National budget

I am not quite sure where to post this blog.  It seems like it is "politics" - but maybe not.  In any case, here goes.

I have been watching and listening to the budget "debate" over the  past few weeks and am getting more and more disgusted (and confused) by the whole thing.  I have to admit, the issue is very confusing for me - mainly because it seems so simple.  It is pretty obvious to me that whatever is going on has nothing much to do with what is being said or discussed - my guess is that there is a hidden agenda behind it all.  The issue of budget, taxes and all that are just covers for the actual issues.

It seems to me that there is one basic problem - we have too much deficit.  Meaning that the government is spending more than it is taking in (both Federal and State governments).  That part is pretty simple.  I think we are all in general agreement that the government should not spend more than it takes in.

The next part of the equation has to do with whether or not we "need" (or want) to purchase the things and services that we purchase.  According to the news accounts, the following seem to be the bulk of the expenditures:

- Education
- Military
- Social Security
- Medical
- Research and development (NASA, etc)
- Transportation (roads, rail, waterways, etc)

Other items of interest are probably
- Parks and environmental considerations
- Subsidies and grants (energy, agricultural, small business, financial institutions, other)

I think we are currently underfunding a number of these areas, and probably over funding some other areas.  For example,   I think we are over funding the military.  We are spending far too much on the wars around the world, and are spending too much in preparation (to the point of giving far more money to the military than is being requested by the generals).   It is clear that we are underfunding the educational system by a lot - this is a State issue, but since the States can't seem to find the funding, it becomes a Federal issue too.  Right now I think Social Security and Medical are adequately funded, but it sounds like Medical will be in trouble very soon.  Research and development seem a little under funded, but not by much.  Transportation systems across the country are falling apart, we aren't maintaining the infrastructure and will have to pay the piper sooner or later.

It seems like we have been funding the parks and all that at a minimal level, they could and probably should have some more money for staffing and to ensure the infrastructure is maintained properly.  In any case, it is my understanding that this is pretty small potatoes in the overall scheme of things.

The subsidy issue might be a big one because of how it is being done, and who is getting the money.  It appears that the biggest part of the subsidy/grant money is going to very large companies that use it for enhanced profits, but not for the kinds of activities that need to be subsidized.  I think subsidies and grants should be used for high risk, important new developments, that could have positive outcomes but which are too risky to fund in a totally commercial way.  Actually, the whole issue of what should be subsidized and what should be left up to private enterprise is very complex and needs to be evaluated on a case-by-case basis, but it should not be used as a means of enhancing the profits of large corporations above some minimal level (whatever that might mean).   

Currently, we have an upside-down tax system.  We are heavily taxing the lower end of the financial spectrum while giving huge tax breaks and incentives to the upper end.   For example, an "upper middle" person will be paying 35% Federal income tax on the last monies being earned.  This compares with a 15% capital gains if your income tax bracket is 35%.    If you are in a low income tax bracket, the capital gains rate can go to 0%!  Therefore, if you are clever enough to have high investment income (hence a high capital gain), and a low ordinary income (wages), you can easily get to a situation with zero taxes.  You have to have a net worth of several million dollars to pull this off because you have to have enough investments to throw off an acceptable income through capital gains only.  In any case, a person making over $107,000 a year has an effective marginal income tax rate of 28% - 35% (Federal income tax plus FICA).  People making between $8,375 and $107,000 pay an effective rate of 30% - 43% (Federal income tax plus FICA).  That assumes that the higher rate people make all of their money as "ordinary income."  The average rate for people making over $350,000 per year is 18%.  

This makes it pretty clear that we have a highly regressive tax system, the poor pay much higher tax rates than those who make more.  The multimillionaire pays a much smaller tax rate for his capital gain income than a person how earns over $8,375 a year - about 1/2 as much!  It is not very difficult for multimillionaires to pay no taxes with the current system.   It doesn't even involve using they plethora of tax loopholes/deductions/write-offs  that are available to them.  All it takes is doing business in such a way as to avoid receiving "ordinary income" from wages or salaries.  Even in situations where a high income person gets a large salary which would normally be subject to a 35% tax, once you get into the higher income brackets there are lots of easily available tax "dodges" ("deductions") to eliminate most, or all, of the tax burden.  Lower income people do not have any of these options, so they have to pay the full amount of the tax.
 
 It seems to me that two things should be done immediately.  First off, capital gains should be taxed as ordinary income - it makes no sense to me why I should pay 15% for income that I get from my investments versus 43% (income plus FICA) for money that I make for actually doing something productive .  The second is that the income cap should be removed from FICA.  I don't understand why I should get a 15% raise just because I make more than $107,000 a year - and if I don't happen to make any income because it is all in capital gains, I pay no FICA at all.  Taking the cap off of FICA would solve the Social Security and Medicare problem, there would be enough money to continue just as we are.

It is my understanding that we could quite right there, we would have enough money to run the government as we know it should be run. We wouldn't have to be worrying about spending cuts, in fact, we could be adding money to critically underfunded causes such as education, health care and the maintenance of our infrastructure.  We might have to do something to reign in military spending.

However, there seems to be a big argument that industry will leave the country and invest elsewhere if we tax them too much - and that they need the huge tax breaks so that they will hire people and get unemployment down.  While at some point this is true, we are no where near it at this time.  We already have the lowest tax rates of any major country - corporations are not likely to bail just because they can go somewhere else with comparable tax structures.  By the way, has anyone noticed that corporations are sending our jobs and money overseas as it is?  Maybe more cuts in taxes and government funded support services are not going to turn that around - just maybe, the thing that will turn it around is spending MORE on needed things here so that we are a more attractive place to do business (better educated people, better roads and infrastructure, lower employee health care costs, etc)  As far as giving them profits so they will hire goes, we are doing that - they are making record high profits, and they are keeping their profits!  The average corporate profit margin is now 30% but still there is no hiring or relief in sight.