Shameless Self-Promotion: U.S. Debt Ceiling Edition

With things heating up about raising the U.S. debt ceiling, and with plans emerging left and right, it's getting interesting. Unfortunately, what is likely to happen is that we will see a plan that will -- once again -- have the most detriment to the middle class and the poor. With a tax increase off the table, it is obvious that there will be no extra revenue to help ease the deficit, so the poor and the middle class will get the shaft and sacrifice the most as programs are cut. Severely. Because, you know, the wealthy just can't afford tax increases.

As you might imagine, as a financial writer I've written about the debt ceiling, and the possibility of a U.S. default, quite a bit. So, in the interest of self-promotion, here's some of what I've written in the past few weeks about the national debt, and all that's going on:

• At Personal Dividends, I wrote two posts. One is about the fact that even severe program cuts probably won't be sufficient to solve our problems (we'll eventually need to raise taxes), and one about how a U.S. debt default is likely to affect you.
• Way back in May, I wrote about the debt ceiling, and why you should care about it, on Free From Broke.
• Will the U.S. really begin defaulting on its debt? Probably not. But I look at the possibility over at Smart On Money.
• Over at Bargaineering, I wrote a little bit about how we ended up with a debt ceiling, and what is likely to come after Aug. 2. To solve this problem, we need to reduce spending and raise revenue. It's not either-or.
• What happens if the U.S. defaults anyway? Does it really matter? At Deposit Accounts, I explain why it does matter if the U.S. defaults on its debt.
• If the U.S. does default, and the world economy sees another crisis, you'll want your money in a smart place. At Dividend Stocks Online I take a look at investments that might possibly help you weather the storm.
• Everyone's bracing for what could happen if the U.S does default. At the GFT UK blog, I take a look at the inevitable credit downgrades that will start rolling in.
• If we do default, who is going to bear the brunt of the problems? A GFT Forex, I point out that the obvious answer: Not the wealthy. Most people, though, will see a de facto tax.

Chances are that we won't see a default. Unfortunately, I think a permanent solution to this problem is a long way off. And I think it's downright irresponsible to keep acting as though constant tax breaks for the wealthy and loopholes for major corporations will provide us with enough revenue to keep things going. Nope. To fix a mess that was decades in the making, we'll need a couple decades of lower spending AND higher taxes. But, what do I know? I'm a crazy liberal. 

What do you think is the solution to our deficit problem is?

U.S. Debt Crisis: WHY, Exactly, Can't We Raise Taxes?

Everyone needs to make sacrifices during this tough time. That's politicians of all stripes are saying. What they're not adding is that when they say "everyone," they really mean "everyone else." We're in the midst of a debt crisis, and we have politicians (who at least have had the decency to freeze their pay the last two years) doing their best to explain why Social Security payments, government employment pensions, and any number of programs are on the cutting block, but higher taxes aren't even on the table.

It makes no sense. Okay. It kind of does. Us regular schmoes aren't making huge, vote-buying campaign contributions to maintain the status quo.

I agree that some cuts need to be made, and that hard choices are coming. But the spending cuts being considered don't exactly mean sacrifice for the big corporations raking in record profits this year and the wealthy who are enjoying some of the lowest tax rates in the developed world. If everyone were actually expected to sacrifice, we wouldn't just be asking students to start paying student loan interest immediately. We'd be raising taxes on individuals making more than $500,0000, couples making more than $1 million and businesses making more than $50 million. That would be a way to raise some revenue without completely gutting the middle class and the small businesses that represent the backbone of our economy.

"But, Miranda," you say. "Tax cuts stimulate job growth because big businesses will hire more. Tax cuts stimulate economic growth because people at the top will spend more, helping everyone. When we cut taxes, it encourages net revenue growth. Tax cuts at the top help everyone else by paying for themselves -- and then some."

