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As we prepare for today’s speech from Barack Obama on his response to the draconian cuts to social services proposed by Paul Ryan in his deficit reduction plan, it is very informative to watch Jon Stewart’s perfect dismantling of that plan from last night’s Daily Show. Stewart is right to poke fun at the “creepy music” to which Ryan presents his plan that the Washington villagers laud as so bold and decisive, but the real value of Stewart’s piece comes in his demonstration that the exact same amount of deficit reduction can be achieved by ending the Bush tax cuts. There were hints yesterday that Obama might actually suggest ending at least some tax cuts, but it remains to be seen just what kinds of revenue improvements Obama will suggest and, more importantly, how hard Obama will fight for them when it comes time to put his plan through Congress.
In the meantime, it helps to keep perspective on where we stand on taxes today. Back in December, I wrote a piece on the death of the middle class in the US. Parts of that piece are repeated below for reference as we enter the discussion of Obama’s speech. It is vitally important to realize that taxes now are at a historic low point, especially for the ultra-rich and corporations. If Obama is not serious about increasing revenue from these sources, then he has no hope of restoring our economy to what it could be.
How did American culture change so dramatically within the lifetimes of these children of the Depression? In The Conscience of a Liberal, Paul Krugman describes “The Long Gilded Age” that preceded the Depression as a time of extreme disparity in wealth accumulation, when only the extremely wealthy could afford a “comfortable” life. He then describes “The Great Compression” when the strong middle class emerged:
Part of the great narrowing of income differentials that took place between the twenties and the fifties involved leveling downward: the rich were significantly poorer in the fifties than they had been in the twenties. . . By the mid-fifties the real after-tax incomes of the richest 1 percent of Americans were probably 20 or 30 percent lower than they had been a generation earlier. And the real incomes of the really rich–say, those in the top tenth of one percent–were less than half what they had been in the twenties.
Meanwhile the real income of the median family had more or less doubled since 1929. And most families didn’t just have higher income, they had more security too. Employers offered new benefits, like health insurance and retirement plans.
Returning to Krugman’s book, we see that one of the primary means by which “The Great Compression” was achieved was through taxes:
In the twenties, taxes had been a minor factor for the rich. The top income tax rate was only 24 percent, and because the inheritance tax on even the largest estates was only 20 percent, wealthy dynasties had little difficulty maintaining themselves. But with the coming of the New Deal, the rich started to face taxes that were not only vastly higher than those of the twenties, but high by today’s standards. The top income tax rate (currently only 35 percent) rose to 63 percent during the first Roosevelt administration, and 79 percent in the second. By the mid-fifties, as the United States faced the expenses of the Cold War, it had risen to 91 percent.
We have Senate Republicans openly announcing that they will block passage of all legislation until tax breaks for the highest income bracket are extended. We have unemployment benefits expiring, just a few short weeks before Christmas, for nearly two million people who have been unemployed for extended periods. In the face of those ills, we have a President, elected to stave off the New Depression, who is so willfully ignorant of the past and so cowardly in the face of a demented political opposition, that he is guaranteed to negotiate an extension of the 35 percent tax level on the highest income bracket rather than let it return to a mere 39.9 percent. What a far cry that is from Roosevelt’s 63 percent upper tax bracket that got the nation moving toward equal economic opportunities for all. When Obama signs the legislation for extension of tax breaks for the highest income bracket, that will be the final death knell for the middle class.
So, just as Senate Republicans last December were threatening to shut down all legislation just to enshrine the top tax bracket at 35 percent rather than 39 (which they wound up getting as a “temporary” arrangement for now), now all Congressional Republicans have taken us to the brink of a total government shutdown just a few months later because they insist on cutting social services rather than addressing debt through increasing revenues above the current historically low tax rates. There is no other way to describe this situation than as a class war. Sadly, Obama will be approaching the situation as if it is merely a minor disagreement to be worked out through negotiations between parties who want the common good, but nothing could be farther from the truth. Republicans will insist, once again, on policies that benefit only the rich and corporations at the expense of the middle and lower classes. What the Republicans fail to realize, though, is that their past thievery from these groups has left them with nothing more than what they are using to subsist. Taking the last few crumbs through trillions of dollars in cuts to Medicaid and Medicare is cruel beyond measure. Or, as Stewart put it at the close of the segment, “To avoid a future that would be painful for us all, all we need is a present that is painful for some.” And, of course, the “some” are the poor whom Stewart depicts as literally bleeding to prevent pain for the rich.