Race & The Debt Ceiling

The deep dark secret underlying the Kamikaze debate over the debt ceiling is that it is as much about race as it is about competing political philosophies. The nation is roughly divided in half; the have's that pay taxes and have not's who do not. Most of the have's are white; most of the have not's are not.  When the have's say they are sick of paying for bloated government, they are saying in effect that they are sick of paying for a vast social safety net that disproportionately protects black and brown people.  They are not racists, but the shrink government movement championed by the Tea Party has a racial impact.

For example, everybody got hit by the Great Recession; but the impact on black and brown communities is far more severe. Take unemployment benefits. Proportionally, who would be hurt by limiting the current 99 weeks of eligibility?  Since only 7.9% of whites are out of work, compared to 16.1% of blacks and 11.3% of Latinos, the answer is self-evident.

More starkly, if ever there was a statistic to describe the dramatically different economies of our various racial groups, how's this one: "The median wealth of white households is 18 times that of Hispanic households and 20 times that of black households."

Those findings from the just released Pew Research Center's Social & Demographic Trends report highlight the gap between our vastly different Americas. They also demonstrate how flimsy the argument is that any tax increase will decimate our fragile economic recovery. Have you seen the recent stories on the high-end real estate booms in Miami and the Hamptons? The haves have already recovered from the Great Recession. The have not's have not, and the gap is widening.

In 2009 the median net worth of white households was $113,149 compared to just $6,325 for Hispanics and $5,677 for blacks, according to that Pew report. That is "roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession," say the study authors Rakesh Kochar and Paul Taylor.

In the decade since the Bush-era tax cuts, not only has the federal deficit swelled to historic proportions, but the rich have gotten richer and the poor poorer.

Given that unavoidable truth, the argument against tax increases given the fragility of the current economic recovery rings hollow. Since the economic recovery is mostly fragile for poor people, here is what I would do about the federal deficit and debt.

On the revenue side, let the Bush era income tax breaks lapse for everyone making one million dollars or more; phased in over three years, beginning in 2013. The cuts have had no trickle-down benefit for the lower half of American society. All the cuts have done is benefit those who needed the break least.

Additionally, free payroll tax from the current $106,800 ceiling; i.e., you pay a tax on all the income you claim on your W-2. Warren Buffet's secretary should not pay the same dollar amount in payroll taxes as her billionaire boss; as she does now.

Under this plan Social Security will be solvent forever.

Alternatively, but less favored: if there is too much opposition to the abolition of the payroll tax ceiling, then let's implement a means test for Social Security and Medicaid/Medicare. Millionaires and billionaires need that safety net far less than average working Americans who have no other pensions or wealth to rely on in old age.

Also on the revenue side is necessary tax reform. We must close obscene loop holes like the oil depletion allowance, ethanol subsidies, farm subsidies, and tax breaks like those hedge funders who pay capital gains instead of income tax on the barrels of money they make.

On the equally important need to cut federal spending, we must raise the retirement age for Medicaid/Social Security benefits from 65 to 67, phased in over ten years. When President Franklin D. Roosevelt managed in 1935 to pass the ultimate pension plan for all Americans, a man, on average, lived until he was 60 according to the Centers for Disease Control and Prevention. A woman typically lived until she was 64.

In other words, when Social Security became law the average person would die before they collected any benefits. Now, men live to be 75.7, on average, and women 80.6. Happily, that life expectancy is increasing every year.

The program designed in 1935 for the few lucky old timers cannot survive in a 2011 world where retirement often stretches for two decades.

There are many other social programs that must also be investigated with an eye toward profound modification; mainly because they don't work. Indeed, they have had a devastating, negative impact on the lives of the people they were intended to help.

Like Aid to Dependent Children, one reason 75% of black youngsters and 40% of Latinos live in single parent households. If their dad lives at home, the kids are not dependent, and those intact families do not get the federal stipend they currently get with dad out of the house. So dad stays away.

Why not design a program that encourages pop to stick around?

As the nation plummets toward the deadline to raise the debt limit, let us recognize the responsibility of all of us, to share sacrifice before our politicians lead us over the brink of default.  But let's not forget that the greater part of the Great Recession lingers in the minority communities.