Thanks to last week's CBO report, everyone's suspicions that the Bush tax cuts mostly benefited the wealthy are confirmed. This isn’t a complete picture of how the financial burden plays out across society, says Reich. Who finances the massive federal debt and who pays the resulting interest is also revealing.
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.
Two stark facts have become apparent about how our government now finances itself.
The first is about who’s paying taxes. There used to be a graduated system in which the rich paid a much larger proportion than the poor. But that’s changed. None other than the Congressional Budget Office—which, incidentally, works for a Republican Congress and is headed by a former Bush economist—reports that two-thirds of the Bush tax cuts have gone to the wealthiest 20 percent of American families. And the lion’s share, to the top 1 percent.
Now the second fact, equally important: The Treasury Department tells us that the nation’s total debt has soared from 5.7 trillion dollars four years ago, to 7.3 trillion dollars today.
Put these two facts together and you’ve got the real story. Wealthy Americans used to add to government revenues mainly through their tax payments. Now, wealthy Americans add to government revenues by lending the government money.
Wealthy Americans still pay taxes, of course. But a smaller proportion of their earnings are taxed. So they’ve got more savings. And a higher percentage of those savings are being lent to the government to finance the mounting debt. Face it. It’s not your typical American who’s lending money to the government. The typical American has no savings and is in deep personal debt. Obviously, most of the Americans who are lending money to the federal government to keep it going, as the federal debt balloons, are well-off. They’re the same people who got most of the tax cut.
In other words, the wealthy have shifted their Washington portfolios, if you see what I mean. A lot of the money they used to send to Washington in the form of tax payments they now send to Washington in the form of loans, through treasury bills and bonds. The big difference, of course, is that loans have to be paid back, with interest. So far this year, interest payments on the federal debt have totaled over 290 billion dollars. And who pays that interest? Well, you and me and all taxpayers.
That’s the new system, folks. Combine the Bush tax cuts and the soaring federal deficits and you go from one method of financing government (which we used to call it a progressive income tax) to another method—consisting of loans from the wealthy—and interest payments to them from everyone else.
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.