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Tom White: Fiscal cliff: It really is class warfare

"Fiscal Cliff."

Sounds bad. Very bad.

Apparently, if Congress can't reach some sort of grand bargain, at the end of the year across-the-board spending cuts and tax increases will go into effect that will end the World as we know it. All the result of the Tea Party debt ceiling debacle in summer 2011. To fix this, the President and many Democrats want higher taxes on the wealthy while the Republicans want to cut "entitlements," by which they mean Social Security and Medicare.

Here's the take away: this very much is Class Warfare. There's no use pretending otherwise. So you might want to decide which side you're on. And to do that, I offer up five easy fixes to the fiscal cliff and the national debt/deficit in general. See where you come down:

  • Capital Gains: Currently taxed at 15 percent. Let's increase it to around 35 percent, just like normal wage income. This is how hedge fund folks like Mitt Romney make their money. Surely they can afford to pay a little more. Warren Buffett said so.
  • Payroll Tax: This is what wage earners pay to support Medicare and Social Security for the elderly and disabled. It says FICA on your pay stub. Right now, incomes above about $110,000 are exempt. Why not increase that to around $250,000 or so, and maybe sweep in capital gains as well. Why have an exemption at all?
  • Financial Transaction Tax: How about a little tax on all those millions of computer driven stock and commodities trades that go on every day. Say, I dunno, 0.01 percent (one-tenth of 1 percent) of each trade. Sure, Wall Street will scream, but not just a few economists have said that what the finance industry really needs is to become less efficient, and the 2008 crisis seems to prove that.
  • Marginal Tax Rates: This is what President Obama is talking about. During the Clinton administration, the top marginal income tax rate was about 39 percent on incomes above roughly $300,000. President Bush cut that to 35 percent. It doesn't sound like a lot but it is when you're talking about the national economy. Chalk that extra 4 percent on and you're talking some real revenue. Remember, this is only on income above that $300,000, or $250,000, or whatever it turns out to be.
  • I say there is no way you can make that kind of money without help. Government help: Good roads, bridges, schools, ports, government contracts, subsidies, cheap oil supported by our military.... See?

  • Finally, how about a fresh look at bankruptcy and usury? Why is it that banks get top priority in bankruptcy proceedings and not employee pensions and health care? And why is it that my credit card statement shows a 21 percent interest rate on any advance and 11 percent on any balance? Some of that stuff used to be against the law.
  • Notice a trend here? I say the financial sector needs to pay more. Banking and finance used to be boring and worked nicely for most people because the dollar was the only currency left standing after Word War II. Now the financial sector has simply lost its collective mind and the country has had to rescue it over and over. 

    We cannot go on like this. When median income (half of national households above, and half below) is stagnant or declining, eventually the nation as a whole can no longer afford to buy any of the stuff it produces (whether in manufacturing or services). No more demand. John Maynard Keynes identified this phenomenon as the cause of the Depression. Henry Ford got it, too.

    Generate a little more revenue with these suggestions -- which have been kicked around for years -- and the government can actually afford to spend on things like roads, bridges, schools and, yes, health care. And everybody will be better for it. Not just Wall Street, and not just the John Galts among us.

    Cliff averted.

    None of this will happen, of course. Most folks in Congress are millionaires and they don't like any of this. Hence the filibuster. And the finance industry has pretty much a stranglehold on both houses. "The banks own the place," Illinois Sen. Dick Durbin famously quipped in 2009.

    But at least you can decide which side you're on. For the last 30 years the Republican Party has had one message: less regulation and lower taxes, especially for the wealthy.

    We've seen how that turned out. Look around.

    Journalist Timothy Noah's 2012 book, The Great Divergence, pretty much kicks the stuffing out of "trickle-down" economics and shows that stagnation in the U.S. median income has many causes, including deliberate policy favoring the wealthy: banking de-regulation, weakened domestic labor laws, off-shoring manufacturing and tax policy.

    To get in the weeds a little, Noah shows that the effective tax rate for the top 0.01 percent has gone down about one quarter since the 1970s, while the pre-tax income for this same sector grew by 217 percent.

    Similar data about income inequality from the 1970s forward are now sprouting up everywhere. There seems to have been a trend after World War II where productivity and median income rose together, all the way to the OPEC embargo of the '70s. Since then there has been a split, and median income has stagnated despite productivity gains (most prominently in the service sector.)

    Noah ends his book with the thought that this split is actually the root cause of the unusual distrust and rancor between parties and populace we see today:

    To Republicans, the enemy is the cultural elite; to Democrats, it's the economic elite. In a less income-divergent society, elites would still be resented. But I doubt that opposing them would be an organizing principle of politics to the same extent that it is today.

    I like this idea. Nonetheless, I say this fiscal cliff business should inform your opinion about which side you're on. You should choose.

    White is a Charleston lawyer and former Gazette reporter.


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