As Our National Debt Crisis Looms...

by: Les Carpenter
Rational Nation USA
Birthplace of Independent Conservatism

Remember David Stockman, a former Republican representative from Michigan and the director of the Office of Management and Budget from 1981 to 1985 during the first Reagan term?

I caught the following at Memeorandum this morning. Mr. Stockman presents a case worth considering as he analyses both sides in the debt/deficit issue.

IT is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest 2 percent. Likewise, entitlement reform requires means-testing the giant Social Security and Medicare programs, not merely squeezing the far smaller safety net in areas like Medicaid and food stamps.

Unfortunately, in proposing tax increases only for the very rich, President Obama has denied the first of these fiscal truths, while Representative Paul D. Ryan, the chairman of the House Budget Committee, has contradicted the second by putting the entire burden of entitlement reform on the poor. The resulting squabble is not only deepening the fiscal stalemate, but also bringing us dangerously close to class war.

This lamentable prospect is deeply grounded in the policy-driven transformation of the economy during recent decades that has shifted income and wealth to the top of the economic ladder. While not the stated objective of policy, this reverse Robin Hood outcome cannot be gainsaid: the share of wealth held by the top 1 percent of households has risen to 35 percent from 21 percent since 1979, while their share of income has more than doubled to around 20 percent.

The culprit here was the combination of ultralow rates of interest at the Federal Reserve and ultralow rates of taxation on capital gains. The former destroyed the nation’s capital markets, fueling huge growth in household and business debt, serial asset bubbles and endless leveraged speculation in equities, commodities, currencies and other assets.

At the same time, the nearly untaxed windfall gains accrued to pure financial speculators, not the backyard inventors envisioned by the Republican-inspired capital-gains tax revolution of 1978. And they happened in an environment of essentially zero inflation, the opposite of the double-digit inflation that justified a lower tax rate on capital gains back then — but which is now simply an obsolete tax subsidy to the rich.

In attacking the Bush tax cuts for the top 2 percent of taxpayers, the president is only incidentally addressing the deficit. The larger purpose is to assure the vast bulk of Americans left behind that they will be spared higher taxes — even though entitlements make a tax increase unavoidable. Mr. Obama is thus playing the class-war card more aggressively than any Democrat since Franklin D. Roosevelt — surpassing Harry S. Truman or John F. Kennedy when they attacked big business or Lyndon B. Johnson or Jimmy Carter when they posed as champions of the little guy.

On the other side, Representative Ryan fails to recognize that we are not in an era of old-time enterprise capitalism in which the gospel of low tax rates and incentives to create wealth might have had relevance. A quasi-bankrupt nation saddled with rampant casino capitalism on Wall Street and a disemboweled, offshored economy on Main Street requires practical and equitable ways to pay its bills. {Read More}

On balance Stockman acknowledges that we are in serious trouble, we are one the verge of class warfare, and that a combination of spending nuts and tax increases on both the wealthy and the middle class will be required. His point that Washington has kept dodging the looming debt crisis by apply quick fixes and pushing the problem off into the future is spot on.

I certainly do not agree with everything Mr. Stockman says, but perhaps President Obama and Paul Ryan, as well as Congress ought to consider employing him as they work out a hopefully successful budget/spending cut/tax process.

After all, in all reality our nation's economic future depends on it. And that means the economic future of each and every one of us.

Cross posted to the Left Coast Rebel

Discussions @ Memeorandum