Taking From the Poor and Giving to the Rich

Both Parties' Debt Plans Play Robin Hood in Reverse

By J.J. Goldberg

Published July 29, 2011, issue of August 05, 2011.
  • Print
  • Share Share

If you’re like me, you’ve been watching the news about the federal debt negotiations for weeks, thinking something smelled fishy but unsure what it was. On one hand, everyone agrees the national debt is too high. It makes sense, then, that spending must be cut sharply. That’s life. If you’ve spent yourself into a hole, stop spending.

On the other hand, it seems unfair, as President Obama argues, for all the sacrifice to come from low-income people who depend on the programs facing cuts. Somehow the wealthy should take some of the load. Unfortunately, you can’t balance budgets by cutting programs the affluent depend on, because they don’t depend on government programs. Shouldering their share, therefore, means paying more taxes. That is, opening their wallets to help the unfortunate. But generosity shouldn’t be coerced. If we’re in debt because of government programs we can’t afford, we just have to cut those programs, don’t we?

Besides, if you tax the rich more, they might stop creating all those great new jobs.

Well, imagine my shock when I stumbled across a website with the actual federal budget, courtesy of the Office of Management and Budget, and saw where the money really goes. You’ll want to be sitting down for this.

It turns out there has been no significant rise in federal spending as a percentage of Gross Domestic Product in a generation. To be precise, spending has floated up and down between 20% and 23.5% of GDP every year since 1975 (with a few exceptions that we’ll get to). That is, for every dollar earned in America, Washington spent 20 to 23.5 cents. The problem is, that’s more than the government took in. Revenues were only 17% to 19.6% of GDP. The difference was borrowed. Debt piled up. Now we owe $14 trillion.

What happened? Until 1974, government budgets were generally balanced for a quarter-century, right through the “big government” 1960s. Then, in 1975, the Arab oil embargo upended the economy. The Ford administration took emergency measures, lowering taxes and raising spending. The Carter administration began easing the deficit back down, a bit each year.

You know the next part. The Reagan administration took over and reversed policy. Instead of closing the deficit, it cut taxes and raised spending. The deficit exploded. We’ve been borrowing ever since, except for four years of balanced budgets under Bill Clinton. Now we’re busted.

But that’s not the crazy part. What’s shocking is which taxes went down and which spending went up.

Right now you’re thinking, well, duh, it’s Social Security and Medicare. They’re unsustainable. Americans are aging too fast. People are living too long (ponder that for a minute). How long can that last?

Quite a while, actually. Consider: Between 1960 and today, the number of workers needed to support each retiree fell from 5.1 to 2.9, a drop of 60%. During that same period our productivity — the amount each worker can produce per hour — rose by nearly 200%. Productivity growth slowed after 1980 — totaling some 45% — but the worker-retiree ratio has hardly budged, from 3.3 to 2.9. Sustaining Social Security isn’t harder than it used to be. It gets easier over time, because productivity grows faster than the senior population.

That is, it would be easier if the system received some of that increased productivity. But it doesn’t. Nor do the workers who do the producing. Nearly all of the gains have gone to the top 1% of the population. Back in 1980, the luckiest 1% was taking home 8.5% of all national income, according to IRS figures, while the bottom half of the nation divvied up about twice that, a princely 17.7%. By 2007, just before the crash, the shares were reversed: The happy few took home 23% of the total pie, while the bottom half got just 12.3%. Things got so nutty that the top one-tenth of 1%, just 300,000 individuals, got almost as much (11.9%) last year as the 150 million individuals in the bottom half. That’s where the money went: We donated it to the rich.

Here’s the craziest part. You’ve probably heard liberals complain that Reagan and Bush undermined government solvency by halving the top marginal tax rate, which is the percent that the richest Americans pay on each dollar they earn above a certain level. It was 70% throughout the high-growth 1960s. It’s just 35% today. You may also have heard the conservative reply: Because of other reforms, the wealthy still end up paying the lion’s share of taxes. The richest 1%, who earn 23% of all the income, pay 38% of all the income tax. The bottom half receives 12.5% of the income but pays under 3% of the income tax.

What they don’t tell you is that income tax is only part of the story, and a declining part. When Reagan took over in 1981, 47% of all federal revenue came from personal income taxes, 12.5% from corporate tax and 30% from the so-called payroll tax. (That last one is the special Social Security and Medicare tax, which hits everyone, rich or poor, with the same rate on every dollar they earn up to a given ceiling. Anything you earn above the ceiling is payroll-tax-free.) Today the government gets 43% from personal income tax and 7% from corporate tax. The payroll tax, the most regressive federal tax, provides 40% of all revenue.

