Sunday, December 30, 2012

What's a Couple Hundred Thousand Dollars?

In the interest of full disclosure, my own personal household's cash flow is dependent on government spending.  Between my subsidized student loans from the Department of Education, and my husband's research grants from the Department of State, and the VA programs that mean that I can ship my dad off to a home when he goes fully senile (thank you for your service, Dad), going over the fiscal cliff is going to be very, very, very, very bad for me personally.  No more loans, no more income, and no possible help from the Bank of Dad who now might have to provide for his own long-term health care.  In short, homelessness and starvation await. And, with no housing subsidies or food stamps that normally pick up the slack in these times, we're royally screwed.  That's just me.  And, no, my situation would not have been better if we had stayed in Indiana (my income was heavily dependent on federal spending).  If you know any students, retired folk, military members, and anyone who works in education, manufacturing, construction, healthcare, social services, or... well... anyone who sells anything to people who work in these sectors, there's a good chance that going over the fiscal cliff is going to be disasterous.

With so much at stake, Congress really needs to come up with a deal.  Like now.  Decreases in government spending will decrease the overall spending of the economy, thereby contracting the GDP of the United States.  With less government spending, private firms and individuals will have less money to spend (if you don't buy that helicopter, then there is a factory that no longer has to employ people to build that helicopter), which means that fewer transactions will take place on which income and sales tax can be charged.  Decreased spending will then lead to decreased revenues, requiring further reductions of spending, or increases in tax rates.  Neither is a good idea for growing an economy, leading me to wonder what economic training Grover Norquist actually received.  Not that Norquist is really paid to advocate for sound economic policy, but rather is paid to lobby for decreased tax rates. 

This brings me to my main question: Why is the current hold up about whether taxes should be raised for everyone making above $250,000, $400,000, or $1M?  What do these sums have to do with anything? 

Chosen just to remind me of this scene?
What I find the most troubling thing is that Congress is hung up on which ad hoc level to set.  There appears to be a complete disconnect from reality with these numbers.  Congress could actually tie this to some measure that has real bearing on the economy.  A multiple of the poverty line, based in real dollars that slides based on the number of members of the family.  If one would set this at 10 times the federal poverty line, then an individual does not see tax increases until (s)he earns $111,700 per year.  A family of four sees an increase at $230,050.  If you use the Census Poverty Threshhold, you get slightly different figures ($114,840 and $228,110 if the family of four is two adults and two kids), but still in the same ballpark.  Both methods would tie tax increases to some measure of real poverty and how much money is actually needed to provide for the basic needs of the population, or satisfiy the goal of shifting the tax burden to those who can afford it.  It takes away the method of trying to figure out which figure sounds rich and which is middle class.

But, what is a middle class income?  The answer is none of the above  Median household income for the United States was $50,054 in 2011.  That's one fifth of the smallest number that is being talked about, one twentieth of the $1M figure.  Even taking 10 times the poverty level of the US doesn't get us close to this figure.  If a solution should look at taxing the wealthiest households, then a multiplier of the median household income should be considered, be it 3 times or 5 times the national median.

What Congress should not be doing is throwing out these arbitrary numbers and think that sound policy is being produced.  Nothing about the fiscal cliff has been about the creation of sound public policy.

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