Bob Reich and the chairman of the Federal Reserve agree! The ever-burgeoning fiscal deficit is a matter of serious concern. Where they depart is the cause and the cure. Greenspan blames the deficit on federal spending. Reich blames wealthier Americans and corporations for not paying their fair share—tax revenue from these sources is at its lowest level in 60 years.
Robert B. Reich is the Maurice B. Hexter Professor of Social and Economic Policy at Brandeis University, and was the secretary of labor under former President Bill Clinton.
We're now deeper in hock to the rest of the world than ever before, and the dollar is now poised to drop even further. Americans are living too high on the hog—higher than we can possibly afford. And as the old saying goes, when you're living too high on the hog, eventually you're going to fall off and land in pig slop.
But take a closer look at why we're in such debt to foreigners and you see that it's not because all Americans are living too high on the hog. Our huge foreign debt is directly related to America's yawning budget deficit. Which Americans are gaining ground as the deficit grows?
Most Americans aren't getting more than usual from the federal government. Indeed, poorer Americans are experiencing major cuts in services. Medicare, Medicaid and Social Security are large, to be sure. But as a percentage of the total economy, federal spending is not high by historic standards. Even if you include the current expense of going to war, federal outlays as a proportion of the gross national product are now slightly below their average over the past two decades.
It's not federal spending that's out of whack. What's really responsible for the giant deficits is found on the revenue side of the ledger. As a percentage of the total economy, tax revenues are plunging. We haven't seen revenues this low, as measured against the total economy, in half a century.
Here's where things get really interesting. Take a close look at government revenues. Payments coming into government from payroll taxes—which are paid mostly by America's huge middle class—are at an historic high. But look at what's being collected from income and corporate taxes, and measured against the economy as a whole you get the smallest take in more than 60 years. And, of course, income taxes and corporate taxes come mainly from people earning more than $200,000 a year.
In other words, the federal deficit has gone up mainly because wealthier Americans are paying less in taxes. If they paid at the same rate they paid even five years ago, we wouldn't be in this pickle. We wouldn't have such a huge federal deficit and we wouldn't be in such deep hock to foreigners.
Given this, you might think that any strategy for reducing the deficit and getting America back on a responsible fiscal path would at least consider rolling back the 2001 and 2003 tax cuts for the wealthy. That would be rational. But this administration wants to do exactly the opposite—extend and enlarge tax cuts for the wealthy.
Even if America didn't have the largest gap in wealth and income in more than a century, even if we weren't in deep hock to foreigners, even if the dollar wasn't dropping, even if the budget deficit weren't huge and growing, even if we weren't trying to fight a war, extending more tax cuts to the wealthy would make no sense. Under the present circumstances, it's just plain nuts.
This commentary originally appeared on Marketplace, public radio's only daily business news program, and is reprinted via a special arrangement between TomPaine.com and Robert Reich. Marketplace is produced by Minnesota Public Radio and is heard on 322 public radio stations nationwide. More online at www.marketplace.org.
