.  Values or prices have changed considerably since then.  Money has decreased in value.  That is one variable that no one really projected.

 

Social Security was last fixed or its premiums were raised in 1983 during the presidency of Ronald Reagan.  It has had since then and currently still has a surplus.  Presumably sometime well past the middle of this century it will begin using this surplus and toward the end of this century will have used it out and have to be readjusted, if this is not done earlier.  Medicare was separated from social security in the late 1980s.  From that time on it was funded by an additional payroll tax paid by, like social security, both by employees and employers.  Both or either of these funds can be again increased or fixed.

 

What many economists are projecting into the future is what will happen if the present becomes the future.  Essentially with no other changes in the future except the increase in the elderly population they are predicting what will happen.  They are not taking any other variabilities into consideration.  The probability of the projection coming true as stated is very low, probably well under 25%.

 

In the last few years the amount of money, as a percentage of taxes collected, has been significantly decreasing but so has the cost of running the Federal Government.  We could possibly in Barak Obama’s last year as president actually have a slight surplus decreasing the National or Public Debt.  This did occur during Clinton’s last year as President.

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Will the Federal Government raise the National Debt further toward the end of this century?  We still haven’t defined what is the real National Debt or, for that matter, the reality of the National Debt as a factor in the operation of this nation in terms of Macroeconomics.  We are moving forward in time with assorted future projections by assorted economists, some of these forecasts contradicting other forecasts.

 

Has Congress even begun to study this problem?  Most of what I have heard from Republican Congressmen has been doom and gloom, the country is headed for bankruptcy unless we cut down Federal spending.  Yet the Republican headed Congress can spend well over 4 and 1/2 million dollars holding numerous standing committee hearings trying to tear down or blame Hillary Rodham Clinton for what happened in Benghazi, Libya while Clinton was Secretary of State.  And this same Republican Congress earlier wasted over a billion dollars shutting down the Federal Government by refusing to fund it.  Some of the potential Republican candidates for the 2016 Presidential Elections seem to want to massively expand the war against ISIS.  They seem to have a problem dealing with the real world!

English: The holders of the United States nati...

English: The holders of the United States national debt as of December 2008. (Photo credit: Wikipedia)

The Weiner Component #136 – Part 3: The Sequester

Following is perhaps one of the most important reasons for the Election of 2016.  Its results will strongly affect the future of the United States in terms of whether the country moves toward economic fulfillment for most of the population, stays where it is now, or goes further in the direction of continuing to exist mainly operated by the rich, be run by the rich, and mainly exist for their benefit.

 

On August 1, 2011, the House of Representatives passed the Budget Control Act of 2011, which was then approved by the Senate, and signed reluctantly by President Obama.  The Act provided that if the Joint Select Committee did not produce bipartisan legislation that made across the board spending cuts then automatic spending cuts would take effect on January 2, 2013.  Its commencement was by law delayed until March 1, 2013.  On that date, with no bipartisan deal having been reached, the initial sequestration cuts would take effect at midnight.  While President Obama signed the bill putting the cuts into effect he referred to them as being “deeply destructive.”

 

On March 6, 2013, the House of Representatives passed a bill to extend the continuing resolution and to enable defense and the veteran’s programs to adjust to the cuts brought on by sequestration.  Other bills were passed adjusting many of the visible cuts like those made to airport traffic control.  Suddenly most of the airports had long waits for planes taking off and landing as the number of air traffic controllers was cut by the sequester.  This and other visible cuts were adjusted; but many of the invisible ones like a decreases in school breakfasts and lunch programs for the children of the poor or, for that matter, meals on wheels for poor senior citizens, were also cut but they tended to be invisible so there was no large scale objection to these.

 

The cuts were divided evenly in dollar amounts between the defense and non-defense categories.  Some major programs like Social Security, Medicate, federal pensions, compensation for legislators, and veteran’s benefits were exempt.  Medicare benefits were reduced by 2% a year.  Instead of cutting some Federal pay rates a system of furloughs was set up which resulted in involuntary unpaid time off for government employees was utilized.

