George Rebane
[This is the transcript of my bi-weekly KVMR commentary broadcast on 22 July 2011.]
Let’s talk a little bit about debt and taxes. Listening to leaders from both parties, you get the opinion that if we don’t raise the debt limit – by August 2 or whenever – that the world’s economy is going to collapse. More sober minds, honed by the logic practiced around a kitchen table, will tell you that this is not true.
Please consider – major lenders to the US government have been quietly reducing their loans to us, they’re scared that eventually we won’t be able to repay them. And everyone in Washington knows that today we have more than enough federal revenues coming in to pay the interest on our existing debt. We just have to tighten belts and prioritize our other domestic spending.
So how do our creditors and rating agencies look at this? Today we are telling the world that we will default on our interest payments if we can’t borrow more money from our creditors, so that we can then give some of it back to them in interest payments. And everyone knows that Washington has no plan to stop increasing our national debt – we just promise to borrow more and forever.
Now I don’t know about you, but if I were China I’d say this relationship has become insane, and is most certainly not sustainable. The name Ponzi must be starting to echo in the halls of Beijing. But the credit rating agencies – the gang that couldn’t figure out the mortgage market trainwreck back in 2007 – are again putting out more Wrong Way Corrigan pronouncements. They tell us that if we do change our ways, and start spending within our means, and limit our debt to the current $14.3T, then they will consider the United States to be a bigger credit risk and downgrade our rating. Go figger.
However, if we keep spending like drunkards on payday, and keep borrowing what we don’t have to spend, then they will maintain our pristine AAA credit rating, and things will somehow again be hunky dory. Isn’t this exactly 180 degrees out of sync with reality? America’s creditors seem to think so. But according to our politicians, we taxpayers are too dense to figure this out.
Speaking of paying taxes, our progressive friends are convinced that the country can do with much higher tax rates. They point back to the Eisenhower 1950s when top marginal rates touched 94% which effectively had the government take almost all of what you earned after a certain amount. Since the country was booming in the 50s, little minds inside the Beltway are saying, ‘Let’s do it again.’
Running nimble fingers over their calculators, they can see enough dollars flowing in to put a real dent into our projected deficits, without cutting too much into the spending that buys votes. What these same politicians don’t know, or are not telling us, is that in the 1950s no one actually paid 94 cents of every dollar they earned after a certain amount. Why? Because at that time the threshold was so high that almost no one earned those dollars as straight income. And those who could, had lots of opportunities to shelter their earnings so that it never reached the 94% trigger levels.
Today it’s completely different when we consider the tax rates we already pay, and the ones being proposed by big government mavens in Washington. Dr Michael Boskin, professor of economics at Stanford, has run some numbers which tell us that in California we already pay a 44.1% marginal tax rate when we combine federal, state, and all the payroll deductions levied against our wages. When the Bush tax cuts expire in 2013, that marginal rate will jump up to 58.4% for those earning $200K and couples earning $250K a year.
But we’re not done yet. Using the President’s numbers, the Congressional Budget Office tells us that to cover the projected $841B deficit in 2016, will require all (yes, all) income taxes to increase by almost another third. This will bring the “total combined marginal tax rate to 68.8%.” In short, government will then take more than two of every three dollars that you earn above whatever limit they decide to impose.
According to the progressive mindset, such tax hikes aren’t supposed affect how hard we work, or how much we risk and earn. To them, we are just little mindless squirrels on a treadmill, and we’ll run just as hard as ever, never mind how much we get to keep. Now, is that the way it works in your world?
My name is Rebane, and I also expand on these and other themes in my Union columns, and on georgerebane.com where this transcript appears. These opinions are not necessarily shared by KVMR. Thank you for listening.
rebanesruminations.com 
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