The Moment of Truth

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In December 2010 The National Commission on Fiscal Responsibility and Reform issued a report entitled, ironically, “The Moment of Truth.”  Before discussing the report, let’s recap the economic reality we have found.

Our moment of truth:

Here’s a summary of what we’ve learned so far about the last 30 years of the ultra-conservative economic “Reagan Revolution”:

  1. Reaganomics “supply-side” propaganda is nonsense, the opposite of real economics, churned out to convince you to help the rich get richer; [1]
  2. By cutting the marginal income tax rate in half, and discontinuing regulation of business that had kept the economy safe for years, the “Reagan Revolution” permitted  income and wealth inequality to grow seriously out of line, bringing the country to the brink of a depression;
  3. Today, income and wealth are unbelievably concentrated in the high echelons of the wealthiest top 1%, and most economic growth is accruing to the top .1%;
  4. Over the 30 years of the Reagan Revolution, about $8.8 trillion of wealth was effectively transferred from the bottom 99% to the top 1%, up to 2007, due to the tax cuts for the rich;
  5. The vacuum is still turned on, and has produced an additional transfer of more than $1.2 trillion since 2007;
  6. The loss of wealth to the bottom 99%, especially in the loss of homes and residential real estate values, and in increased debt associated with steeply declining real incomes, is in the many trillions of dollars, beyond our ability to fathom at this point.  We think the loss of wealth associated with residential real estate is probably more than $5 trillion, but we don’t have a firm estimate now.  At any rate, much depends on whether the economy and home values recover;
  7. If the total damage of the Reagan Revolution so far were limited to $10 trillion (we wish!), the wealth of the bottom 99% and its American economy would only be about 75-80% of what it would have been without the Reagan Revolution.  We think the bottom 99% may have only about 2/3 of the wealth income it would otherwise have had; virtually all wealth and income growth today goes to the top, and for the bottom 90% or 95% there is only increasing unemployment and poverty, and decreasing income, home ownership and wealth.  Despite what we read in the papers about recovery, it’s not a recovery for the bottom 99%;
  8. Now we have a federal debt crisis.  It is caused entirely by debt totaling more than $12.1 trillion (including accumulated interest) raised in Republican administrations.  This debt financed (i.e., replaced the government revenues lost by) the tax cuts for the very rich.  Republicans are using this high level of  debt as an excuse to redouble their efforts to raid medicare, privatize social security, and destroy what’s left of the middle class.
  9. This cannot be allowed to continue much longer.

The debt commission’s Orwellian “moment of truth”:

In its December 2010 report, the National Commission on Fiscal Responsibility and Reform, ironically, said it found a need to “maintain or increase progressivity of the tax code.”  The report also stated:

“Though reducing the deficit will require shared sacrifice, those of us who are best off will need to contribute the most. Tax reform must continue to protect those who are most vulnerable, and eliminate tax loopholes favoring those who need help least.”

Incredibly the Commission, with complete detachment from reality, recommended reducing the top rate from 35% to 23-29%.  According to the Commission, “The top rate must not exceed 29.”  Its plan is nothing more than a tax reduction plan, in which “revenue reaches 21 percent of GDP by 2022 and is then capped at that level.”

This is Orwellian propaganda at its worst.  The truth is that the tax code is far from progressive today (go here), and the commission’s recommendations would make the code still more regressive.  And no additional sacrifice is called for from those who benefit the most from the current tax structure.  Under that plan, those who are best off do not “contribute the most,” they escape responsibility altogether.

There is no stimulus in this plan:  It reduces government revenue, and in the face of the tragically high level of Republican debt, that means government spending and the economy, which is already teetering on the edge of the precipice, will be sacrificed for still more increased wealth for the very rich. Under this plan, America does not get to 2022 as a democracy, and its economy is long since in a depression.

For the bottom 99% to start coming back, America needs tax increases on the rich and corporations, and fast.  To get out of its bind safely and  permanently, America needs to return to a top FIT rate much closer to the 70% rate in effect during the former stable, prosperous economy again, and soon.  Just letting the Bush tax cut for the rich lapse (returning to a 40% top rate from the current 35% rate) will not be nearly enough, for wealth will still be transferring to the top at an excessive rate.

And capital gains (retained corporate profits) are distributed as income to the very wealthy, increasing their wealth.  The richer you are, the more of your income and wealth comes from capital gains.  The current capital gains rate is 15%, the same as the rate on ordinary income earned by people at the poverty level.  Today our Republican legislators are proposing to eliminate the capital gains tax altogether.  It needs to be at least tripled, and soon.

America needs to wake up now:  We’re still headed in the wrong direction.   But official America, its debt commission and its politics and media, are controlled by the wealthy elite.  So to save ourselves and our country, we all have to work hard from now on, in every state, to turn Republicans, blue dog Democrats, and the tea-bag plutocrats away at the polls.

JMH – 4/13/11

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