Budget fight - round 2

The US treasury is taking in $100 billion dollars less every month than it spends and the national debt is pushing $16 trillion dollars. Yet President Obama has identified the main enemy of the American people: too little spending!

In his press conference he used the usual strong language that comes natural to him when he backed himself into a corner . Forget compromise and talk about consensus! He told Congress that if they don't raise the debt ceiling by end of February, nurses and firefighters will go unpaid.

What he didn't say is that he could have ensured that it is not nurses and firefighters but the bureaucrats in Washington who go unpaid. Yet this is a president who loves to spend money. More than $900 billion dollars went on bailing out car makers that are now producing too many cars for a vastly shrunken world market. The (second) stimulus which his government pushed through Congress in 2008 did not even make a blip in the unemployment figures for more than three years, yet wiped the triple A rating off the US treasury.

Perhaps we shouldn't be surprised about all this. Apart from his rhetorical skills, Obama had little to offer in the way of executive experience. And he appointed Timothy Geithner to the position of Secretary of State in the Treasury.

Sadly, in the end, the US taxpayer will have to foot the bill for a president who has shown little hesitation to spend money he does not have. As the fate of Gordon Brown has demonstrated, history wont be too kind with politicians who like spending other people's money.

Solidarity in action - why the highest earners pay more than enough

As the debate about spending and tax rises still rages in the US, it may be useful to have a quick look at the specific income tax rates that apply to working people. In Britain, the view is that US citizens pay far less income tax than we do. The US, so the story goes, is a low tax country.

If one looks at the marginal tax rates for individuals that apply to their taxable income, nothing could be further from the truth. The New York Times has helpfully published a graphic detailing the marginal tax rates and how they developed over time.

(you can find the graphic HERE)

The graph is revealing. Despite the incessant news about rich people avoiding tax, the tax rate for top earners in the US ($350k plus) is similar to that in the UK. The rate is 39.5 per cent. That is only 5.5 percentage points lower than the top marginal tax rate in the UK. In fact, it is only 0.5 percentage points more than the tax rate Labour had levied (40%) on the highest earners from 1997 to 2010.

On top of that, people working in the US of course also pay local taxes, which adds to the burden. This picture throws a different light on the argument that 'tax rises can pay down the debt' of the US or the UK. The fact is that the highest earners in either country already contribute about half of all income tax revenue. Their tax burden is already a multiple of what the lowest earners contribute to the treasury. That's solidarity in action.