It’s a Revenue Problem!

As we move inexorably toward the sequester, Republicans keep parroting the same lie that they have told so often and so long, that most of America has bought it.  They say, “America has a spending problem.”  The truth is that the problem is a revenue problem.

Democrats and Republicans remain at odds on how to avoid a round of budget cuts so deep and arbitrary that to allow them now could push the economy back into recession. The cuts, known as a sequester, will kick in March 1 unless Republicans agree to President Obama’s demand to a legislative package that combines spending reductions and tax increases. As of Thursday, with the deadline a week off, Republicans seemed determined to say no to any new tax increases.

“Spending is the problem,” declared the House speaker, John Boehner. “Spending must be the focus.” Reflecting the views of many of her Republican colleagues, Representative Martha Roby said Wednesday that Mr. Obama “already got his tax increase” as part of the January agreement over the “fiscal cliff” and that no further increases were necessary.

Both are wrong. To reduce the deficit in a weak economy, new taxes on high-income Americans are a matter of necessity and fairness; they are also a necessary precondition to what in time will have to be tax increases on the middle class. Contrary to Mr. Boehner’s “spending problem” claim, much of the deficit in the next 10 years can be chalked up to chronic revenue shortfalls from the Bush-era tax cuts, which were only partly undone in the fiscal-cliff deal earlier this year. (Wars and a recession also contributed.) It stands to reason that a deficit caused partly by inadequate revenue must be corrected in part by new taxes. And the only way to raise taxes now without harming the recovery is to impose them on high-income filers, for whom a tax increase is unlikely to cut into spending.

As it happens, those taxpayers are the same ones who benefited most from Bush-era tax breaks and who continue to pay low taxes. Even with recent increases, the new top rate of 39.6 percent is historically low; investment income is still taxed at special low rates; and the heirs of multimillion-dollar estates face lower taxes than at almost any time in modern memory… [emphasis added]

Inserted from <NY Times>

This author is spot on, except that increased revenue from more people working should eliminate the need to raise middle class taxes. Most do not realize just how bad the inequity is. Ed Schultz explains why the capital gains tax needs to be reformed.

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Did you catch that? The top 0.1% get 47% of all capital gains income. The rest of the top 47% also get 47% of capital gains income. But Ed’s chart was not correctly labeled. It is the bottom 80% who get the remaining 6%. If you spend $1 in raw materials and overhead to produce, through your hard work, a widget that you sell for $5. You pay standard taxes on that income. If a 1% member of the super-rich invests $1, and through sitting on his fat ass, the value that investment grows to $5, he pays the reduced capital gains tax rate on that income. Republicans stacked the deck to favor the super rich over you, and the only way we are going to get the capital gains tax reform that America needs is to remove the Republicans.

In my opinion, we face a special short term danger.  If the sequester actually happens, I think House Republicans will pass a bill that restores the defense cuts only.  If such a bill reaches the Senate, it must not be allowed to come to the floor, because Democrats in conservative districts will fear voting NO,  If they do Republicans will accuse them of being soft on defense and of costing American workers defense jobs.  For Republicans to get away with making just the domestic cuts  would be tragic for America.