Make the Wealthy Pay Their Fair Share to Balance the Budget

Make the Wealthy Pay Their Fair Share to Balance the Budget Treasury Secretary Tim Geithner is the Obama administration's point man for selling the idea that letting tax rates for the wealthy return to where they were under President Clinton will be good for the U.S. economy. In response, the Republican party is arguing that raising taxes on the richest 2% of Americans will hurt small business.

The simple reality is that when George W. Bush cut $1.3 trillion in taxes back in 2002, 36.7% of the money went to the top 1% of Americans. If those Bush tax cuts are allowed to expire and we could stop spending so much on the war in Iraq that he started, Republicans would get something they claim to want: a balanced budget. Can the GOP have it both ways?

Geithner called the Republican position -- that we should extend the tax cuts for the wealthiest 2% -- "a $700 billion fiscal mistake," according to the The Washington Post. By contrast, Geithner supported the extension of tax cuts for families making less than $250,000 a year. Meanwhile, Republicans argue that ending tax breaks for the top 2% could imperil "businesses that employ as many as 30 million workers," reports the Post. Geithner countered that letting the top-level tax cuts expire would affect at most 3% of small businesses.

But Republicans have been known to complain about budget deficits and the government debt. Some are even joining a White House commission "tasked with winding down trillion-dollar deficits," according to The Hill. Not surprisingly, members of that commission have different views on how to achieve that: Democratic members are pushing for a combination of revenue increases and cuts in spending, whereas Republicans want just the spending cuts.

Deficits, Debts and Delays

The Congressional Budget Office projects revenue will rise to 19% of GDP under the scenario in which the tax cuts for the middle class are extended, while tax rates on the top 2% go back to where they were during the Clinton administration. This is slightly above the 18% average, according to The Hill.

For those who are seriously concerned about the deficit, the numbers suggest that a combination of letting expire the tax cuts for the top 2% combined with winding down spending on Iraq could go a long way to balancing the budget. But the Republican mid-term strategy depends on denying as many accomplishments to the Obama administration as possible.

Given that, it's likely that the Republicans will make a great effort to impede Geithner's efforts -- or at least delay them until after the November elections so that they can get more of the spending cuts and tax cuts that they want.

Interestingly, PIMCO has concluded that deflation is imminent: Its CEO, Mohammad El-Erian, has said he thinks there's a 25% chance of deflation and a double-dip recession. That doesn't really bode well for those whose planning is based on fears of rampant inflation due to the deficit and debt. Instead, it suggests that the worries about out-of-control inflation caused by the government printing endless quantities of money are misplaced.

Perhaps investors will conclude that the bigger risk we face is deflation, and Geithner's position will prevail -- leading to a more balanced budget.

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum

92 Comments

Filter by:
auctionanderson

Hey washington if you guys would make up your mind and settle on something we the small business owners will fiqure out how to make it work on our end. Part of the econmic problem is the the rules continue to change almost daily. Make rules we can all live with set a tax schedule that dont break us. And LEAVE US ALONE we will make it happen. Not knowing from one day to the next makes it difficult to project our budjets, pricing, inventory, staff,etc. You guys dont deal with it like we do. You hand out money to everybody but us!!! We cover your mistakes so just make rules set tax rates then go home. WE GOT THIS!!!!!

August 07 2010 at 8:14 PM Report abuse +1 rate up rate down Reply
1 reply to auctionanderson's comment
davefromfwb1

I agree 100%.

August 19 2010 at 4:22 PM Report abuse rate up rate down Reply
excelsior6127

the republicans are fighting the expiration of the favorable tax rates for the rich because most of their income is is subject to only 15%: dividends, capital gains, & "private equity" management fees. If 70% of the economy is driven by consumer spending, why are we putting the cart before the horse by giving the rich & corps tax breaks? With or without tax breaks, the aristocrats of capital aren't going to invest in the economy until the consumer has the wherewithal to start spending.....and that's not going to happen for a long time. blackie 13

August 07 2010 at 8:35 AM Report abuse -2 rate up rate down Reply
teetse

It is crazy that people are worried so much about those who are so blessed. They were given tax breaks to create jobs which didnt happen. If they dont pay more taxes then the poor and middle class will have to pick up their share. They already have a lot of tax breaks that the little guy doesnt get. And a lot of taxes are regressive which means the lower incomes get hit harder such as sales taxes. Everyone is so worried about the deficit yet cant bear for the wealthiest americans to do their fair share!

August 06 2010 at 2:01 PM Report abuse rate up rate down Reply
daa1915

Seriously? Is 50% of everything they earn not enough?

"/

August 06 2010 at 11:38 AM Report abuse +2 rate up rate down Reply
scottee

JUST STOP SPENDING!
JUST STOP SPENDING
JUST STOP SPENDING
JUST STOP SPENDING WASHINGTON!

August 06 2010 at 8:07 AM Report abuse +2 rate up rate down Reply
scottee

how about making the Government STOP SPENDING!!!!!

August 06 2010 at 8:06 AM Report abuse +1 rate up rate down Reply
jwbroad

The USA has changed so much in the past 2 years that I do not believe my children will be better off than me. I'm leaving.....

August 06 2010 at 8:04 AM Report abuse +1 rate up rate down Reply
extrascn

So Cohan, who is going to decide what their "fair share" is? You? Keep this in mind when you spout your liberal BS - It's their money. Not yours, and not the government's. You sure seem anxious to take someone else's money away from them - how about giving some extra to the IRS if you think they have a "right" to it.

August 06 2010 at 7:07 AM Report abuse +1 rate up rate down Reply
buff1999

The problem with making the wealthy pay their fair share is that you'd have to make them pay LESS in order to do that. Since they already pay MORE than their fair share, their true "fair share" has to be a lot less than they are now paying.

August 05 2010 at 11:27 PM Report abuse +1 rate up rate down Reply
Richie

Gee, Pete .. not one word about cutting domestic spending which happens to include all that waste we hear about -- not one word about the wasted money from the stimulus plan.. this is typical for the Dems. Remember the health care debate? All that talk about how much of the cost could be paid for by reducing the waste in Medicare? Let me guess Pete -- not one question from you regarding "If you knew there was waste in Medicare why haven't we already done something about it?" Bet you never made a suggestion like -- "mmm, maybe we should first prove we can cut waste from medicare BEFORE we commit to spending the money we THINK we can save" Guess that was a little too logical for the Dems. Not sure why we don't hear about all the saves they make from cutting waste in medicare now .. after all this might be a good time to do it since the health care benefits won't kick in for a few years -- we might be able to get a few billion ahead on it --but no, don't hear any discussion from the Dems on that now --why should they ? They got their bill passed --they know it is going to be up to others to pay for it down the road -- half of them will be gone by the time it goes into effect. Nope -the only thing you could come up with Pete was another "blame Bush" idea -- even Obama's people have figured out that doesn't work anymore with Americans. You need to get with the real world -- Obama has overspent -- Obama needs to cut back some of his wasteful programs --or we will vote people in who will. Of course, you are probably one of those who believe the "we saved 3 million jobs" spin from the current Admin --so I am sure you don't think the stimulus was wasteful.

August 05 2010 at 9:05 PM Report abuse +4 rate up rate down Reply