On March 5, the Washington Post ran a story, called "Our Financial Failings," on the assets of a typical American family. Here's the first paragrah.
It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do onloy have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can't manage to pay off a $2,200 credit card balance.
So we know that many American families, even those with decent jobs and decent homes, have very little in reserve with which to face a crisis, something like the hurricane damage of Katrina or the recent tornado damage in Springfield Illinois. Even a small medical crisis can drain a typical family of most of its cash resources and leave it extraordinarily vulnerable to future crises.
The article could as well have been about the country's fiscal situation. With a debt ceiling of $8.18 trillion, the government was borrowing from the federal pension plans to avoid the national debt limit. Thursday, Congress voted to raise the limit by $781 billion, to almost $9 trillion. See this story in the Post. As the story notes, we are eating through debt at a record and increasing pace, as Congress passes tax cuts while spending on military wish lists and the bottomless pit of wars in Afghanistan and Iraq. The day after voting to raise the debt limit, the Senate passed a $2.8 trillion budget for 2007, and the House voted on $92 billion more for war. See this further story in the Post.
Then there is the fiscal situation of America's wealthiest familes. See, for example, this list of U.S. billionaires, created by Forbes magazine and repeated in this Washington Post article. The wealthiest among these--such as the Walton heirs--have about $15 billion apiece. (Wal-Mart has more than one million employees, many of whom are paid so little and provided so little in benefits that their health care system is the federal safety net Medicaid system. Taxpayers, in other words, have been at least partially funding Wal-Mart's success story and the Wal-Mart heirs' billions.)
You might think that Congress would be planning ways to create more benefits for the first group--ordinary American families that are struggling to get along. Instead, the Conference Committee working through the two bills passed by the House and Senate is set to push for more tax breaks for the second group of extraordinarily wealthy Americans. It's that investment income that the House wants to favor with an expensive extension of the earlier tax cut on capital gains and dividends, even while debt, budget deficits and trade deficits continue to rise to historic levels. The House, in H.R. 4297, extended the 15% tax rate for capital gains and dividends. The Senate cut about $40 billion in funding for domestic programs and then added about $70 billion in tax cuts for an extension of AMT relief, but it did not include the expensive capital gains and dividends tax cut extension in its package. One way or another, the tax cuts and increased military spending will likely result in budget deficits of $350 billion or more this year and next. One glimmer of hope--new Federal Reserve Chairman Ben Bernanke has told Congress that he is "quite concerned" about budget deficits. Wall Street Journal, Mar. 16, 2006, at A2.
"Over time either taxes will have to be raised or the spending increases embedded in current laws will need to be scaled back, or some combination of the two," he wrote. Id.
Meanwhile, at the same time that ordinary Americans are having trouble saving for their retirements and Congress is borrowing from the future rather than increase taxes, corporations--even those currently making healthy profits--are cutting away their obligations to their employees. Since last September, 115 pension plans have been terminated, frozen or closed to new workers. See this article in the Washington Post. GM, a company that has been losing money, announced on March 7 that it would slash retirement plans for 42,000 salaried employees and freeze its pension program. Id. It expects to save $1.6 billion in 2006 alone and hopes to get even greater concessions from employee unions in the next round of negotiations. GM also announced a cap to retiree health-care coverage starting in 2007, forcing employees to bear more of the costs. Similarly, Chrysler plans to reduce its health-care benefits for salaried employees, according to the Mar.15 Wall Street Journal (at A14): changes will include reductions in prescription drug benefits and higher co-payments or premiums.
These strands of the fiscal tapestry form a jagged weave that augers ill for America over the next decade or so. Taxes inevitably must go up or services and programs that are critically important to all Americans will have to be sacrificed. It is simply foolhardy to consider additional tax cuts for those at the top of the income and wealth scale at this point.
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