The Bottom Line
A Historical Perspective: From The New Deal to Reaganomics and Huge National Debt
The Federal Budget
The California Budget — A Lesson in Riding a(n) (Income Tax) Revenue Roller Coaster
What I believe in when it comes to the Economy, Budgets, and Jobs
A healthy, sustainable economy can only happen if it works for all people, offers assistance to those in need during down periods, and fosters a strong middle class with buying power and opportunities to build lasting savings. And that isn’t accomplished by wild “trickle down” economic theory and Laffer Curves. It works through investing in people — education, training, safety net, retirement security, infrastructure, job access — in addition to innovation, and fiscal responsibility that includes a progressive tax system, living wages, and only a sustainable level of public debt.
In 1933, Franklin Roosevelt and his allies introduced a New Deal for the American people. In the eyes of some of us, it was an experiment in capitalism, not socialism, that in my view built upon and saved our “mixed economy” model (which blends some principles of pure capitalism with the realities of government contribution, public safety net, and responsible public regulation). For the next 4 decades, America saw something it had yet to truly witness in its history — the rise and establishment of a true middle class. Jobs and opportunity were largely plentiful, occasional recessions replaced historical financial “panics” and great depressions, and unions negotiated a host of benefits that both public and private sector employees enjoy to this day (but that are under assault). We incurred massive national debt to fund World War II, but we paid it down to the point where the day Jimmy Carter left the white house in January 1981, our national debt was “only” $934 Billion.
Enter Ronald Reagan and his “revolution.” Reagan and pent up Republicans from what was then considered the far right of the Republican Party (some of them couldn’t even win a Republican Primary today because they would now be considered too “moderate”) were determined to dismantle the New Deal. They believed in “Trickle Down” economics, and put in place a tax system that they SAID would reward investment by wealthier individuals and the wealth created would be so vast that it would “trickle down” to the rest of us. Well, it didn’t. And doesn’t. The wealthy like being wealthy. In fact, they like being as wealthy as possible.
Reagan slashed the top tax rate from 70-90% of income by more than half, and even today following two, 2-term Democratic administrations, the highest rate, according to “Investopedia,” sits only at 39.6% (for single filers who made more than $413,201; to married joint filers who made over $464,850; to heads of household who made at least $439,001).
When upper income tax rates were high, incentives existed to lower one’s tax burden by investing in people (increasing salaries, expanding workforce), one’s business infrastructure and equipment, and other growth strategies. Reagan’s tax rates undercut those incentives, and the wealthy did NOT invest in people and business infrastructure at anywhere near the levels Reagan’s misguided theories predicted. Thus, “the rich got richer,” and everyone else’s real wages have stayed level or mostly declined in today’s real dollars. The middle class is disappearing, and affordability of homes, education, and other staples middle class people could always rely on seem nearly out of reach.
Even more so — Reagan set out to slash Federal spending on programs that served people, and dramatically increased the Defense budget. He claimed his tax cuts would “starve the beast” that was the Federal Budget, and programs would atrophy from lack of revenue. There was only a slight hitch — Reagan not only spent as much as previous presidents, he actually spent more per capita than his predecessors. And don’t let anyone ever tell you “It wasn’t Reagan, it was the Democratically controlled Congress.” Nope. In fact, the budgets Reagan got passed either mirrored what he asked for, or were reduced slightly by Democrats because they felt he asked for too much. The $934 Billion national debt Reagan inherited grew to $2.8 TRILLION in 8 years. Adhering to largely the same policies, President George H.W. Bush nearly doubled that figure, and his son George W. Bush took the $5 Trillion deficit he inherited from Bill Clinton and doubled it to $10 Trillion, also leaving in his wake a financial meltdown (“The Great Recession”) which saw the national debt continue to skyrocket in President Obama’s first 4 years. See the chart below, from “zFacts.com.”
Let’s take a look at the Federal Budget pie chart, provided by the highly reputable, non-partisan Concord Coalition (one of my former employers) and based on the Congressional Budget Office’s 2017 Projections:
Pay close attention to the BEIGE and NAVY BLUE portions of the overall Pie. They are the ONLY ones that really get an honest debate in congress. The rest — Social Security, Medicare, Medicaid, and other entitlement programs, which are all a great national and economic benefit, are what’s called “Automatic spending.”
