Fiscal Cliffs

Maybe we should fall off the upcoming Fiscal Cliff, as they are calling it. This would dramatically cut many services (including the military) and would raise taxes on everyone. It would, in many ways, solve many of America's current financial issues. It would also, maybe, finally convince people to demand reform from their career politicians.

From the Great Depression until the 1980s, taxes were much, much higher than they are now, both income and capital gains taxes. The rich, especially, had high taxes. And, during this time of really high taxes, America's economy grew like never before, the middle class grew, and we became the biggest economy in the world. During this time, job growth was phenomenal, the social contract between businesses, the government, and the people was strong. Prosperity ensued.

In the last thirty years of constant tax breaks, career politicians, and a steadily widening gap between the Republicans and Democrats, we have seen our economy falter, we've seen the social contract break down and disappear, and we've seen businesses take their business overseas. We've seen two really bad recessions and multiple depressions in the economy. We have seen an increase in our debt to astronomic proportions.

President Obama is following the Republican playbook for fixing the economy. He has taken a whole lot of the New Deal (yes, my history-minded friends, this was introduced by FDR, a Democrat. However, history shows us that it is made up of almost entirely ideas and plans first espoused by Herbert Hoover, a Republican) and quite a bit from Reagan-omics from the early 1980s. There is very little new in Mr. Obama's plan, actually. Yet today's Republicans say it is "too Democratic," "too Liberal," and "too Socialist." Yes, the Republican plan Mr. Obama is following is too "not-Republican."

In addition, the Republicans have finally put forth a plan -- which is identical in all ways to the plan they put into the Fiscal Cliff only they have removed the "take it from the military" part and moved those cuts entirely to entitlement areas. The numbers and figures stay the same. Or, in other words, the current Republicans have done NOTHING NEW and still think the government can somehow save itself by not bringing in any more money and by cutting more and more, especially in areas outside of the military (the singles biggest spending area of the US Government, by the way, and larger than the next 10 countries spend on military combined). Well, their plan saves about $1.4 trillion a year out of a debt at $14 trillion. Mr. Obama's plan, which includes both cuts and tax increases on the richest folks, would equal a difference of about $4.4 trillion a year.

There are approximately 315 million people in American. Of that, approximately half are workers who pay taxes of some sort. From the Great Depression through to the mid-1990s or so, the greatest amount of wealth in America was in the hands of the middle class. They made up the biggest majority of people, too. So, you had 100 million or so people paying a small percentage of taxes, but it was spread out over so many people that it allowed the US government to bring in a huge sum of money to fund everything. Basically, approximately 80 percent of the wealth was in the hands of 80 percent of people. This had the strange effect of making the rich richer. It also had the strange effect of making the poor less poor, as they had more and more opportunities to rise into the middle class. Win-win-win.

While it is very hard to compare decades, most economists seem to agree that from the late 1970s through to today, the richest percentage of people grew their incomes by close to 300% while the middle class grew theirs by approximately 40%. By all accounts, now approximately 85% of all the wealth in America is in the hands of approximately 20% of the population. Approximately 35% of that wealth is in the hands of only 1% of the population. From what I'm gathering, it looks to be about 4 million people in America make $200,000 or more.

For perspective, the population of America was about 225 million in 1980. That means approximately 110 million people paying taxes (generally speaking, you take approximately 50% of the total population as active workers, with 50% being retired, too young, or out of work). So, the majority of wealth (about 80%) was in 88 million people's hands. Today, there are approximately 315 million people in America. About 158 million people paying taxes. Of those, 85% of the wealth is consolidated in approximately 31.6 million people. That means 15% of the wealth is spread out over 126 million people.

Taxation works by a simple premise: you go where the money is. The middle class, while having more people, now has only 15% of the money. So the bulk of the money is with a smaller percentage of people, who have a much, much higher percentage of the wealth.

Let's put it in perspective with some static examples.

Pre-1990s taxation scheme

1000 people have jobs, make money. The Government needs $10,000 to fund everything.

(Note: Population number based on who has the wealth. Per estimates above, 80% of the wealth was in middle class, approximately 10% in upper class, and approximately 10% (total) in lower class. Wealthiest taxed more, middle class taxed a reasonable amount, and lower class taxed less, or not all. Used as an example only.)

• 100 (Upper class): Taxed $17.50/each ($1,750)
• 800 (Middle class): Taxed $10/each ($8,000)
• 50 (Lower class, but still taxable people): Taxed $5/each ($250)
• 50 (Lower class, but under the taxable minimum): Taxed $0/each

So, the sum total is that the government needs $10,000 and they easily make it, with no one side being taxed "too much." Everyone is happy and the economy grows/prospers.

