Let Them Go

Let me start this by defining two terms that some people use interchangably, and, I think, that average American doesn't know the difference between: debt and deficit.

The debt is how much we owe as a country. The total of the money that we've borrowed plus the interest, as well as outstanding liabilities such as medicade and medicare. Just like if you were to figure your personal debt load, you'd add the amount that you owe on your car to the amount that you owe on your house to the amount that you owe on your credit cards, etc.

The deficit, on the other hand, is the difference between what we will owe this year (our annual debt, as opposed to the total debt) minus what we'll be taking in this year, largely through taxation.

The other term that I'd like to define is Gross Domestic Product, GDP. The GDP is the total monetary value of all goods and services produced domestically by a country. It includes income earned domestically by foreigners, but does not include income earned by domestic residents on foreign ground.

The reason that I'm providing these definitions is because I'm about to talk about letting the Bush tax cuts expire, and there's a lot of bad information out there about these things.

To start with, let's see where we started.

The top tax rate... the absolute MOST that the government could take from anyone for their income was 50%. This was through the so-called “golden years” of the fifties, up until 1986. In 1986, President Reagan lowered the top tax rate from 50% to 28%, the largest tax cut in history. What was the effect of this? In 1980, our federal debt was around 900 billion. By 1990, we owed over three TRILLION, while the budget deficit remained between 3 and 5 percent of our gross domestic product. Over the next decade and a half, the top tax rate slowly rose again, but only to about 39%. In 2001, Mr. Bush reduced the top tax rate to 35%, and the capital gains tax (taxes on interest and dividends received... where most of the wealthy make most of their money) to 15%, down from about 25%. During the subsequent decade, our debt went from around 6 trillion to over 12 trillion, more than doubled in other words. At the same time, the federal deficit increased from around -2 percent of our GDP (a budget surplus) to almost 10 percent of our GDP, a twelve percent increase.

If we allow these tax cuts to expire at the end of 2010, the top income tax rate goes back up to 39%, and the capital gains tax goes to 20%. At the same time, the amended bill will allow people under $25000 per year to stay at the same tax rates.

There is a lot of rather pointless debate over how letting these tax cuts expire will effect the deficit, but the fact is that somewhere around 50% of the rise in our deficit between 2000 and 2010 was due to these tax cuts. Isn't it a funny coincidence that around 50% of our tax income comes from the richest Americans?

Look, I think that it's fair that the higher your income is, the more you pay. I pay more in taxes than someone who makes Big Macs for a living, and less than someone who manages a bank and I think that's fair.

The biggest argument FOR these tax cuts is the same as it has been since the Reagan administration: it will allow these people to reinvest that money in the United States and reduce unemployment. Good for them, good for everyone, in other words.

The problem with that argument is fairly simple to understand. Between 2000 and 2010, our unemployment rate went from about 5% to about 9%.

So it's time to let these tax cuts go. It's abvious that they haven't helped our unemployment numbers, and it would probably help to reduce the federal deficit. If my taxes have to go up 3% as part of that, I'm okay with that.

Peace.

Rev. Randal