Most people acknowledge that the economy, the deficit levels etc are bad, but here's a quick look at how bad things really are with the federal deficit and debt. If the media and people voting are not discussing the deficit details, I think it certainly is the job of the Obama campaign to explain more eloquently and succinctly why it is that he is raising taxes on the rich.
The main argument I hear is that taxes should not be raised on the top 1% of the population since they already pay too much. Sure. First, its important to know that Obama is proposing is to simply roll back the tax cuts proposed by the Bush administration, which in fact have an expiration date of 2010, but which the administration never intended to honor as a way to hide those tax cuts' true cost on the budget. So, it is not that Obama is raising taxes, but that he is removing the tax cuts on the rich especially in times when the government needs revenue. But if you ask me why the government needs to get bigger, here's a brief explanation on the federal deficit and debt levels and the need to raise revenue along with some simple graphs. These images are from Wiki and Heritage.org and without going into details here's a quote from the organizations (The Government Accountability Office, Office of Management and Budget, and the U.S. Treasury Department) that have collected the data: "These organizations have stated that the government's current fiscal path is "unsustainable.""
Here are three images that are pretty much self-explanatory. The first is the federal buget over the past few years which shows the amount of deficit.
If the deficit doesn't look scary, the second graph shows the debt owed by the US government which is at levels unprecedented in US history.
The third image (fourth graph) shows the past and future trends of the debt as a way to provide some perspective.
If we look at the first graph on the reason for this deficit, a third of the Govt. spending comes from paying interest on the US debt. Which means the first task for any new administration would be to balance the budget both by reducing spending and raising revenue. The three biggest chunks in spending are: Healthcare, Defense and Treasury Dept (Debt interest). You can reduce spending by cutting back on wars, restructuring healthcare and reducing debt. For which, not a single proposal has been suggested by McCain other than saying that he will cut spending in lots of areas while not addressing the three main areas.
Because while reduction in spending is always a good idea, if we look at the overall budget, an entire third of the spending is in defense, a quarter in debt interest, and another third in health-care. So if McCain is not addressing these three big ones, that is a problem since he's really not talking about a solution but just playing the political game. This is what McCain and Obama keep talking about hatchet and scalpel cuts. Using a scalpel will help cut costs in other areas that could save a few billion, but if we do not use a hatchet in the three big issues that involve hundreds of billions, a scalpel is obviously useless.
As for health-care, I am not sure Obama is talking about reduction in spending either, but he is certainly talking about fixing the entire industry which if he can manage to pull it off, will cut costs in the near future. As for defense, we can agree he is certainly for getting out of war in Iraq.
In short, to reduce the debt interest, first we need to balance the budget by removing the deficit which can be accomplished by reducing US spending, and then pay off the foreign and public debt to Social Security.
Going back to the tax cuts, did the Bush government provide those tax cuts just make the rich richer? While I will not delve into that debate, the main reason has to do with their economic theory. The supply-side economics of the Reagan and Bush administrations is what know as the trickle down economics proposes that more money for the rich will cause money to flow into the markets and cause an economic boom. In essence the idea is to increase supply and thus spur growth.
However, the main problem seems to be that while this has created growth during both the Reagan and Bush administrations, it has also drastically increased federal deficits. In other words, in both those eras, it can be seen that the tax cuts have gone to the rich but the economic growth has not generated enough revenue to offset the tax cuts. And this has in effect, increased federal debt because the spending is higher than the government revenue.
There are several critics of the Supply Side theory and I will not delve into it further. Whether the Laffer curve was misunderstood or if the neo-Keynesian model sufficiently captures the global markets, the simple fact at this point that we can all agree on is that the budget is highly imbalanced and the deficit is at record levels.
If neither the defense spending nor the the debt interest are reduced, it will eventually cause the government to go bankrupt and that we agree, is not good for anyone.
Some might argue that getting out of the Iraq war should be enough and not have to raise taxes on the rich. However, if you look at the budget, there are two areas that we need to work on. Balancing the budget alone will not be sufficient, since with growing competition in the world, reducing the debt is highly imperative at this point not only to reduce interest rates, but also to ensure that the debt is not a liability to the country.
What Obama is proposing in effect, is to cut the defense budget, reduce spending in areas that are unnecessary, roll back the tax cuts on the rich which are set to expire anyway, at the same time cut taxes on the middle class so they can sustain the economy (since the main consumers are the middle class), while at the same time, spend on improving education since that is crucial for the future generations to be able to compete in this global economy.
If that is not a clear vision of a leader I do not know what is. The main problem I have with the McCain campaign is their unwillingness to acknowledge the economic threat that is looming the nation and to provide realistic solutions but instead sticking to catch phrases such as "socialist".
I will concede that I am not sure whether cutting taxes on lower middle class will cause the economy to grow, but with a bad recession coming, it will certainly help a lot of people. If Bush helped the rich with tax cuts for 8 straight years and only caused the deficit to grow not to even mention the current market fiasco, I cannot argue if the poor ask for a tax break. And finally, Obama is not proposing a tax credit for people who do not pay taxes. That is a misleading statement since they still pay social security and medicare taxes and he is proposing a tax relief on that.
