Rhetoric and Reality: The Fiscal Cliff

Years and years ago, back when I was actively involved in national politics, a scholar of politics made the observation that, “Where you stand on anything depends on where you sit.” The converse is also true, in that the positions one takes reveal the true nature of one’s views.

The “negotiations” surrounding the “fiscal cliff” illustrate the above point fairly clearly. The positions taken by each side do indeed reveal where each side sits, so to speak, and whom they represent, regardless of the window dressing of the rhetoric thrown out by each side. The Democrats are demanding that the “rich” pay more in taxes. Interestingly enough, their definition of “rich” includes all of what has historically called the upper middle class and even a fraction of the mid-middle class, i.e., moderately salaried two-earner families in high-cost-of-living cities. The definition of “rich” has been muddied over time by inflation, but consider that a family income of $42,000 in 1970 is equivalent to more than $250,000 today, yet in 1970, forty percent of all families made more than $42,000. Today, only 2% make more than $250,000. President Obama classifies those in the top 2% as the rich, but those in the ninety-ninth percentile have family incomes of between $250,000 and $350,000, and that one percent pays ten percent of all federal income taxes. Well-off certainly, but rich? All this does suggest that Obama and the Democrats, rhetoric aside, are out not only to soak the rich, but also to soak the upper middle class.

The Republicans, of course, aren’t exactly blameless. For all their rhetoric about controlling spending, they haven’t. In fact, they’ve more than helped it along, and then they’ve coped with the erosive power of inflation by simply pushing for lower tax rates. After all, in the end, what matters isn’t what you make, but what you keep. So, as inflation has decreased the purchasing power of the dollar, so that the real income of most families is only some 60% of what it would have been without inflation, federal income tax levels on the top ten percent, and especially on the top one percent, have been more than halved since the 1950s. The result? Although all income levels have suffered in loss of comparative purchasing power, the greatest burden has fallen on those in the middle two quintiles of income, what generally might be referred to as the working class, because their tax rates have not decreased as much as those with higher incomes, and because federal programs have tended to cover most of the impact on the very poorest. The Republicans’ “Plan B” was even more deceptive in that, while it would have protected the upper middle class from a tax increase, it not only did that, but it would have removed the few limitations that do exist on restricting tax exemptions for the very wealthy… and Boehner couldn’t even get the enough Republicans to support that.

When all the math and tax policies are considered, the politicians have been paying for federal programs through deficit spending that has reduced the purchasing power of all incomes, although, like it or not, those families in the lower 50% of income only pay 3% or so of federal income tax. The Democrats have done their best to shield the very poor, because programs such as food stamps are essentially indexed against inflation, and the Republicans have done their best to shield the very richest one percent, and continue to do so, even with the fiscal cliff looming, and everyone in between has taken a hit of some degree… and both Obama and Boehner are holding out in the fiscal cliff negotiations for the best deal they can get for the very rich and the very poor – and if they do come to an agreement, they’ll call it a benefit for the middle class.

5 thoughts on “Rhetoric and Reality: The Fiscal Cliff”

  1. Joe says:

    Instead of worrying about who gets taxed more or less, as if we were living in a caste system, we should be concerned about the shape of the curve. People bounce up and down the curve as business cycles tick.

    If 40% of families made what now only 2% of families make, it is clear that the distribution curve has become more hockey stick like. Those at the top bought laws to make it easier to skew the playing field to their benefit.

    The fact that politicians are regulation and government grant salesmen is not unrelated to the fiscal cliff. Indeed, the whole argument about entitlements is not that they are underfunded, but that they were “borrowed” for other purposes… such as funding Halliburton and its ilk, which seems to be the only concrete benefit from the entire Iraq war. Now the politicians do not want to repay what they borrowed from people’s retirements, which is theft.

    I would argue that if you are trafficking in stolen goods you forfeit your own rights to ownership. In other words, those that benefited from government handouts of stolen monies now need to either repay, or should be liquidated, and those who benefited from purchased laws also need pay or be dispossessed to a lesser extent.

    Imposing higher taxes on all the top 2% may be harsh, and unfair to the many who did not steal, but leaving things the way they are is unfair to the vast majority. Solving the problem more fairly would require a much better tool than Congress.

    Ultimately the fiscal cliff shows that our political system is in crisis — corruption has led to unprecedented levels of mistrust, and since trust is the foundation of civilized economies, we are looking at a downward spiral.

    1. Steve says:

      Joe, your call to arms to get back our money from the rich thieves seems to fall into the category of unhelpful rhetoric that Mr. Modesitt decries. It is equally odious as the idea that all welfare recipients are defrauding the hardworking taxpayer.

      I think witch hunts are not necessary. Wouldn’t it be better to develop a moderately progressive tax, free of loopholes and deductions that everyone participates in? Perhaps we could accompany it with a balanced budget.

      Most concerning to me are the shrinking middle class incomes. Only 2% earn in 2012 what 40% earned in 1970 adjusted for inflation. Sobering.

      1. Joe says:

        Don’t hold your breath Steve. Don’t expect any reversal of the current trajectory: \The fall from 40% to 2% is not an accident but was designed. When the GOP is willing to play games of brinkmanship with the US credit rating, not once, but twice in a row, so as not to upset 2% of the electorate, you can forget about “moderation” being a solution.

  2. Carl says:

    So… how much would my computer and internet connection have cost in 1970? And my mobile phone? And my 58 inch flatscreen 3D TV? And my Wii? And my microwave? And my Kindle?

    I’m a lot richer than the Queen was in 1970. Even when unemployed.

    So I think there’s something wrong with your exchange rate.

  3. It’s not mine; it belongs to the Bureau of Labor Statistics.

    And I’m far richer than Louis XIV in terms of creature comforts and standard of living… but not in terms of comparative income and power. A century ago J.P Morgan had the financial power to rescue the U.S. government — and did. The hundred richest people in the world would have trouble doing that today.

    You’re also equating some of the few items in common use whose price has plummeted with overall standards of living. Education costs have increased far faster than any measure of inflation. Commerical aircraft prices have escalated enormously… and none of them fly any faster. The fact that you claim you’re rich on the basis of those items says more about your priorities than comparative economics.

Leave a Reply

Your email address will not be published. Required fields are marked *