The result has been a dramatic shift of the tax burden from the rich to the middle class and poor. In 1980, the bottom half of the population, with 17.7% of the nation’s income, paid 0.5% of all federal revenue. Today the bottom half takes home 12.25% of the income and provides 6% of revenues.

At the other end, the top 2% took home about 15% of all income in 1980 and paid about 48% of all revenue. Today, the top 2% takes home about 28% of income and pays 32% of revenue.

Finally, which spending has gone up? When Reagan first entered, he raised military spending. Over time that slowed down. Social Security? It’s stayed around 20% of the budget. Housing? Research? Parks? Minimal. Here’s what’s shot up: Medicare and Medicaid, from less than 7% of budget to about 20%. Recipients don’t visit the doctor more often, but the same visits cost more every year. Anything else going up? Yes: annual interest on the debt.

And there you have it: A monumental shift of income to the very rich from everyone else, and a quiet shift of the tax burden from the richest to everyone else. A gigantic hole in our Treasury. Some very rich job-creators. And jobs? Not so much.

You can see the sources of my numbers and check them out for yourself by going to this blog post at our Forward Thinking blog.

Contact J.J. Goldberg at goldberg@forward.com

The Jewish Daily Forward welcomes reader comments in order to promote thoughtful discussion on issues of importance to the Jewish community. In the interest of maintaining a civil forum, The Jewish Daily Forwardrequires that all commenters be appropriately respectful toward our writers, other commenters and the subjects of the articles. Vigorous debate and reasoned critique are welcome; name-calling and personal invective are not. While we generally do not seek to edit or actively moderate comments, our spam filter prevents most links and certain key words from being posted and The Jewish Daily Forward reserves the right to remove comments for any reason.

Find us on Facebook!
  • "I am wrapping up the summer with a beach vacation with my non-Jewish in-laws. They’re good people and real leftists who try to live the values they preach. This was a quality I admired, until the latest war in Gaza. Now they are adamant that American Jews need to take more responsibility for the deaths in Gaza. They are educated people who understand the political complexity, but I don’t think they get the emotional complexity of being an American Jew who is capable of criticizing Israel but still feels a deep connection to it. How can I get this across to them?"
  • “'I made a new friend,' my son told his grandfather later that day. 'I don’t know her name, but she was very nice. We met on the bus.' Welcome to Israel."
  • A Jewish female sword swallower. It's as cool as it sounds (and looks)!
  • Why did David Menachem Gordon join the IDF? In his own words: "The Israel Defense Forces is an army that fights for her nation’s survival and the absence of its warriors equals destruction from numerous regional foes. America is not quite under the threat of total annihilation… Simply put, I felt I was needed more in Israel than in the United States."
  • Leonard Fein's most enduring legacy may be his rejection of dualism: the idea that Jews must choose between assertiveness and compassion, between tribalism and universalism. Steven M. Cohen remembers a great Jewish progressive:
  • BREAKING: Missing lone soldier David Menachem Gordon has been found dead in central Israel. The Ohio native was 21 years old.
  • “They think they can slap on an Amish hat and a long black robe, and they’ve created a Hasid." What do you think of Hollywood's portrayal of Hasidic Jews?
  • “I’ve been doing this since I was a teenager. I didn’t think I would have to do it when I was 90.” Hedy Epstein fled Nazi Germany in 1933 on a Kinderstransport.
  • "A few decades ago, it would have been easy to add Jews to that list of disempowered victims. I could throw in Leo Frank, the victim of mob justice; or otherwise privileged Jewish men denied entrance to elite universities. These days, however, we have to search a lot harder." Are you worried about what's going in on #Ferguson?
  • Will you accept the challenge?
  • In the six years since Dothan launched its relocation program, 8 families have made the jump — but will they stay? We went there to find out:
  • "Jewish Israelis and West Bank Palestinians are witnessing — and living — two very different wars." Naomi Zeveloff's first on-the-ground dispatch from Israel:
  • This deserves a whistle: Lauren Bacall's stylish wardrobe is getting its own museum exhibit at Fashion Institute of Technology.
  • How do you make people laugh when they're fighting on the front lines or ducking bombs?
  • "Hamas and others have dredged up passages form the Quran that demonize Jews horribly. Some imams rail about international Jewish conspiracies. But they’d have a much smaller audience for their ravings if Israel could find a way to lower the flames in the conflict." Do you agree with J.J. Goldberg?
  • from-cache

Would you like to receive updates about new stories?

We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.