with knowledge necessary
to shape the nation’s future
Is it a disease or a symptom?
How sick is the patient?
What’s the cure?
1. Since 1981, tax policies rather than spending decisions
have been the main drivers of deficits.
2. Insofar as spending should be cut, we must not treat the
largest annual expenditure—on wars and the military—
3. We won’t successfully solve our problem unless we
recognize the underlying force driving all phases of our
economy and politics. (We won’t name that force for
Clearing the Air
Myth: Social Security spending adds to deficits and
therefore must be “fixed.”
Reality: Social Security is a self-funded trust fund.
Its annual surplus is always used to mask the real
size of the deficit. The latest treasury estimate is
that, left alone, Social Security will continue to run
surpluses for another 25 years.
It is also a self-funded trust fund and adds
nothing to deficits. It will stop running
surpluses in 10 years, however. So,
considered separately, it will need fixing
soon. That fix will only succeed if the U.S.
finds a way to control its exceptionally high
and ever-escalating health care costs—the
subject of a different discussion than our
Myth: Lowering taxes on the wealthy
encourages investment and job creation.
Reality: During the 8 Clinton years, 23.1
million jobs were created. During the 8 G.W.
Bush years, when taxes on capital gains,
dividends and estates were drastically
lowered, only 3 million jobs were created.
Clearing the Air 2
Taxes and Investment
“I have worked with investors for 60 years
and I have yet to see anyone—not even
when capital gains rates were 39.9 percent
in 1976-77—shy away from a sensible
investment because of the tax rate on the
potential gain. People invest to make money,
and potential taxes have never scared them
Warren Buffet, “Stop Coddling the Super-
Rich,” The New York Times August 14, 2011
The Three Causes
of Deficits and Debt
2. Tax policies
3. Whether the economy (as
measured in GDP) is growing or
Federal spending, federal
debt, and GDP (averages)
Fiscal Year Federal spending Federal debt Gross Domestic Product
Democratic + 9.9% +4.2% +12.6%
Republican + 12.1% +36.4% +10.7%
The “Perfect Storm”
of Budget Disaster
Second-to-last G.W. Bush budget
FY 2008: $459 billion deficit
(3.2% of GDP)
Last G.W. Bush budget modified by Obama
FY 2009: $1.17 trillion deficit
(10% of GDP)
First Obama budget
FY 2010: $1.3 trillion deficit
(about 9% of GDP)
Components of the Budget:
1. Trust fund entitlements The main trust funds are Social
Security and Medicare. Some others are FUTA and the
2. Interest on the national debt
3. Appropriated entitlements These programs also mandate
payment of benefits to any person meeting eligibility
requirements. Congress does set the eligibility
requirements and fund these programs, but not annually.
Usually they are funded every five years. Such programs
include Medicaid, Food Stamps, and Head Start.
4. Discretionary programs Annually appropriated programs.
Military spending is by far the largest.
FY 2008 Spending Budget: $2.983 trillion
as usually presented
(chart numbers in billion $)
FY 2008 Spending Budget: $1.732 trillion
without trust funds and interest on debt
(chart numbers in billion $)
Choices for Jackson County, Oregon
In FY 2012, taxpayers here will pay $210.3 million for proposed Department of
Defense spending. For that much money, the following could be provided:
110,202 Children Receiving Low-Income Healthcare for One Year, OR
3,330 Elementary School Teachers for One Year, OR
37,910 Head Start Slots for Children for One Year, OR
28,299 Scholarships for University Students for One Year, OR
113,854 Households with Renewable Electricity-Wind Power for One Year,
3,040 Police or Sheriff's Patrol Officers for One Year
Starving the Budget
The federal government collected less in
taxes in 2010 than it has in over three
generations, and tax rates are at historic
Taxes on Corporate Income
• Corporate income taxes totaled about 1% of
GDP this year, 60% lower than 40 years ago.
• While the official corporate tax rate is 35%,
one of the highest in the world, the effective
corporate tax rate averages 18%.
• Using various loopholes and off-shore tax
havens, some of the largest U.S. corporations
pay little or no taxes whatsoever.
Exploiting the Loopholes
1. In 2005, one in four large United States corporations paid
no taxes on revenue of $1.1 trillion, Government
Accountability Office 2008 report
2. In 2010, General Electric paid no U.S. taxes despite
global pre-tax income of more than $14 billion, $5.1 billion
earned in the U.S. No taxes in 2009 either, but $3 billion in
tax credits for the two years.
3. In 2010 Exxon Mobil reported a record $45.2 billion profit.
It paid no taxes in the U.S., thanks to 20 wholly owned
subsidiaries domiciled in the Bahamas, Bermuda and the
Cayman Islands that (legally) shelter its overseas cash
1940 1950 1960 1970 1980 1990 2000 2010
TAXATION OF HIGHEST INCOME BRACKET
Taxation of Capital Gains
Year President Maximum tax rate
1979 Carter 28%
1982 Reagan 20%
1996 Clinton 29%
2006 G.W. Bush 15.70%
The Bush tax cuts added
$1.7 trillion to the nation's debt
2010 Shares of the
Bush Tax Cuts
The richest 1% of families got an average tax cut of
$92,000, including cuts in income and estate
taxes. That represented 53% of the total reductions.
Next 4% richest: 6.6 % of the total reductions.
Next 15% richest: 12.1% of the total reductions.
Everyone else (80% of American taxpayers): 28%
of the total reductions.
Third Contention Revisited
We won’t successfully solve our problem
unless we recognize the underlying force
driving all phases of our economy and
politics: the large and rapidly growing divide
in wealth and political power between the
richest 10% and all the rest of us.
The real choice we face:
democracy or oligarchy
“Of all the costs imposed on our society
by the top 1 percent, perhaps the
greatest is this: the erosion of our sense
of identity, in which fair play, equality
of opportunity, and a sense of
community are so important.”
— Joseph Stieglitz