 

The sequester is supposed to lower total Federal spending by $1.1 trillion over an eight year period, from 2013 to 2021.  In 2013 it was supposed to lower non-defense discretionary spending by 7.8% or $294 billion and slightly lower in succeeding years; and it was supposed to lower defense spending by 10% or $454 billion, with slightly lower cuts in succeeding years.

 

In point of actual face since the application of the bill was delayed from the beginning of January of 13 to March 1, 2013 the actual savings for that year was 85 billion dollars instead of 110 billion dollars.  After two years the cuts have been devastating to both the defense and non-defense sections of the government.

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This was the non-compromise compromise that the Republican legislators in both the House and Senate insisted upon to force the Democrats and their President to compromise upon lowering government spending.  Was it a good idea?

 

Generally, with the exception of 2013, the sequester goes into effect at the end of the year and if the required cuts have not been made in all the programs then those not made by legislation during the year automatically go into effect on January 1 of the new year unless a special bill is passed limiting one or another sequester areas of defense or non-defense spending.  Keep in mind that this process is supposed to continue until 2021 and that only the third installment will have passed by the end of 2015.  There will be an additional six years to go.

 

The sequester will, if no significant changes are made, lower all Federal Government spending by a total of 1-1 trillion dollars from 2013 to 2021.  It decreased non-defense spending by a range of 7.8% in 2013 and will lower it to 5.5% by 2021.  This is a total of 450 billion dollars for the first year.  Defense spending was also lowered 10% in 2014 and will drop to 8.5% by 2021.

 

It is also important to realize that the sequestration has significantly cut federal and non-federal employment in the many hundreds of thousands.  In late 2008, Republican President George W. Bush’s last year in the office, the total economy tanked after thirty plus years of constant and sometimes irrational growth.  Bush and his Secretary of the Treasury, Hank Paulson, during the last months of that year spent many billions of dollars bailing out the major banking houses in the country, keeping them from going bankrupt.  The pattern of governments stopping potential bank failures and saving banks became an international operation in many industrial nations.

 

In the United States the oncoming economic failure became obvious in 2007 when the loans to homeowners became frenzied with mortgage lending 125% of the then value of the property.  The bankers were in complete denial that ever-rising values could ever stop happening.  Most of them had spent their entire prior work life during a period of ever-increasing real estate growth.

 

With the 2008 Real Estate Crash there was suddenly massive economic collapse with value dropping like bombs from airplanes during wartime.  The value of the dollar dropped to about ten cents overnight.  A good percentage of homeowners, particularly those who had continually refinanced their homes suddenly found themselves owing more on the properties than they were worth.  As a last minute move before the crash some banks were frantically continuing the process.  It had become by 2008 frenzied madness.

 

The new President, Barak Obama, inherited this problem when he assumed office in 2009.  He spent his first two years in office with a Democratic Congress, successfully working on this problem and getting Affordable Health Care passed.  He continued the bailout of the banks and saved both the financial institutions and the American auto industry with massive loans.  By the 2010 Midterm Election a goodly percentage of the people who had voted for him and change did not vote.  Probably they felt he had not brought any or enough of the change he had promised in the 2008 Election.  Consequently the Republicans achieved a majority in the House of Representatives and thereafter would pass nothing favored by President Barak Obama.  This continued through his first term in office and largely through his second term.  In 2014 Midterm Election the Republicans all achieved a slight majority in the Senate.

 

Consequently during most of Obama’s presidency Congress has refused to even consider fiscal policy, spending money to create jobs and modernize the infrastructure.  The Federal Reserve has utilized monetary policy, lowering the interest rates paid by the banks to consumers to almost nothing, one tenth of one percent, for most of the money deposited into the banks.  Despite all this in August of 2015 unemployment dropped to 5.1% of the work force looking for jobs, the lowest point since the Real Estate Crash of 2008.

