[edited 10/13 to add Pew Chart 4]
The Pew Foundation has published a set of 10 fiscal charts that provide good illustrations of the nation's current fiscal situation: 10 Essential Fiscal Charts (Oct 11, 2011). One must keep in mind in reading the text, of course, that Pew, like the Peterson Institute, is overly focused on the budget deficit and debt rather than on jumpstarting the economy.
Using CBO, Treasury and Tax Policy Center data, Pew concluded that federal spending as a percentage of total GDP had increased from 18% of GDP in 2001 to 24% of GDP in 2011 while revenues as a percent of GDP had decreased from 19% in 2001 down to a mere 15% of GDP in 2011.
This stark contrast makes it clear that we need to increase taxes as well as rein in any wasteful or unnecessary spending. The devil, of course, is in figuring out who should pay more in taxes and what spending is wasteful or unnecessary.
Here is where the parties ostensibly have significant differences.
The GOP is on a drive to reduce taxes even further on the rich--e.g., Cain's 9-9-9 plan that shifts most taxes to the middle and lower cases (flat income tax coupled with high consumption tax), while a frequent GOP tax proposal is zero taxation of capital gains and dividends (the main category of income for the rich). The Dems on the other hand tend to voice support for tax relief at the bottom (the payroll tax reduction) and higher taxes on the wealthy (the proposal to treat carried interest as ordinary income, the proposal for a millionaire surtax, the proposal for allowing the Bush tax cuts to lapse as slated for those making a quarter million or more a year). But when push comes to shove, even the Dem-controlled Congress before the 2010 elections didn't pass a carried interest provision or a millionaire surtax or any of the other measures proposed by progressives. One has to think that money speaks in high volume on these issues.
The GOP thinks unnecessary spending means spending on earned benefit programs and other social welfare that supports the vulnerable. Dems at least tend to understand that unnecessary spending refers to programs like the Alaska bridge to nowhere, the excessive military budget, and similar wasteful spending.
Maybe Congress should start listening to the people instead of the moneyed interests that lobby it for special favors. If it did, it would recognize that the majority of Americans support the idea of higher taxes on the wealthy. Mark Thoma, in a recent column in the Fiscal Times, makes the case for "spreading the wealth" strongly--Why America Should Spread the Wealth, Fiscal Times (Oct. 11, 2011).
[T]he Bush tax cuts were justified, in part, by the claim that equity had overshadowed efficiency in tax policy decisions. Taxes on the wealthy and the inefficiencies that come with them were much too high, it was argued, and lowering taxes would cause output to go up enough to lift all boats substantially. Accordingly, the lower end of the income distribution would fare much better after income trickled down than it would under redistributive policy. The economy did grow after the Bush tax cuts, but the rate of growth was unremarkable, especially for jobs, and there’s little evidence that they caused large increases in output growth as promised. In fact, there’s little evidence that the Bush tax cuts had any effect at all.
And the tax cuts at the upper end of the income distribution did nothing to correct for the fact that although worker productivity was rising, wages remained flat – a problem that began in the mid 1970s. This was an indication that something was amiss in the mechanism that distributes income to different members of society. Workers were helping to increase the size of the pie, but income did not trickle down as promised and their share of the pie was no larger than before.
This is not the only way in which the distribution of income has become disconnected from productivity. While some argue that those at the top of the income distribution earn every cent they receive, and hence deserve to keep all of it, there is plenty of evidence that the compensation of financial executives, CEOs of major corporations, and others at the top of the pyramid exceeds the value of what they contribute to society by a considerable margin. That holds true even without the financial crisis, but how, exactly, can we justify the extraordinarily high income of this group when the result of their actions was to ruin the economy?
And that is, ultimately, the important question. If everybody were doing pretty well, and it was just that the top bracket was doing exceptionally well, it might be acceptable. Or at least we might think that minimal redistributive action is justified, just enough to provide the resources to create an adequate safety net for the vulnerable (health care, shelter, food--the alleviation of real poverty and the laying of a foundation for each generation to develop its human capital). The theory of democratic egalitarianism doesn't call for or expect an equilibrium where everybody is very close to equal--it merely requires redistribution downwards to counter trends of redistribution upwards that have resulted in gross inequality, the kind of situation we are in today.