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The truth shall set you free

September 16, 2010 8 comments

We are in the midst of one of the worst economic contractions in American history.  Meanwhile, if you turn on the TV you will hear that people are frustrated with our soaring deficits while at the same time wanting tax cuts and are desperate for employment.

Historical government spending by major functi...

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So what’s the problem with this picture? The truth is that while both tax cuts and increased government spending stimulate the economy/create jobs they also increase the national debt.

Personally, I am concerned for about both the state of our economy and our national debt.  I think it’s a time to evaluate both our tax structure and government spending programs and make some tough choices.

If we take a look at our national spending, the bulk of spending goes to do three things: national defense, Social Security and Medicare.  If you’re serious about cutting spending, you have to look at reforming those three areas and reform them and/or cut services.   So far I really don’t hear anyone in either party stating that truth and coming up with plans to tackle this reality.

On the revenue side, while it is true that the top 10 percent of Americans pay about 73 percent of all taxes, the top 1 percent of Americans also own a majority of the wealth in this country:

Here are some dramatic facts that sum up how the wealth distribution became even more concentrated between 1983 and 2004, in good part due to the tax cuts for the wealthy and the defeat of labor unions: Of all the new financial wealth created by the American economy in that 21-year-period, fully 42% of it went to the top 1%. A whopping 94% went to the top 20%, which of course means that the bottom 80% received only 6% of all the new financial wealth generated in the United States during the ’80s, ’90s, and early 2000s (Wolff, 2007).

Top US Federal income tax rate from 1913 to 2009

Plot of top bracket from U.S. Federal Marginal...

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Tough choices on both the revenue and spending side of the balance sheet are necessary  to avoid a very dire fiscal situation in the future.  I think both parties will have to give in: reform entitlement programs (yes, Social Security and Medicare), reform and cut wasteful defense spending (we’re not in a cold war anymore), but also we must realize that higher taxes for the richest Americans are unavoidable while we work on getting back to the years of surpluses.

In the meantime, we’ll have to prioritize what’s more important, stimulating the economy, tackling the issue of the national debt or a combination of a little bit of both.

What are your thoughts? Be sure to comment and share with your friends and networks.


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