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During Reagan’s presidency, in addition to massive military spending, the banks were deregulated.  In 1932, during the midst of the Great Depression, bank reform bills or regulation to avoid another massive depression, which mostly the banks had caused in 1929, were passed.  They had been added to over the years.  All this disappeared during the Reagan Era when the “Free Market” became dominant.  That was during the 1980s.  By 2008 the big banks had again undone the economy.  All this was strongly continued by the two Bush presidencies.

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Basically the Republican position has been “No new taxes,” even though Reagan and the first Bush president both oversaw some tax increases.  With the second Bush presidency it was two wars and a large tax decrease, particularly for the wealthy.  If more money is needed for any reason the Republicans would reduce non-military spending, particularly discretionary spending, to make up the difference.  Discretionary spending is programs which aid the elderly, the poor, and the middle class.  In essence their programs have been welfare for the rich at the expense of everyone else.

 

The Democratic position has been that the country can increase spending by having newer and fairer taxes.  This is the means of paying for new programs and increased costs.  They will not go along with paying increasing or new costs by decreasing the money spent on the lower levels of society.

 

From these two positions there is no way to achieve a compromise.  Thus we have sequestration, which is in essence squishing the bulk of the population and the functioning of the government. It is an interesting act of spite perpetrated by the Republicans upon the Democrats and the rest of the country.  There is no possibility of compromise.

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If the sequester were not in existence unemployment would currently be down to 2 ½ % or lower and there would be a labor shortage.  This would automatically raise the minimum wage and everyone’s standard of living would rise with the rise of wages as employers would be competing for workers.  The FED would have raised interest rates to hold down inflation and the GDP would be far higher than it is now.  The amount taken in in taxes, on all levels of state and federal governments, would have increased substantially and the Federal Government might even be slightly paying down the National Debt.  But instead the Republicans have to be “penny wise and dollar stupid,” holding down economic growth in the nation both as spite and as an economizing measure.

 

For the end of January 2015 President Obama had asked for an end of sequestration and an overall 7% increase in all areas of spending.  This was an opening position on the 2015 budget debate with a Republican Congress.  He got none of these.  The end of 2015 is coming up.  Both the time for the final cuts to the 2015 sequester and the 2016 Presidential Election will soon be with us.

 

The military is currently in worst shape than it has been since the end of World War II; when the war ended and the government overnight cancelled all war contracts and began quickly releasing a large percentage of its army back into civilian life.  This continued until the Federal Government realized there was a Cold War going on with the Soviet Union; then it reversed itself.  Currently, according to the armed services top officers another round of sequestration will have dire consequences, which will include the ability to win a ground war.  The size of the navy and air force is shrinking as these services cannot afford to replace outdated ships and air planes.  And this does not include all the other cuts that sequestration is causing.  The military is at present in a worst position of preparedness than it has been since the end of W.W.II.

 

On a non-military basis poor children are going to school hungry and staying hungry all day while trying to learn.  Senior citizens are doing without food and dying because of program cuts.  They often have to choose between rent, medicine, and food.  They can’t afford all of them.  Food is the first expense to go.  The country will lose a generation of scientists as research funding, which already has been cut 50% continues to decrease.  The Federal Bureau of Investigation released a report at the end of 2013 entitled, “Voices from the field,” that cites the effects of sequestration upon the F.B.I.  It states that, among other things, new intelligence investigations were not opened; criminal cases were being closed; informants couldn’t be paid; and there was not enough funding for agents to put gas in their cars.  And early Head Start programs were eliminated to balance budgets.

 

All these and many other programs tend to be invisible to the general public.  Also the effects of these and other unnecessary cuts bring about a significant loss of employment in the overall economy and, as we’ve seen, a noticeable drop in the GDP.   Sequestration is hurting the nation.  As it continues the damage increases.  Further cuts will have to be made at the end of 2015.

