I am not sure who said it first in public debate, but it holds truer today than ever and that is “everyone is entitled to their opinion, but no one is entitled to their own set of facts.”
I think it is important for some light to be shed on the debt crisis and the related federal budget crisis. There is also a need to connect the dots between the resolution of these twin problems and what it means for minority business development and the general health of the U.S. and global economy.
First let me say clearly, that taxes are too low to support a federal government that even a rational Republican could support. I qualify this by stating that the leaders calling themselves fiscal conservatives today would not be qualified to use that term in any period in our history except for the past 10 years. The only thing these “fiscal conservatives” have with true fiscal conservatives of the past was a desire for a balanced budget. I imagine that even Ronald Reagan, that icon of conservative presidential leadership, would cringe at the prospect of ideology trumping reason when it comes to jeopardizing the credit rating of the United States government.
So what are the facts that should be the focus of this debate?
First and foremost, marginal tax rates on Americans are lower today than at any time. The table below lists the marginal tax rates for married couples filing jointly for incomes of $50,000 and $200,000 in 10-year increments beginning in 1961, 50 years ago.
$200,000/ $50,000/ Year Marginal Tax Rate Marginal Tax Rate 1961 89% 59% 1971 70% 50% 1981 68% 48% 1991 31% 28% 2001 35.5% 27.5% 2011 28% 15%
Taxes have simply been lowered too much to support an effective government. It makes you think if the real agenda of the fiscal conservatives is to knowingly bankrupt the federal government. But if this is the goal, to what end?
The only answer that makes any sense is that fiscal conservatives want to control a greater portion of the nation’s wealth than they already enjoy. The income distribution in the United States today is more unequal than the income distribution in Russia and Turkey and has gotten progressively worse since the 1970s.
Between 1967 and 2008, average American households saw their incomes increase by 25 percent. The incomes of the highest earning 5 percent increased by 68 percent, the incomes of the top one percent increased by 323 percent and the highest earning tenth of percent increased by a whopping 492 percent. As much as my wealthy friends do not want to admit it, increasing concentrations of income and wealth are bad for economic growth and stability.
It is not a coincidence that it was during this time that tax rates have declined dramatically and budget deficits and total debt have exploded. The bottom line that the fiscal conservatives and their antediluvian supporters are ignorant to is that small cuts in marginal tax rates when tax rates are above 70 percent might be called for, but continuing to cut rates when rates are below 40 percent for the highest income earners is dangerous to the fiscal health of the government and the health of the economy.
Since 2001, the combination of tax cuts and the explosion in military spending to fight questionable wars has resulted in converting a surplus in 2001 of $128 billion to the current deficit of $1.65 trillion. All the while, the total debt has increased in 10 short years from $5.8 trillion to over $15.5 trillion, the largest 10-year increase ever.
Yet in the face of all of these facts, fiscal conservatives righteously believe and have gone so far as to pledge that they will not increase taxes. These pledgers are violating their constitutional responsibilities and are ignorant or worse as to the impact their folly is having on the economy. Even if you were to believe this religion (and religion is not too strong a term — both require more faith than facts) they fail to see that their actions are raising interest rates and making matters worse for the very people — small business owners — they purport to be supporting.
An increase in even 50 basis points (a half of one percent) translates into $150 billion more in interest payments on the federal debt, further increasing the deficit and debt. Talk about the dog chasing its tail.
And what has not been addressed at all by these so-called supporters of small business is that a likely one percent increase in the prime rate would amount to a transfer of wealth from borrowers to lenders of over $60 billion per year. (And I fully expect interest rates to be two hundred to three hundred basis points higher by this time next year if taxes are not increased.)
From the perspective of a small business owner, whether your taxes increase by $60 billion or your interest payments increase by $60 billion, the immediate impact is the same. But even this is not fully correct. An increase in taxes closes the deficit gap, reduces income inequality and the damage inequality does to economic growth, puts downward pressure on interest rates, and funds the government. While an increase in interest payments transfers more wealth to lenders from borrowers, further worsening an already dangerously unequal distribution of income and wealth.
These things matter for minority businesses as much as they do for all businesses. It is enlightened self interest that should lead business owners to realize that enough is enough. We must fund the federal government. The question is will we allow the unenlightened to lead?
Fred McKinney is president and CEO of the Greater New England Minority Supplier Development Council in Hamden. He earned a Ph.D. in economics from Yale University in 1983 and worked for the Council of Economic Advisers for the Jimmy Carter White House from 1978-1979.
