“The Grand Bargain is unraveling”

| November 30 2012
Christopher Cook

Throughout yesterday and today, we have made a series of related posts on food stamp usage, class warfare and tax burdens, and the question of whether conservatives and Republicans hate the poor. We are compelled now to add to the pile by calling your attention to an amazing post over at the indispensable ZeroHedge.

The post covers a lot of ground and is definitely worth reading and trying to absorb in full. We wish herein to call your attention to two sections.

First, on the subject of the growing problem of ever-increasing numbers of takers being supported by ever-decreasing numbers of makers:

The problem here is the number of citizens who are dependent on government transfers and spending now exceeds the number of full-time workers. Recall (see chart above) there are 115 million full-time workers in the U.S.
Of the roughly 150 million workers in the U.S., 38 million earn less than $10,000 per year, 50 million earn less that $15,000 a year and 61 million earn less than $20,000 annually. All these numbers are drawn directly from Social Security Administration payroll data.
100 million wage earners, or 2/3 the entire workforce, earn less than $40,000 per year.
In practical terms, only the 115 million full-time workers pay significant taxes, and of those, The top 25% (those earning more than $66,193) paid 87% of the taxes. The bottom 50% of taxpayers, roughly 70 million people, earned 13% of the income and paid 2% of the income taxes collected.
(The top 1% of taxpayers reported almost 17% of all taxable income and paid 37% of all income taxes. The top 5% reported 32% of all income and paid 59% of the taxes, and the top 10% earned 43% of the income and paid 70% of the taxes. Where Do You Rank as a Taxpayer?The Real-World Middle Class Tax Rate: 75% (July 5, 2012)
There are roughly 127 million people dependent on government transfers: 61 million recipients of Social Security and Medicare (That Which is Unsustainable Will Go Away: Medicare May 16, 2012) (or Medicaid for the 11 million people drawing lifetime SSI Social Security disability) and 66 million people receiving welfare (SNAP food stamps, housing credits, Medicaid, etc.): When Work Is Punished: The Tragedy Of America’s Welfare State(Zero Hedge)
That means there are 1.1 government dependents for every full-time worker in the U.S. Please read the linked stories above if you believe this is sustainable.

1.1 to 1. Doesn’t that mean that we have already passed the tipping point?

Second, we are intrigued by what the author refers to as the “grand bargain,” how it is coming unravelled, and how it will inevitably be replaced.

The Grand Bargain was this: we at the top will pay significant taxes as long as we get to control the levers of financial and political power. We in the top 19% will pay much of the taxes as long as we and our children can continue to live well and accumulate wealth. We in the “middle class” will continue to work hard as long as we have hope of bettering our lifestyle and the lives of our children. We in the bottom 50% and retirees agree not to threaten the top .5%’s power and the wealth of the top 19% as long as we can get by on our government transfers.
This Grand Bargain is now fraying as the promises made to everyone cannot possibly be met. Claims on welfare and disability programs are skyrocketing at the same time that the demographics of an aging populace are causing 10,000 people a day to enter Social Security and Medicare, the two costliest government programs. The triple-whammy is the upper-middle class that pays most of the taxes has been slammed with lower income and a devastating drop in their net worth.
That which is unsustainable will be replaced by another more sustainable arrangement. Everyone who slips off their ideological/self-interest blinders knows the Status Quo is unsustainable, and so everyone in the 3.5 classes is shifting nervously: will I get taxed to the point of “uncle” or will my bennies get slashed?
By heavily taxing earned income, the system extracts the highest taxes from the most productive citizens, leaving the less-productive with essentially no income taxes and the super-wealthy with the huge tax break offered to capital gains and other unearned income.

You may not agree with every last assertion in this and the rest of the author’s piece. But there is no doubt that the current situation is not sustainable. Once entitlement-state capitalism has passed the point where it is borrowing to sustain itself, it has already collapsed. It is living on borrowed money and borrowed time, and it will either reform or fall apart.

Only clear-eyed, sober, adult action can solve this problem. Unfortunately, the electorate in the last election chose to continue its belief in the magical money tree, with its endless supply of goodies that just magically appear out of nowhere.

0 comments
Sort: Newest | Oldest