 

What amazes me is that virtually all the Congressional Republican legislators have taken an oath/pledge in writing to Grover Norquist, a libertarian-leaning Republican lobbyist and founder of Americans for Tax Reform, who has no direct connection with the Government, that they will never raise any taxes.  These same Republicans have taken an oath to uphold the Constitution of the United States.  It would seem that the first oath here comes before the one to the Constitution.  It would also seem that a number of Republicans would like to get rid of the sequestration but they are bound by their pledge or oath to Grover Norquist.

 

President Obama has stated that the government can raise the tax revenue to pay for doing away with sequestration by “fixing a tax code that is riddled with loopholes for special interests.  Some of these loopholes were passed during World War II, over a half century ago, to encourage the amount of gasoline produced during the war.  They are still on the books and Norquist sees them being done away with as an increase in taxes.  The current situation and inability of the two parties goes beyond sanity.

 

My solution to this problem would be to have both political parties appoint a bipartisan committee and lock them in a room without access to a bathroom which they cannot leave until a solution is reached.  And if others in Congress refuse to accept the compromise then automatically appoint them to a new committee and lock them in the same room until they reach a compromise.  This process would be continued until everyone is in agreement on a compromise.  If possible Grover Norquist should be added to all the different committees.

 

The members of Congress are each being paid 170 thousand dollars a year and take an oath to serve the country.  Each has a budget of over a million dollars for their staffs.  It’s time they did a competent job as legislators.  The taxpayers are spending a lot of money on them and their staffs.  The Republicans seem more interested in a welfare state for the rich than in a country that functions for the benefit of all its members.  Sequestration should never have happened; it’s the type of thing children would do: spite for the sake of spite.  The oncoming 2016 Presidential Election is an opportunity for the voters in America, despite the various suppression of voting in many Republican controlled states, to get rid of a number of legislators that are serving causes other than the welfare of the United States.

The Weiner Component: Part 2 – Taxes & the Republican Party

English: Federal income tax amounts in the Uni...

English: Federal income tax amounts in the United States, based on average pretax household income (2003). The primary source of the information is the Congressional Budget Office’s publication titled, “Historical Effective Tax Rates.” (Photo credit: Wikipedia)

English: Plot of top bracket from U.S. Federal...

English: Plot of top bracket from U.S. Federal Marginal Income Tax Rates for 1913 to 2009. Data are from http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_progressivity_in_federal_income_tax (Photo credit: Wikipedia)

No one will argue that the Federal Tax System (the income tax) is fair and doesn’t need reform.  The problem is that both the Republicans and the Democrats come at it from totally different perspectives and cannot even begin to come to any sort of agreement about what should be done.

 

The Republicans are supposed to be the party of balanced budgets.  They have systematically held to two major positions: a balanced budget and not increasing the tax rate for the rich or for large corporations; in fact for a large number of years every incoming Republican to the House or Senate has sworn an oath/pledge in writing to Grover Norquist, a lobbyist with no direct connection to the Federal Government that he or she will not raise taxes.  They have also verbally and dramatically supported raising the rate of expenditure for the military with cuts to entitlement programs.

 

Yet the last three Republican Presidents, starting with Ronald Reagan and the two Bush’s, father and son, through military preparedness and wars have raised the National Deficit from one trillion dollars to over thirteen trillion dollars and, in addition, the last Republican President, George W. Bush, left the country at the end of his term in office at the very edge of a major depression.  Avoiding this potential Great Depression caused the next President, Barak Obama, in 2009 to have to spend a far greater amount than was taken in in taxes over most of his two terms to avoid economic calamity and to continue the two wars that Bush propagated, bringing the current deficit up to over seventeen trillion dollars.  Finally, toward the end of 2015, the administration may be able to reduce slightly the deficit.