Sorry, folks. I don't buy it. That's trickle down B.S. at it's finest. I've got 5 reasons why the argument that tax cuts at the top are beneficial for everyone is a huge load:

1. Tax Cuts Don't Boost Revenues, Time, 2007
2. "No serious economist believes Bush's tax cuts will pay for themselves," from an article in The Economist, 2006.
3. Rich Americans Save Tax Cuts Instead of Spending, Moody's Says, Bloomberg, 2010.
4. This testimony from the non-partisan Congressional Budget Office that points out that cutting income taxes ranks last in effectiveness among 11 proposals for spurring economic growth.
5. Economist Robert Shapiro points out that "out of 8,467,000 private sector jobs lost in this dismal cycle, 7,796,000 of those jobs or 92 percent were lost on the Republicans' watch or under the sway of their policies."

What's spooky is that 4 of the 5 points above aren't exactly being made by bastions of progressivism. There are plenty of economists from all points on the political spectrum that know that cutting taxes doesn't mean revenue growth. It only works if you cut programs, too. It's just plain fiscal irresponsibility to claim that tax cuts alone are good for our economy -- and it's dishonest to imply that top rate tax cuts are good for the middle class.

For more fun, you can see that we've seen better "real" growth with higher tax rates when you have a look at this chart. (Warning: This one is from the Center for American Progress.)

Indeed, during that magical economic watershed moment in history we call the 1950s, there was a top tax rate of more than 90%. Do I think we need such a high top tax rate? No, I don't. I do believe that the rise of the middle class (a socioeconomic class that is shrinking at an alarming rate) was engineered, and that higher top tax rates had something to do with it. But I'm not an economist. However, Paul Krugman is Nobel laureate economist. And he charts the rise of the middle class -- and its shrinkage right along with massive tax cuts -- in The Conscience of a Liberal.

Business Insider published this rather interesting look at the growing wealth gap we have in this country:

So, I ask again: Why is it that the diminishing middle class has to pay to get us out of this hole? Why should a shrinking middle class bear the brunt of this? Is there any reason why our system, which has been rewarding those at the top with greater and greater wealth for decades, can't ask the rich be subject to a tax raise as the rest of us are hit by program cuts?

Indeed, according to the Congressional Budget Office, letting the Bush tax cuts expire would actually pay for the rising costs of health care in the coming decades. Here is what the Washington Post recently reported on a CBO analysis:

“If policymakers are to put the nation on a sustainable budgetary path, they will need to let revenues increase substantially as a percentage of GDP, decrease spending significantly from projected levels, or adopt some combination of those two approaches,” the CBO report said.

I, personally, believe that we should follow the third path: Decrease some spending, and increase some taxes. It's not an either-or situation -- and it shouldn't be. Yes, government spending needs to be reined in. We need to decide on what our priorities will be, and we need to cut some of the fat. But we shouldn't rely entirely on spending cuts.

If everyone's going to sacrifice, tax hikes at the top need to be put in place.

Who Are Your Fellow Americans?

With the recent celebration of Independence Day, I'm reminded of the dream of America that many of us are familiar with. We've most of us been raised on stories of how anyone can make it in America, have their beliefs respected, and be accorded an "equal chance" (whatever that means).

I love this country, and I'm glad to live in it. However, just because I'm grateful to live in America doesn't mean that I don't see some of the problems that still exist. Unfortunately, from our nation's founding, not everyone has been treated equally, and many people have been treated poorly based on culture, religion, race or other characteristics. We're always finding a new group to malign. I was contacted about this interesting video not too long ago. It offers a snapshot of Muslims in America.



As Ramadan approaches, it is worth considering that people are people -- no matter their backgrounds.

Happy Independence Day!

Another year, and another chance to reflect on how glad I am that we are able to live in this country. As we commemorate the signing of the Declaration of Independence, it's a good time to remember that our Founding Fathers had many different ideas about how the government should be organized, and different ideas about the proper way to govern. But they did come together to sign this declaration. And the world was changed forever.