Taxpayers and the Bailout Nation
Jay
April 4, 2009, 12:15 pm

I could open up this short with a trite saying about taxes, but I'm not going to. What I will say is this: nobody likes paying taxes. It's up there with mowing the lawn, watching rom-coms with your girlfriend, or shoving a tube up your prostate. It's an activity borne out of cruel necessity.

Paying taxes suck. When you're slaving away at some faceless corporation in your anonymous cubicle for 8 hours a day, the last thing you want is some bureaucrat taking a cut of your hard earned paycheck. What's even worse is when you read about your tax dollars being wasted by the government.

So in case you haven't noticed, the economy isn't doing too well. A bunch of people, on Wall Street, on Main Street, and on Capitol Hill were playing fast and loose with other people's money and before you know it, the corporate titans are facing bankruptcy and heading up to Washington with hat in hand, begging the politicians to bail them out of their current predicament.

Of course that didn't sit well with the people. Why should those greedy corporations get money from the public coffers? Why should taxpayer money cover the bets of incompetent executives? Then we had the AIG bonus fiasco, and the populist fervor hit a fever pitch. "No more bailouts!" cried Middle America.

After AIG, Sec-Treas Geithner revealed his plan for the private sector to buy the distressed assets off the banks' balance sheets in an effort to get them lending again. And then we had a bunch more people question certain provisions of his plan. It basically works like this: in order to lure the private capital needed to buy these assets, we'll simply match the capital they put up with funds collected from the taxpayers.

That didn't sit well with the public either. If those assets turn out to be worth as much as the banks said they were worth, then the people who bought them from the banks would reap enormous profits. If those assets turned out to be worthless, then the taxpayer would subsidize the losses of those in the private sector. It simply wasn't fair to the taxpayer.

"Remember the taxpayer!" was the rally of the public. But as usual, God's in the details, and the details will surprise most of you. If somebody asked you point blank, "is your money being used to bail out the corporations?", the answer you should give them is "not really".

Below are charts for the 2006 fiscal year:



All figures were culled from official reports released by the Internal Revenue Service and the Government Printing office. Note, the disparity between Federal receipts and Federal outlays (which actually shows a slight surplus) comes mainly from the tax gap (uncollected tax revenue) and unforeseen/additional spending by Congress.

What these charts show is that the rich pay the overwhelming share of taxes that goes towards Federal discretionary spending. "Wait a minute", you might say, "every time I look at my paycheck, some 12-15% is deducted for FICA". But FICA is a payroll tax, and its revenue goes towards paying the Federal entitlements programs (Social Security and Medicare). Those costs are obligatory and represent wealth transfer payments from the work force to the retired. As an aside, the rich have paid a larger proportion of all income taxes after the Bush tax cuts of 2003 while more and more Americans found that they had zero tax liability.

The top quartile (that's 25%) of income earners in America are responsible for 80% of the Federal income tax receipts. That's about 835 billion dollars. Corporate America contributes 354 billion to the public coffers. Combined, that's almost 1.2 trillion dollars. Federal discretionary spending for the 2006 fiscal year totalled to about 895 billion dollars. That means the rich, Corporate America, and various excise taxes paid for all Federal spending outside of Social Security, Medicare, and Medicaid, which are wealth transfer programs from one generation to the next.

Whenever the Federal government wants to spend money it doesn't need to spend (discretionary spending), it either uses revenue raised by income taxes on individuals and corporations or it borrows the money. So if it wants to bail out a corporation, the money used to bail those companies out come from...the rich and Corporate America. The real people who should be complaining are the upper class and the officers of successful corporations whose profits are being used to prop up ailing corporations.

This explains why the Federal government bails out the rich and the corporations even when an overwhelming majority of the public says they shouldn't: the rich and the corporations pay for all non-obligatory Federal spending. They are essentially bankrolling the Federal government, them and China, of course.

During times of crisis, people move to protect those closest to them. Institutions are no different. When economic times are tough, the Federal government will prop up the very people and companies that give them their power. So whenever you hear another person shout that the taxpayers are getting screwed by these bailouts, just remember that the actual taxpayers are bailing themselves out.


Jay
January 31, 2010, 12:27 am

As if to hammer my point home... a CNNMoney article says that 47% of households pay no Federal income taxes.

The implications of the narrowing tax base are huge. Maybe I should write a short on it.