So should it bother us that Interest — the “finance charges” that we pay on our National Debt — is half as much as all DOMESTIC programs? I bothers me! Think of what we could do with this 220+ Billion dollars:
- We could put a down payment on shoring up Social Security and Medicare for future generations
- Raise the pay for military personnel and their families
- A one time tax cut for the middle class
- Reduce overall debt burden
- Further subsidize the Federal portion of Student Loans
- What would you do with savings realized by reducing our national debt? (I’m really asking — use “Comments” to let me know)
According to an April, ’16 report (http://bit.ly/216e3Sq) by the respected California Budget Center , California’s State Income Tax is projected to account for 67.5%, or TWO THIRDS(!) of California’s General Fund Revenues, which are projected to = $124.2 Billion for fiscal 2016-17. Remaining General Fund Revenue, according to the organization, is expected from:
- 20.9% — Sales and Use Taxes
- 8.8% — Corporate Income Tax
- 2.8% — “Other”
Even after other state funds and side-budgets are thrown in, the state income tax is still close to 50% of all total state revenue. But this reliance on income tax is nothing new. The consequences of state resources being reliant on it, however, makes itself abundantly clear on the Spending side. Again, according to the California Budget Center, the Governor and State Legislator are expected to spend our money in the following manner:
- 31.3% — Health and Human Services
- 30.6% — K-12 Education
- 8.7% — Higher Education
(So far, you are already looking at 7o% of all spending on Health and Education) *
- 7.9% — Corrections
- 6.1% — Transportation
- 4.7% — Environment and Natural Resources
- 4.4% — Legislative, Executive, and Judicial branches
* So what does that tell you? It means in slow economic times, when the State isn’t collecting as much in income tax or capital gains taxes earned by investors making a killing … the first to suffer cuts, and the largest cuts, have to come from the places we spend the most money — Health and Education, the core of “what the state does.” That hurts predominantly low-income, disabled, seniors and of course California’s students of all ages.
How can we achieve greater balance through a more diversified revenue portfolio? The 3 new revenue sources I’ve heard most talked about are:
- A “Split Roll” Property Tax. This would amend Proposition 13 to allow for greater valuations on, and therefore a greater share of revenue from, commercial business property (any reasonable proposal I’ve seen of course exempts small and medium sized businesses under a particular profit/income threshold)
- An Oil Severance Tax. One might often here something akin to, “California is the only oil-extracting state that doesn’t require the oil companies to pay an extraction tax.”
- A Tax on certain Services. With this idea, Californians would pay a small tax on the cost of services, from legal assistance to gardening.
But each come with their own practical and political challenges. 1) Business organizations are sure to put all their might into defeating anything that would have corporations paying more in property tax. 2) Chevron is (not counting military installations and universities) one of the top 5-10 employers in California. Think they are letting an oil extraction tax take hold without flexing some mighty campaign funds to stop it? 3) A tax on services sounds tempting, but could be very regressive, having the potential to hurt all the wrong people — workers injured on the job who can barely afford a lawyer, or a middle class family who can barely afford the current cost of child care without sales tax added on, for example.
Of course, I would support (4.) a Tax on Alcoholic Beverages. But alcohol taxes often also face a snowball’s chance in the nation’s “wine state.” So such a measure would have to be crafted to somehow exempt beverages with, say, “10-18% alcohol content.” And if you do that — you’ll be accused of picking winners (wine) and losers (booze, beer) in the market… which of course we would be.
So what do we do? Can we summon the political courage to take on big corporate interests for the sake of more stable revenue stream? Or do we have to continue to imagine new and innovative revenue generating ideas? I would love to hear from you on this topic in “Comments.”
- People Should be Paid Well
One thing we can do to help stem the decline of the middle class, boost our economy, and help erode annual Federal deficits is increasing the minimum wage to $15 as many are now proposing (I would love it if we could go higher). More revenue for people = more tax revenue for States and the Federal government. I’m a bit flabbergasted by those opposed to paying people decent wages in this country. The executive class makes too much, and the working class makes too little. A CHILD can see this. And yet far too many act as if the sky is falling anytime progressive minded people point out that many families are in poverty despite working full time, and that we need to pay them more. But turn around and talk about excessive executive salaries and “golden parachutes,” and they fall silent or give you the ol’ “Gotta pay big to attract and retain talent” argument. Yeah, but … hundreds of millions of dollars a YEAR big? I don’t think so. So mister resturanteure opposed to living wages, I can only say this: perhaps paying people more will actually allow them more opportunities to eat our at your restaurant.
- We must invest in Infrastructure
According to the American Society of Civil Engineers, we need $3.6 TRILLION — with a “T” — in infrastructure investment by 2020. We have so much deferred maintenance in this country that I’m honestly surprised I haven’t already driven right into a highway sinkhole that opens up before me. And yet Republicans NEVER want to fund it. Most Democrats could be a lot better about it, too. Most evidence suggests conservatives would rather open up infrastructure development to corporate sponsorship. E.g.,”The AT&T Highway 10 improvement project.” But corporations don’t want to pay for the infrastructure. They want the government to do it — but without asking them for another dime in tax revenue of course!! But the revenue must be found or created, and it should be the job of GOVERNMENT to fund infrastructure just as much as it is to build schools, create parks, and keep us safe. It’s one of the ways government can positively create the environment for business to thrive.
Infrastructure means jobs — a LOT of high paying jobs to boot. Designers, architects, engineers, and of course construction workers. It builds civic and economic VALUE, and improving infrastructure definitely improves the economy in other ways — make it smoother for truckers to haul, safer and easier for trains to travel, and faster and more reliable for information or energy to flow electronically or digitally. If done right, it should even lower consumer and health insurance rates, as fewer claims will be made to auto-insurers, for instance, for road damage to cars and resulting injuries to people. And the environment? We can’t exactly save water with water lines busting open all over the place every few months (at least here in Southern California). We have to fix and improve them. Investment in infrastructure, my friends — we have a lot of catching up to do.
(MORE TO COME …)