Editor’s note: This op-ed is by Tom Pelham, Finance Commissioner in the Dean Administration and Tax Commissioner in the Douglas Administration.
This week Pearl Harbor Day reminded us of who we can be when times are difficult; of when challenges are acute, clear vision necessary, leadership and organization engaged, and most of all, courage and sacrifice abound. While fiscal matters do not equate to those of war, our future well-being rides on how well our nation’s leaders address today’s fiscal challenges.
Too often, leadership on fiscal matters is mere posturing draped in partisanship. Yet, no amount of ranting from either the right or left can defy economic gravity, even when embraced by the media turned reality show host.
Since 2002 our government has failed miserably to respect a fundamental economic rule – balancing the books. Congressional Budget Office (CBO) data informs us that federal spending between 2003 and 2009 exceeded revenues by $3.55 trillion. Operating deficits of 12% to 28% are now the norm, and CBO projects red ink as far as the eye can see, totaling an additional $6.3 trillion by 2020.
Operating deficits of 12% to 28% are now the norm, and CBO projects red ink as far as the eye can see, totaling an additional $6.3 trillion by 2020.
We in the private economy have also behaved badly. Like our government, we have not balanced our books, but assumed credit card debt and mortgage obligations we can’t afford. Unlike our government, however, we are changing behavior. In 2001, our annual rate of personal income savings was 2.3%, or $204.9 billion. In 2009, with the recession upon us, we became more conservative, pushing the rate to 5.4%, or $655.3 billion.
There’s a lot of blame to go around, but the “blame game” will not impede the economic forces we’ve unleashed. We’ve not respected fundamental economic rules and it’s time to settle accounts. Such reconciliation is especially urgent in a competitive world where emerging nations run trade surpluses at our expense and, bit by bit, win from us world economic leadership.
The recent “deal” between President Obama and Republican leaders lacks vision and courage. When the core problem is budget deficits and recession, our leaders choose the path of digging a deeper hole. Rather than compromise, both sides acquiesce to the other. The Republicans agree to extend tax cuts for those with incomes below $250,000, the President agrees to extend tax cuts for those above $250,000, and the deficit grows. This is not compromise; it’s more of the same. The day after the deals announcement, inflationary fears drove interest rates up sharply.
Further, empty sloganeering from the left pitting one American against another is not leadership. Consider this. The CBO reports that the total value of the Bush tax cuts in 2011 is $340.6 billion and total $5.6 trillion by 2020. Christina Romer of the President’s Council of Economic Advisors reports that “the high income tax cuts” amount to $30 billion in 2011 and $700 billion by 2020. Thus, the “tax cuts for the wealthy” consume a small portion of the total tax cut package. Our nation will sooner be on a path to recovery when leaders stop digging in over dogma and start recommending informed compromises.
Consider also the profile of “the wealthy” in Vermont. From 2000 through 2008, there were 3,926 Vermont income tax filers with adjusted gross income over $500,000. Of these, 52.5% filed such a return only once during the 9 year period. Another 15.6% filed such a return twice. There were only 136 filers who filed a return over $500,000 in all 9 years. Further, 33% of these “wealthy” filers were or turned 65 during this 9 year period. What this data suggests is that the “wealthy” in Vermont are often “wealthy” one time, when cashing in long held assets to fund retirement.
It’s an easy political ruse to feverishly attack “multimillionaires and billionaires.” But when the true effect is to raise taxes on self-reliant Vermont small business persons, farmers, apartment building owners among others who diligently nurtured an asset in preparation for retirement, the attack becomes hollow, even shameful.
So let’s set down the rhetorical spears and start doing what’s right. Here’s one suggestion. The CBO reports that federal revenues as a percent of Gross Domestic Product (GDP) averaged 18% over the past 40 years, ranging from 21% in 2000 to 15% in 2009. The current projection for 2010 is 14.6%, then moving to 18.7% in 2012 assuming the expiration of the Bush tax cuts. In the Bush package, there are dozens of lobbyist sponsored special interest tax cuts. Let these expire, from Teacher’s Classroom Expenses to the Depreciation of Restaurant Equipment. To protect the middle class, increase the Alternative Minimum Tax exemption by inflation. Then, find the middle on the major tax cuts, including income tax rates and the estate tax, to partially restore them to Clinton era levels but spreading the pain to all. Such an approach allows recession friendly federal revenues at a percent of GDP below the historic average while raising new revenues to address deficit spending.
A likely result will be a more robust economy as American’s unleash some of the billions now being saved as their comfort level with leaders in Washington rises. With revenues resolved, Congress and the President can then move to the difficult budget choices necessary to balance the budget.
