From Tax to Debt

FROM TAX TO DEBT: ESSAYBY ROBERT REICH

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[I haveposted this MarketPlace commentary by Robert Reich because it is soimportant to understanding the policy and electoral choices facingAmericans today. All rights and credit go to Robert Reich, TomPaine.com, and Minnesota PublicRadio's Marketplace. I willremove the article from my website if they object.]

Who Pays and How

by Robert B. Reich

August 18, 2004

Thanks to last week's CBO report, everyone's suspicions that the Bushtax cuts mostly benefited the wealthy are confirmed. This isn’t acomplete picture of how the financial burden plays out across society,says Reich. Who finances the massive federal debt and who pays theresulting interest is also revealing.

Robert B. Reich is the MauriceB. Hexter Professor of Social and Economic Policy at BrandeisUniversity, and was the secretary of labor under former President BillClinton.

Two stark facts havebecome apparent about how our government now finances itself.

The first is about who’s paying taxes. There used to be a graduatedsystem in which the rich paid a much larger proportion than the poor.But that’s changed. None other than the Congressional BudgetOffice—which, incidentally, works for a Republican Congress and isheaded by a former Bush economist—reports that two-thirds of the Bushtax 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 tellsus that the nation’s total debt has soared from 5.7 trillion dollarsfour years ago, to 7.3 trillion dollars today.

Put these two facts together and you’ve got the real story. WealthyAmericans used to add to government revenues mainly through their taxpayments. Now, wealthy Americans add to government revenues by lendingthe government money.

Wealthy Americans still pay taxes, of course. But a smaller proportionof their earnings are taxed. So they’ve got more savings. And a higherpercentage of those savings are being lent to the government to financethe mounting debt. Face it. It’s not your typical American who’slending money to the government. The typical American has no savingsand is in deep personal debt. Obviously, most of the Americans who arelending money to the federal government to keep it going, as thefederal debt balloons, are well-off. They’re the same people who gotmost 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 toWashington in the form of tax payments they now send to Washington inthe form of loans, through treasury bills and bonds. The bigdifference, of course, is that loans have to be paid back, withinterest. So far this year, interest payments on the federal debt havetotaled over 290 billion dollars. And who pays that interest? Well, youand me and all taxpayers.

That’s the new system, folks. Combine the Bush tax cuts and the soaringfederal deficits and you go from one method of financing government(which we used to call it a progressive income tax) to anothermethod—consisting of loans from the wealthy—and interest payments tothem from everyone else.