Thinking Outside the American Box

I think there are two basic reasons that the United States has budgetary problems: (1) The USA spends way too much on defense; and (2) It doesn't collect enough in income taxes. One would never guess that these are the actual problems based on Congressional and Presidential soundbites in the general vicinity of the issue.

I spent an unedifying hour this evening watching the House debate on the so-called Boehner plan. I'm not sure why they're having this debate; the whole thing was an ill-tempered exercise in bad faith and posturing. If it passes in the House, the Senate will vote it down. Then what? No matter. What is striking is that the political process in Washington, D.C. is now so completely dysfunctional that the obvious solutions cannot even be mentioned.

The simple charts up above are a graphic depiction of where America's income taxes come from, who pays them and how much. The top chart is from 2007, the bottom the most recent tax year. They afford a picture of the radical skewing of wealth in the United States. Essentially, the bottom 50% of earners in the USA contribute virtually nothing to the approximately $1 trillion in income taxes collected by the IRS. On the other hand, the top 1/5th of earners pay in nearly two-thirds of all such taxes. These are the people who were most helped by the so-called "Bush tax cuts," who were exposed under Clinton's regime to marginal rates of 39.6%, but gained "relief" through the legislation of 2001 and 2003 and now pay 35% on such marginal income.

The big earners, of course, such as the Wall Street playuhs, have a great deal of "marginal income" exposed to such rates, and the nearly 5% reduction means a lot of additional take-home. If $1 million of your income is paid at the highest marginal rate, you can save $46,000 under Bush that you used to pay Uncle Sam under Bubba. That's a lot of additional cocaine and Ukrainian whores. Another way of thinking about our absurdly imbalanced society is to reflect that the saving alone is higher than the average national income for the rest of the plebes here in our increasingly Louis the Sixteenth wannabe times.

So the top 20% are paying about $640 billion per year in income taxes. Since restoration of the top marginal rate would imply an increase of about 14% in such rate, as a first approximation we might guess that the $640 billion would increase by a similar amount, or about $89 billion, if only this rate were changed and the rates of the lower earners (which were also reduced by the Bush legislation) were left alone, as they probably should be. Alternatively, a steeper progression could be applied to the top 40% of all earners, who pay nearly 85% of all tax, in an effort to close the budget gap. You get the sense, however, that such measures are seriously inadequate. Even if this raised an additional $200 billion (dubious), the actual budget deficit this year (a year without extraordinary stimulus spending) is about $1.7 trillion, or 1,700 billion.

It's funny, in a sickening way, when you think about how profligate the Bush Administration was with war spending. How many times did we hear about supplemental appropriations for the Iraq War where Bush would demand another $140 billion, or $115 billion, or whatever the number of the day was in order "not to abandon the troops?" And his obedient Republican Congress would play along until they were unseated in 2006, and then the Pelosi-led House took their turn writing blank checks. Look how hard it is to come by such sums of money! Squandered, wasted, thrown away, by an Idiot-in-Chief who knew absolutely nothing, as in zero, about how to run a business or balance a budget.

Still, the goal now has to be to find some midpoint between feasible revenue and sensible expenditures. The entitlement programs, if their surplus payments since 1983 are counted as they should be, are not the source of the problem. (The problem was Congressional stealing of the surplus for use in defense contracting and fighting superfluous wars.) The problem is how to raise enough money to support a $3 trillion budget in today's dollars, with defense and security expenses reduced from their current $1 trillion to about $300 billion. At this level, the expenditure would still be about three times larger than our mortal enemy and business partner, the People's Republic of China. Realistically, this is the only country which offers any serious threat of taking us on.

Most of the military budget could be funneled into the nuclear umbrella. I wish, for many reasons, that we still had public intellectuals of the stature of Carl Sagan and Richard Feynman who could guide this debate and remind us of the stark realities of nuclear winter and the unwinnability of a worldwide nuclear holocaust. Big wars between big countries are no longer possible, yet we maintain a force and weaponry structure appropriate to re-fighting World War II, but with no conceivable relevance to the world we live in. World War II is no longer possible because it would immediately escalate to World War III, the one that Tom Lehrer's singing pilot told us would be over "an hour and a half from now." Our current military force has nothing to do with fighting terrorism, either, unless the fact that Osama bin Laden's body was dumped from a warship counts as "use of the Navy." Iran, Iraq (at one time), North Korea, Pakistan, Israel -- all of these countries have acquired nuclear weapons, or are trying to acquire them, so that other countries will not invade them. That is their "best" and only sane use. The same goes for us, and we're still the Big Dogs in the nuclear weapons world. But maintaining a nuclear umbrella requires a very small fraction of what we now spend on defense.

So we could actually operate with a budget of $3 trillion, with a combination of somewhat higher tax revenue (from the current $2.2 trillion to, say, $2.6 trillion as we finally recover and as we raise taxes at the marginal rate), with the safety net intact. Borrowing $400 billion a year is certainly manageable. We could institute a single payer system so that we don't pay double what the rest of the Western world pays while achieving inferior results, thus controlling the explosive cost of health care. The defense budget would still be the world's largest by a factor of three, but all 750 international forts, bases and installations would be shut down worldwide and the troops demobilized.

Watching the morons on TV tonight, I know that such rationality never enters their minds. Yet it's right there. It's not that difficult. If we once began doing rational things, it might even become a habit.