President Barack Obama’s emphasis on the need for tax cuts for the middle class invokes the GOP mantra for tax cuts as the primary way to get the economy moving at a faster pace. Obama should be speaking instead of the imperative need to rebuild the U.S. society and that requires stimulative assistance from the national government as the most direct way to do that. Beginning with the Reagan administration, in which the domestic economy was starved so that Reagan could shovel more money to the Pentagon for its massive military buildup, the military infrastructure Reagan created has made it more difficult to significantly reduce Pentagon spending; furthermore, President George W. Bush’s initiation of two wars has led the way to an approximate doubling of the Pentagon budget from the year 2000 to the present.
Civil engineers have been telling the nation for the last three decades that its domestic infrastructure is badly neglected and funding of well over a trillion dollars will be necessary in the next decade to remedy the situation. Obama is proposing $60 billion in infrastructure spending but $60 billion is a small down payment on the accumulated need.
President Obama has set the nation on a perilous course for the future in regard to discretionary domestic spending. Eduardo Porter, who writes on economic matters for The New York Times, says that Obama’s ten-year spending plan calls for cutting the discretionary part of the federal budget devoted to domestic spending to 1.7 percent of economic output by the year 2022, down from 3.1 percent in 2011. (1) Porter says that this “would cut the civilian discretionary budget to the lowest since it has been as a share of the economy, at least since the Eisenhower administration, when a quarter of the population lived below the poverty line.” (2)
It is the public’s appetite for tax cuts and unwillingness to accept cuts to entitlement programs and perceived security needs, catered to by acquiescent lawmakers, that spells continuation of serious deficit problems for the United States. Domestic spending accounts for a relatively small share of the federal budget and massive cuts can be made in security spending — especially Pentagon spending — over the next ten years. All but a tiny part of the Social Security trust fund shortfall projected to occur two decades from now can be covered by raising the FICA tax cap to $250,000; also, a future Medicare funding shortfall can be absorbed by adoption of a single payer health insurance system. Federal income tax rates, including those for the middle class, are at the lowest level since the Truman administration, when we were fighting a costly war in Korea.
What would have been a better taxation plan for the United States? Allowing the Bush tax cuts to expire at their sunset date and adoption of a more robust progressive tax rate system, with a top marginal tax rate of 60 to 70 percent.