 

The Republican majorities in Congress are still “Penny wise and dollar stupid,” refusing to spend money on fiscal policy which would both help leave the remnants of the 2008 recession behind us, improve the needed outdated early 20th Century infrastructure of the United States and significantly lower the current rate of unemployment.  They have since 2011, when they gained control of the House of Representatives, refused to pass any spending bills that would upgrade any of the needed infrastructure of the United States, like hundred year old bridges.

 

Their aim seems to be to lower taxes for the upper few percent of the earners, who they call the “job creators,” and increasing the taxes for the middle and lower classes.  In this process, regretfully, they have been fairly successful.  The middle class has been since 1980 decreasing in percentage of the population and the lower class has been growing, to a point where homelessness can be seen today in almost any major city in the U.S.  In fact poverty is at a higher rate today than it’s been in years and is continuing to increase.

 

Since the Republicans cannot get the Democrats in Congress to openly go along with tax cuts for the wealthy and paying for this with large cuts in entitlement programs they have in 2013 passed the sequester law, which automatically makes cuts across the board in government spending.  Most of these automatic cuts seem to be invisible but when one become openly harmful to the economy a law can quickly be passed funding it.  Such was the case with the air controllers at the airports throughout the U.S.   Such was not the case in terms of the U.S. military; they are currently in the worst state of preparedness they have been in decades.  It’s as though the Republicans in Congress are saying one thing, getting the nation ready for war with Iran when they completely take over the government after the next election and at the same time, assuming that they will not have to pay for the war or anything else.  Their actions and intent verge on idiocy and irresponsibility or on a total inability to deal with the real world.

 

One of their major actions during the last thirty-five years has been to systematically reduce taxes for the very wealthy and gradually increase it or make up for the increasing deficit by increasing the tax base for the middle and lower classes.  Some of this has been done by indexing income taxes; that is, with natural inflation incomes rise while purchasing power stays the same or decreases.  This throws many members of the middle class into higher tax categories because their incomes increase but their standard of living actually decreases.

 

Many or most Republicans legislators probably are not even aware that this is happening because it has been going on for over three decades.  Most, if not all of them, have come into office in Congress well after this process has been begun and have just continued it.  If we look at the pattern of taxation over the last fifty years this is one aspect that we can easily see.

 

The major responsibility for all these changes rests with the Republicans, their major contributors and the lobbies working for these people.  And the Supreme Court, in recent years, has expedited this process by defining contributions to political parties as just another form of “free speech guaranteed by the First Amendment to the Constitution.”

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First off, taxes are either progressive: everyone pays according to their ability to pay, or they are regressive: everyone pays equally, which means the rich pay a smaller percentage of their incomes on these taxes than the middle or lower classes.  In essence the lower one’s income the higher a percentage of his income would be paid on these taxes.  Examples of this kind of tax would be a sales tax or an excise tax.  Everyone pays these equally.

 

An example of a progressive tax would be the Federal or State income taxes.  They are progressive up to a point, that is up to a little over 400,000 dollars.  Up to this amount the percentage of the tax is gradually increased as incomes becomes larger.  After the maximum, a little over 400,000 dollars is reached the income tax becomes regressive in that the percentage paid becomes fixed no matter how great the income is over this amount.

 

An individual earning ten or twenty million a year or more would continue paying the same percentage as someone who has only earned 400,000 dollars a year.  In point of fact the higher his income the lower the percentage that individual pays in taxes.

 

Virtually all other taxes, which are touted as being fair because everyone pays the same amount, are regressive.  The wealthier one is, the lower that tax is in terms of a percentage of his income.

 

If we look at the 2014 Income tax schedule there are four categories for taxpayers: (1) Single, (2) Married Filing Jointly, (3) Married Filing  Separately, & (4) Head of Household.

