A sequel to the tax story

The truth is not easy to swallow and our so-called leaders in Washington are probably not going to have the guts to do what needs to be done, given that there is an important election next year, but here is what Doug Kass has to say and, unfortunately, I agree that this is most likely what the solution is going to be.  But also most likely, this is the least likely outcome from our politicians, who are in the oldest profession!  Here is part of his take on the issue:

In this past Sunday’s New York Times op-ed David Stockman spelled out the most serious (deficit) challenge clearly:

It is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest 2%. Likewise, entitlement reform requires means-testing the giant Social Security and Medicare programs, not merely squeezing the far smaller safety net in areas like Medicaid and food stamps.Unfortunately, in proposing tax increases only for the very rich, President Obama has denied the first of these fiscal truths, while Representative Paul D. Ryan, the chairman of the House Budget Committee, has contradicted the second by putting the entire burden of entitlement reform on the poor. The resulting squabble is not only deepening the fiscal stalemate, but also bringing us dangerously close to class war.

This lamentable prospect is deeply grounded in the policy-driven transformation of the economy during recent decades that has shifted income and wealth to the top of the economic ladder. While not the stated objective of policy, this reverse Robin Hood outcome cannot be gainsaid: the share of wealth held by the top 1% of households has risen to 35% from 21% since 1979, while their share of income has more than doubled to around 20%.

The culprit here was the combination of ultralow rates of interest at the Federal Reserve and ultralow rates of taxation on capital gains. The former destroyed the nation’s capital markets, fueling huge growth in household and business debt, serial asset bubbles and endless leveraged speculation in equities, commodities, currencies and other assets.

— David Stockman, “The Bipartisan March to Fiscal Madness” (The New York Times)

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