Who Pays And How

[Guest guest]

http://www.tompaine.com/articles/who_pays_and_how.php

 

Who Pays And How

Robert B. Reich

August 18, 2004

 

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.