 

Using Schedule Y-1: Married Filing Jointly as our example one sees the sequence of taxes for 1914.  For earning up to $18.150 there is no income tax.  For a couple earning between $18,150 and $73,800 the tax is $10,162 + 15% over $18,150.  For earning of $73,800 to $148,850 the tax is $10,162 + 25% of the amount over $73,800. If a family earns between $148,850 and $226,850 the tax is $28,925 + 28% over $148,850.  For between $226,850 and $405,100 the tax is $50,765 +33% over $226,850.  If they earn between $405,100 and $457,600 the tax is $$109,587.50 + 39%.  At $457,600 up they pay $127,962.50 + 39.6% no matter how much they earn.

The amounts are slightly less for a single person and roughly half for a married taxpayer filing separately.

 

In essence everyone pays increasing amounts for each category until they reach their total income after legal deductions.  This would be true for those earning over $457,600, except that after that amount they would pay $127,962.50 + 39.5% of their income.  If they earn a million it would be that amount and would remain the same with earnings of a billion or more.

 

Note that anyone earning any amount over $457,600 pays that same percentage whether his income is one million or over a billion dollars.  While this may seem like a lot of money still in comparison to the percentage of their incomes which most taxpayers have to pay who are under the $450,000 benefit it can be a very much smaller percentage of their yearly incomes.  In the case of someone like the Koch Brothers, who are estimated to have at least a $100 billion each, it can be well under ten percent of their yearly incomes.

 

Mitt Romney, in 2012 when he was running for the presidency, released one year’s tax percentage.  It was 11 or 12%.  No one earning less than $400,000 a year pays that small a percentage of their income

 

If we look at the taxes in 1980, the last year of Jimmy Carter’s presidency, the percentage in income paid in income taxes were graduated up to an income of one million dollars.  The more one earned the higher the percentage he paid in income taxes.  At $100,000 the tax was 27.3%.  At $200,000 it was 33.1%.  At $500,000 it was 40%.  Up to $1,000,000 it was 44.6%.  And over $1,000,000 it was 47.9% of the yearly income.  The income tax became regressive on earnings well over the million dollar mark.  But it was still a fairer income tax than that of 2014.

 

From 1932 to 1935 the percentage of income taxes for those earning one million or more was 63%.  It rose to 94% from 1944 – 1945 and then gradually declined to 92% by 1952 – 1953.  By 2013 for those earning $450,000+ the rate of taxation became 39.6%.

 

In 1981 Ronald Reagan became President of the United States.  From that point on the maximum percentage seemed to flow toward 39.6% for those earning $457,600 or more.  This amount was fixed, under the guise of tax reform, during the Obama Administration.  The Republicans who then held a majority in the House and were able to freely filibuster in the Senate absolutely refused to go over that amount.  It was that or nothing.

 

With the oncoming 2016 election this issue hangs in the air again.  A Republican majority currently exists in both Houses of Congress.  If a Republican president is elected then the tax reform will be enacted for the upper few percent of earners in the country.  The rich will keep more of their incomes and the middle and lower classes will get far less than they currently have.  It will truly be Government of the Rich, for the Rich, and by the Rich.  All entitlement programs for the poor and general public will diminish considerably.

 

In fact in one of his speeches Jed Bush has promised to lower taxes for the upper few percentage of the earning population.  His justification is that this will increase employment in the U.S. because these are the people who create jobs.  Historically this has never happened.  But Bush Jr. presumes he knows best.

 

If, on the other hand, the Democrats were to win both Congress and the Presidency then we could see genuine reform of our income tax system.  But the probability is that 2016 will give the country another Democratic President and the House of Representatives will maintain, through gerrymandering, a Republican majority.  The Democrats will still not have a super-majority in the Senate, so it will again be open to filibustering.  There will still be no way for real tax reform.  However we can hope for miracles.

Distribution of U.S. federal taxes for 2000 as...

Distribution of U.S. federal taxes for 2000 as a percentage of income among the family income quintiles. Source: Department of the Treasury, Office of Tax Analysis Working Paper #85, “U.S. Treasury Distributional Methodology” by Julie-Anne Cronin (September 1999)- also available here (Photo credit: Wikipedia)