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A Healthy Federal Budget Needs A Healthy Middle Class

By       Message John Retherford     Permalink
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As this year's contentious budget battles rage on it seems that liberals and conservatives are both deeply entrenched in their respective paradigms.  Both sides generally agree that the country's fiscal foundation is on shaky ground and that the projected growth of the national debt is unsustainable.  Despite this limited agreement, their analysis of the causes, and consequently their preferred solutions, are wildly divergent and seemingly incompatible.  This is only possible because both sides are merely addressing the symptoms of a much deeper problem.  What neither party to this debate wants to acknowledge is that the cause of our budget crisis is not our tax rates, and it is not our federal spending, it is the set of public policies that have decimated our middle class.  

In this budget debate, conservatives argue that the Federal Government is inefficient to the point of being ineffective and wasteful.  They say it spends far too much money without results and drags down the economy through the high tax rates it needs to finance its out of control spending.  They propose eliminating, or making major cuts in, nearly all federal spending programs.  They also favor massive tax breaks arguing that they more than pay for themselves by stimulating the economy.  

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Conversely, liberals argue that nearly all federal spending goes to providing services that the electorate consistently demands.  They would rather improve the efficiency of government programs than eliminate them.  They frame the issue as a revenue problem, arguing that despite a high tax rate, the actual taxes paid by the upper class are far below historic norms.  Liberals would prefer to balance the budget by increasing taxes, while making them more progressive.  

Both sides are correct in the limited scope of the arguments they make, but they both entirely ignore the root cause of the nation's fiscal predicament.  The federal government does spend too much, that spending is on programs the American people want, and the government does collect too little revenue to pay for it.  However, each of these problems is rooted, not in tax policy or in spending policy, but in the destruction of the American middle class and the consequent impoverishment of the American working class.  More people living in poverty means more people dependent on government.  When more people are dependent on government programs their costs go up.  

Increasing poverty also leads to more crime.  Not, as is commonly misconceived, because people who are out of work and impoverished then resort to crime to make a living, but because children growing up in impoverished communities have a high risk of getting caught up in the criminal justice system.  This rapid growth (especially in the prison system) is extremely expensive.  It gets even more expensive when governments make poverty much worse by balancing their budgets with cuts to the social safety net.  The increasing costs of both the social safety net and the criminal justice system mean that growing poverty quickly leads to major growth in government spending.

Even though most of the serious budget reforms proposed by both sides have dealt with spending cuts in non-military discretionary spending, it is generally agreed that the entitlement programs are at the heart of the budget crisis.  This is because more and more people are (and more importantly, are projected to be) dependent on them.  While much of this growth is due to growing levels of poverty, a significant portion is due to the aging of our country's population.  

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Forecasts predict that as the baby boomer generation reaches retirement there will be a sharp increase in the population collecting social security.  Yet, growth in entitlement programs due to an aging population should have been covered by the surplus that population generated while working.  Some of the social security surplus has been skimmed off for use by other federal programs, but politicians and the news media consistently blow the scope of that problem out of proportion.  Most of the money borrowed from the entitlement programs has been, or is scheduled to be, paid back.  Given the smaller size of the generations' whose taxes will support them, the baby boomer generation simply didn't generate a large enough social security surplus to pay for their expected needs in retirement.  The problem faced by social security is that its tax structure relies on a robust middle class that no longer exists.  

The tax dedicated to funding social security is only applied to the first hundred thousand dollars earned by a person.  The cause of the social security crisis is this limit combined with a plummeting median wage.  In the last fifty years, as the amount of the nation's income collected by the top 10% has skyrocketed, and that going to the bottom 90% has plummeted.  More and more of the nation's income ended up above the social security tax's income limit, therefore, despite economic growth, the percent of national income going to social security was not sufficient to keep the program solvent through the boomer's retirement.  This is responsible for much of the current and projected revenue shortfall in the social security system.  The discretionary budget's deficit has a similar problem.  Tax rates fall off as personal income brackets decrease, therefore as the median wage falls, tax revenues decrease significantly.      

Because both sides in this ongoing budget debate point to different symptoms of our fiscal crisis they propose solutions that are not only different but contradictory.  Compromising between the two positions might seem like the natural approach, especially for politicians, but the result of a compromise between these two particular positions will only be two half-treated symptoms, with an untreated and worsening pathology.  We do have a spending problem, but ignoring the driver of that spending growth, and balancing the budget by slashing it, will only abandon a desperate population in their time of greatest need.  The long term costs of such a policy (i.e. crime) will be much greater than the short term savings generated.  We do have a revenue problem, since much of it is caused by an increase in the untaxed wealth of the rich, it may be reasonable to increase the taxes on that income.  However, this solution is insufficient, and only temporary, since further declines in the health of the middle class will negate any savings.  

The ongoing destruction of the middle class in the US is at the root of the US government's fiscal crisis.  A debate between spending cuts and tax hikes is inadequate and does the American people a disservice.  A national debate over the health of the middle class and how to heal it will be no less contentious than the current debate.  Nearly every political group in existence has wildly differing ideas on the topic (describing any of them adequately would take a much more in depth article than this one).  In the current debate over the Federal budget the proposed solutions of both parties do not address the problem.  A political compromise capable of solving our nation's financial problems will only be possible once the political debate shifts to include the revitalization of the middle class as a fundamental part of the solution.

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I'm an author and a life long student student. I'm focused on advancing progressive ideas through writing, networking and activism. I write about wide ranging topics but am especially interested in public policy concerning the mass media, (more...)

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