A Portrait Of A Country Awash In 'Red Ink' Wall Street Journal economics writer David Wessel's new book, Red Ink, lays out in unsparing terms the way the U.S. government spends money, who pays what in taxes, and why politicians can't seem to agree on ways to reduce the potentially catastrophic deficit.

A Portrait Of A Country Awash In 'Red Ink'

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As the federal debt balloons, it would seem more and more pressing to reduce it.

BEN BERNANKE: On January 1, 2013, there's going to be a massive fiscal cliff of...

SEN. JOHN MCCAIN: We live in a very dangerous world, and if we cut defense...

SEN. KENT CONRAD: Their policies brought us to the brink of financial collapse.

SEN. PAUL RYAN: We've got to stop this notion that we can just keep taking more and more and more - from families and businesses - to spend us deeper into debt.

MONTAGNE: The voices of House Budget Chairman Paul Ryan, Senate Budget Chair Kent Conrad, Senator John McCain and Fed Chair Ben Bernanke. But for all the concern, debt, deficit and budget rhetoric is often accompanied by numbers that are cherry-picked to support a particular political view - which is why David Wessel is out with a new book, called "Red Ink." In it, the Wall Street Journal economics editor lays out the numbers both political parties face. For example:

DAVID WESSEL: In the early 1980s, about 10 percent of the federal budget went to Medicare and Medicaid - Medicare, for the elderly; Medicaid, for the poor. Now, it's about a quarter of all spending. And it's on the way to 33 percent of all spending, unless something happens to change the trend.

MONTAGNE: The book breaks down the budget in stark terms - how the government spends its money, who pays how much in taxes, and why politicians can't reduce a potentially catastrophic debt load. David Wessel joined us, as he often does; this time, to talk about "Red Ink." Good morning.

WESSEL: Good morning.

MONTAGNE: In your book, you write about a prominent Republican politician who made headlines for the taxes he did not pay on his wealth. And that would be Richard Nixon, 1973. Tell us that story.

WESSEL: It's an amazing story that I had no knowledge of, until I started working on the book. Richard Nixon, who did not have to disclose his tax returns as a candidate, was embarrassed when his tax returns were leaked. And there were stories, actually, in the Wall Street Journal, that revealed that in 1970, 1971 and 1972, he had total income of nearly $800,000; and he had just paid $5,000 in combined federal income taxes. [POST-BROADCAST CORRECTION: The late Jack White, an investigative reporter for the Providence Journal, was the first to report Nixon's federal income tax underpayments.]

And that turned out to be a huge scandal, at the time. A lot of focus on this and in fact, it was that report that led Richard Nixon to utter his famous words, "I am not a crook." What followed that was, "I've earned everything I got." That was a response to questions that - from newspaper reporters and editors about his tax returns. And in the end, he had to pay a lot of back taxes. But that's kind of lost to history because the Watergate scandal obscured it.

MONTAGNE: And of course now, during this campaign, this has come up with Mitt Romney. The question does not involve anything - anybody suggesting anything illegal, but the question is whether the tax rate that he pays is unseemly, or possibly unfair. I mean, what do you think is the appropriate way to - sort of go at this?

WESSEL: Well, I think that in the Romney-Obama contest, the question is not only how much did Mitt Romney pay in taxes, but what should the government policy be towards taxing people at the top? And I think there are, basically, three questions. One is, do we need more tax revenue in order to get the deficit under control? President Obama says yes; Mitt Romney says no. If we're going to get more tax money, from whom should it come? President Obama says it should come from people who make more than a quarter-million dollars a year; Mitt Romney disagrees with that. And third, how much should the tax code be used to lean against the widening of the gap between winners and losers in our economy, to kind of make the income distribution more fair?

MONTAGNE: Well, let me ask you, though, right now, how much do the rich pay in taxes? And for simplicity's sake, you know, let's just talk about the top tier; people who will be making a million dollars a year, people who are - seem to have plenty of money.

WESSEL: Right. So people who made over a million dollars last year, got about 12 percent of all the income in the United States, and paid about 18 percent of all the federal taxes. If you take the famous top 1 percent - those are people who make roughly $500,000 and up - they got 17 percent of the income, and they paid 25 percent of the taxes. Those are the facts. Politicians - and voters - differ on whether that's fair or not. That's not a numbers question; that's a political judgment question. But those are the facts.

MONTAGNE: Of course, there's a lot of talk lately about how so many people don't pay any income tax at all - a lot of people.

WESSEL: Right. Because of all the government policies that run through the tax code, 46 percent of all American households didn't pay any federal income tax last year. Most of those people - about 60 percent of them - did pay the payroll tax. But 40 percent of the people didn't pay either the payroll tax or the income tax, on the federal level last year.

MONTAGNE: And that's not just people who are lower-income.

WESSEL: It's a lot of people who are lower-income. It's a lot of people who take advantage of various tax breaks that the government offers - like the earned-income tax credit, which gives a cash bonus to low-wage workers. And it's people who are retired, and whose only income is, basically, Social Security.

MONTAGNE: That's quite a high number of people who do not pay federal income tax.

WESSEL: Right. Many of them do pay the payroll tax. So about a quarter of the population doesn't pay either the payroll tax, or the federal income tax. A lot of them don't have much money; that's true. But I think it's also contributed to a kind of sense that they're only taking from the society, and not giving to it. And to the extent that so many Americans are not paying anything towards the cost of the federal government, creates a political problem. It makes them feel like they're outside the system, and it leads to a lot of resentment among working people who do pay taxes. So it may be the right thing to do, but it's something that we have to think about more carefully than we have.

MONTAGNE: Getting back to the general subject of the budget, do you hear any serious talk on the campaign trail?

WESSEL: Unfortunately, no. It's kind of disappointing that neither campaign seems willing to explain the facts to people; and say, we have to make some choices, and these are the choices I want to make. It is simply not true that A, we can solve our deficit problem only by taxing the top tier of people. And it's very unlikely that we can cut spending enough to solve the deficit, without raising taxes on pretty much the bulk of the American people.

MONTAGNE: If you controlled things - if you were a moderator of a debate between the two candidates, what sorts of things would you try and get from them, in that debate?

WESSEL: I would tell them, before the debate, look, here's the deficit problem. Let's agree on the dimensions of the deficit problem. I'd like you to give me your recipe - the five things you would do, that would actually bring the deficit down to some manageable level over the next 10 years; and we could pick what that level is. We could see how much would do they do in tax increases, how much would they do in cutting defense spending, and so forth.

A budget is a way to put into specifics, what your belief system is. So it would be good if we could somehow force the candidate to say, "yes, I differ from my opponent; here's my recipe." And then people would know what they would do, if they were elected.

MONTAGNE: David, thanks for joining us again.

WESSEL: You're welcome.

MONTAGNE: David Wessel is economics editor of the Wall Street Journal. His new book is called "Red Ink: Inside the High-Stakes Politics of the Federal Budget."


MONTAGNE: This is NPR News.

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