Post-1990 taxation scheme

1000 people have jobs, make money. The Government needs $10,000 to fund everything.

(Note: Population based on who has the wealth. Per estimates above, approximately 85% of wealth is in upper class, approximately 15% is in the middle and lower classes. Wealthiest taxed less than middle class, middle class taxed at same "reasonable" rate even though their wealth has stayed the same or declined, lower classes taxed about the the same. Used as an example only.)

• 850 (Upper class): Taxed $7.50/each ($6,375)
• 100 (Middle class): Taxed $10/each ($1,000)
• 25 (Lower class): Taxed $5/each ($125)
• 25 (Lower class, below minimums): Taxed $0/each ($0)

The government needs $10,000 and is bringing in a total of $7,500. It is no wonder the government is in debt. Every year, the government is short $2,500 for all services rendered. Cutting what you fund may work, but there are certain minimums that the population won't let the government go below and there are certain requirements, like military, where cuts can be hazardous.

One obvious way to get that number up is to find where the money is and make those with the majority of the money pay more. Let's run those number again, only this time we'll break out the Upper Class and give them higher tax rates.

Suggested taxation scheme

1000 people have jobs, make money. The Government needs $10,000 to fund everything.

(Note: Population based on who has the wealth. Per estimates above, approximately 85% of wealth is in upper class, approximately 15% is in the middle and lower classes. Wealthiest taxed more than middle class, middle class taxed at a lower "reasonable" rate because their wealth has stayed the same or declined, lower classes taxed about the the same. Used as an example only.)

• 350 (Highest Upper class ($1 million or more)): Taxed $17.50/each ($6,125)
• 500 (Lower Upper class $200,000 to $1 million)): Taxed $15.00/each ($7,500)
• 100 (Middle class): Taxed 7.50/each ($750)
• 25 (Lower class): Taxed $5/each ($125)
• 25 (Lower class, below minimums): Taxed $0/each ($0)

The government needs $10,000 and is bringing in a total of $14,500. They went where the money was. Since there were fewer physical people, they had to raise the tax rates per-person, but not an unreasonable amount compared to the income they have. And the government suddenly has a surplus of money, and all current project, programs, and other spending (like military) need not be cut at all. And, the government could start paying back the loans to other countries it has made, bringing the deficit down quickly.

(Note: I grant that I used static population numbers and static government spending/need numbers, and that is unrealistic for the eras in question. The point is made, however, that taxation needs to go where the money is, and pay a percentage based on the population who has that money. Also, note that I put the taxation amounts for the richest people to at or below the amount they were being taxed in the first example.)

I AM NOT ADVOCATED THAT THE GOVERNMENT SHOULD ONLY RAISE TAXES WITHOUT ALSO CUTTING PROGRAMS. There is a lot of waste in the American government and we should cut military spending by at least 25%, we should cut all duplicated programs and jobs, we should eliminate all excess buildings, we should put in place requirements that the government not pay on any contracts that are overdue or over-budget. There are a lot of places left where cuts can go.

Now, is taxation this simple? Of course not. But simple logic can be used to figure out that the Republican's plan by itself simply cannot work. As long as the wealth is in the hands of a few, those few have to pay more in taxes or we will always run at a deficit. Look to your own house: you have a finite amount of money coming in and you have certain things you must pay for (rent/mortgage, car, gas, utilities) in order to keep that job and stay alive. You can cut everything else but it will not change the amount coming in or the amount you need to spend on the bare minimums. At some point, if you want to get out of debt, you have to get a second job, a pay raise, or a bonus of some sort. In other words, you have to bring more money in. When people are making the choices between medications or food, or food and rent, there are serious issues. You've cut all you can cut.

If you want the economy to turn around, you need to give the majority of people money to spend, you need to tax where the money is, and you need to cut out all frivolous and unnecessary spending. I think I have shown that the middle class has the majority of people but they simply do not have the wealth to spend any more. I think I have shown that the minority who has the wealth are where taxes should be increased. The only thing left, really, is deciding what should be cut and what cannot be cut. And there are plenty of places for the Republicans and Democrats to fight over in this area.

But, to make this long story only slightly longer, we can and should vote out of office those politicians, like Mr. Boehner and his cronies, who are adamantly obfuscating and obstructing this process. We need to hear from the silent majority of people who can see the simple logic of the facts as I've presented them, and insist our politicians do what we want them to do. Now.

(End Note: All of the percentages and figures I used, except for my simple examples, were taking from a variety of places both right- and left-wing on the internet. The data is easy to find and corroborate/correlate. Because of this, I did not link to the specific sites or locations.)