Deconstructing the "Federal Debt Crisis"

Once upon a time in America, back a century ago, our nation's rich paid virtually nothing in taxes to the federal government. And that same federal government did virtually nothing to better the lives of average Americans.

But those average Americans would do battle, over the next half century, to rein in the rich and the corporations that made them ever richer. And that struggle would prove remarkably successful. By the 1950s, America's rich and the corporations they ran were paying significant chunks of their annual incomes in taxes -- and the federal projects and programs these taxes helped finance were actually improving average American lives.

America's wealthy, predictably, counterattacked -- and, by the 1980s, they were scoring successes of their own.

Today, the rich and their corporations no longer bear anything close to their rightful share of the nation's tax burden. The federal government, given this revenue shortfall, is having a harder and harder time funding initiatives that help average working families. The result: a "debt crisis."

This "debt crisis" in no way had to happen. No natural disaster, no tsunami, has suddenly pounded the United States out of fiscal balance. We have simply suffered a colossal political failure. Our powers that be, by feeding the rich and their corporations one massive tax break after another, have thrown a monkey wrench into our national finances.

Some numbers -- from an Institute for Policy Studies report released this past spring -- can help us better visualize how monumental this political failure has been.

If corporations and households amassing $1 million or more in income each year were now paying taxes at the same annual rates as they did in 1961, the IPS researchers found, the federal treasury would be collecting an additional $716 billion a year.

In other words, if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally disappear over the next decade.

Similarly stunning numbers have just come, earlier this month, from MIT economist Peter Diamond and the University of California's Emmanuel Saez, the world's top authority on the incomes of the ultra-rich. These two scholars have calculated some fascinating "what ifs" that dramatize just how spectacularly the incomes of our wealthiest have soared over recent decades.

In 2007, Diamond and Saez point out, taxpayers in the nation's top 1 percent actually paid, on average, 22.4 percent of their incomes in federal taxes. If that actual tax burden were to about double to 43.5 percent, the top 1 percenter share of our national after-tax income would still be twice as high as the top 1 percent's after-tax income share in 1970.

So why aren't we taxing the rich? Why are we now suffering such fearsome "debt crisis" angst? Why are our politicos so intent on shoving the "fiscal discipline" of layoffs and cutbacks -- austerity -- down the throats of average Americans

No mystery here. Our political system is failing to tax the rich because the rich have fortunes large enough to buy off the political system. Again, some numbers can help us better visualize the plutocratic big picture.

In 2008, the IRS revealed this past May, 400 Americans reported at least $110 million in income on their federal tax returns. These 400 averaged $270.5 million each, the second-highest U.S. top 400 average income on record.

In 1955, by contrast, America's top 400 averaged -- in 2008 dollars -- a mere $13.3 million. In other words, the top 400 in 2008 reported incomes that, after taking inflation into account, amounted to more than 20 times the incomes of America's top 400 a half-century ago.

But 1955's top 400 didn't just make far less than 2008's top 400. The rich in 1955 paid far more of their income in taxes than today's rich. In 2008, the new IRS data show, the top 400 paid only 18.1 percent of their total incomes in federal income tax. The top 400 in 1955 paid 51.2 percent of their total incomes in tax.

The bottom line: After taxes, and after adjusting for inflation, 2008's top 400 had a staggering $38.5 billion more left in their pockets than 1955's most awesomely affluent. Multiply that near $40 billion by the annual tax savings the rest of America's richest 1 percent have enjoyed over recent years and you have an enormous war chest for waging class war, billions upon billions of dollars available for bankrolling think tanks and candidates and right-wing media.