By the Numbers
A Q&A on Taxes, Congress and Debt – The Abridged Version
By Tom Copeland
I know what you’re thinking. “Yawn” – your immediate thought process likely goes, “another article about Congress, billionaires, taxes, the economy, and blah, blah, blah!” And to be perfectly honest, I would agree with you, if it weren’t for one simple fact – as a country, we’re on the verge of making history.
That’s if we haven’t already. Deadlocked Congressional bobble-heads broke their deadlocks earlier this month to come together and agree on a bipartisan bill that raises our federal debt ceiling, with the only result being that Standard and Poor’s downgraded U.S. creditworthiness for its debt from AAA to AA+ for the first time in the nation’s history.* Need a refresher?
About 10 months ago, Treasury Secretary Tim Geithner told the world that the U.S. would be hitting its “debt ceiling” limit around August of 2011, a mostly arbitrary legal number that caps the amount of money the federal government can borrow. He urged Congress then to raise that limit in order to keep the government humming, printing payroll, social security, and Medicare checks and funding other day-to-day operations.
What does our debt have to do with paying bills?
The government pays its monthly bills with that debt. The country is running on what is basically a perpetual line of credit. We print up money that is owned by the investors of America – institutional investment funds, individual investors, foreign investors, and of course, the U.S. itself. China sovereign wealth funds own about 35% of outstanding U.S. treasury securities, i.e. America’s debt, while the rest is mostly owned by the U.S. and U.S. investors.
That sounds bad. Why do we have so much debt?
The short answer is that in the last decade, the country has suffered two major recessions lead by economic bust; Americans have been borrowing way more than they make; and we started two major wars on credit. Plus, federal interest rates have remained at a record low since 2000.
The bigger-picture answer is that the government’s fiscal condition is cyclical; it fluctuated from running deficits to running surpluses. It may take another decade or more, but we’ll get our debt back down to manageable levels eventually, and maybe even get back to a surplus one day.
OK. So what can we do from here?
There are basically just two choices: raise taxes and cut spending by reforming social welfare programs like Medicare, Medicaid, and Social Security. The problem is that both are wildly and equally unpopular with the majority of Americans.
So which one should we do?
It depends on who you ask.
Ask a Republican: Cut social welfare programs because they’re a waste of time and money, and promote tax breaks for corporations and wealthy individuals to encourage investment and growth. In their eyes, there’s no need to tax the rich anymore because the richest 2% of American’s already pay 62% of all taxes collected. Cut spending and taxes, period.
Ask a Democrat: Social welfare programs are the pillar our collective national decency and intrinsic compassion and responsibility. We can afford to take care of our sick and our elderly because we’re the richest, most powerful country in the world. Tax the rich, because although as a group they contribute more to overall federal tax receipts, they are taxed at a rate much lower than average Americans – only about 15% versus 35-30% – and they are paying less than their fair share in proportion.
So what’s the bottom line?
At the moment, everything’s a mess, and there’s no light at the end of the tunnel . . . yet. We’ll just have to wait and see how it all plays out.
* For a helpful overview of the S&P downgrade, please see the “S & P Downgrade . . . ” article by Constance Barnhart at www.HelpingYouCare.com. This article is also re-posted in our “AW Stories of the Month” section at AroundWellington.com.
Tom is a freelance web developer, professional content writer, and owner of Bullworthy, a web services firm. Tom helps small businesses create a powerful, branded presence on the web. Bullworthy specializes in building web assets using WordPress development from their West Palm Beach offices.