Eliminate the National Budget Deficit in 2007

The Problem: The budget deficit, the national debt, and the gap between rich and poor.  
The national debt has risen from $5.7 to $9 trillion since 2001. We’re paying $300 billion a year in interest on the debt. The deficit has been from $400 to $596 billion. The causes have been the war in Iraq, tax breaks largely going to the rich, and other giveaways to corporations including pharmaceutical and oil companies. Bush has responded by cutting social programs. This has made the rich richer and the poor poorer. Now, the Republicans are planning to replace the Personal Income, Social Security, Medicare, Corporate Income, and Estate taxes with a 30% (misleadingly stated as 23 %) national sales tax called “FairTax”. It will probably pass in the next Congress if they retain control. Contrary to what they say, FairTax will not be revenue neutral. It will result in a shortfall of $1 trillion. It will essentially exempt the rich from taxes.  Our deficit will approach $1.5 trillion. With deficits this high we will be at a point where default is certain.  Default will precipitate a massive depression.

Background: The economy is driven by money in the hands of the people. You need investment capital but we have plenty of that. If a business has potential customers, it will expand to meet the market. If there is no market, business will contract. It’s that simple. This was illustrated after the crash of 1929. Hoover fed money to the rich ("trickle down") and it didn’t help. Roosevelt established the WPA and the CCC to put wages in the hands of working people and built infrastructure with TVA and REA. Then, the depression started to lift. 

Recent economic figures show that we are on the spiral toward depression now.  

Recent article from the Center on Budget and Policy Priorities disputing that Bush tax cuts have benefited the economy.

A series of tax breaks has been given to the rich since the start of the Reagan administration in 1980.  Then, income above $215,000 was taxed at 70%.  Reagan's tax breaks for the rich were projected to cost $200 Billion.  (He introduced the term "supply side" to replace the discredited term "trickle down".  It is the same thing.)  He said that these tax breaks would spur the economy and there would be no deficit.  The deficit was more than $200 Billion.  Tax breaks for the rich do not spur the economy!

The Solution: We have to take care of the deficit now. We do that by imposing higher progressive personal income tax rates on adjusted gross incomes above $100,000.   My proposal: for incomes up to $100,000 same as now; 35% tax rate from $100,000 to $200,000, 40% from $200,000 to $300,000, 50% from $300,000 to $500,000, 60% from $500,000 to $1 million, 70% for the income above $1 million. Too much? Long term capital gains will be taxed at 40%. Personal residence sale gains will remain exempt. This will increase tax revenues by $540 Billion or more. See computations.

The new income tax law should be written to supersede all current income tax laws. The purpose is to eliminate loopholes which have been built into the current laws and implement income tax simplification.

In addition, we will raise the wage cap for Social Security contributions to $200,000. We will reduce Social Security payments for recipients with over $100,000 of other income, with the check going to zero as other income exceeds $200,000.

Restore cuts to social programs. Work toward universal health care. Raise the minimum wage to $7.25. Retain the negative income tax. Start paying down the national debt.

There will be no downturn in the economy. Contrary to Bush's bogus S Corporation argument, the higher personal taxes will encourage small businesses to keep the money in the business. I favor single year depreciation of most machinery supporting a business.  Currently, $400 billion of capital is removed from the system annually to fund the deficit.  Most of the increased taxes on the rich will be used to eliminate the deficit with no net effect on capital.  As more money reaches the people, the economy will improve.

Equitable redistribution of money to reenergize the economy is not a new idea. If you read Leviticus 25, you’ll find that God called for a year of Jubilee every 50 years. In that year, those who had been sold into slavery were freed and lands were returned to the descendents of the original owners. This is just doing the same thing but in a less radical way and on a continuing basis.

We want a society in which everyone has an opportunity for full time work - a society where those who work can enjoy a decent life.